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Advice for a teenager
Old 08-19-2008, 10:08 PM   #1
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Advice for a teenager

Hey, I'm 19 and I want to retire ASAP (after I start working of course). When I'm 21 I'll have a degree in Engineering and hopefully about 50-60k $ saved. When I get a full-time job my plan is to save as much as possible (maybe rent an apartment instead of buying a house)... Right now my plan is to max out my Roth IRA (so it is tax free later), and put the rest into mutual funds.
Is there anything else I can do better?

Thanks a lot!
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Old 08-19-2008, 10:45 PM   #2
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Hmmm, to come out of engineering school 50-60k in the black would probably require having a full scholarship, and some pretty good co-ops, if that's your situation, very well done, even if your parents are paying most of it, still, good job getting a decent paying position.

Regardless, to answer your question, the best things you could be doing is 1) figuring out the most lucrative/interesting thing you can do for the next step (I recommend starting with something with a steady income, develop other sources after that), 2) Make use of a 401k if you manage to get access to it, 3) Start building credit if you haven't yet, if you haven't, get a low balance card, and pay it off in full each month, otherwise, get a good cash back rewards card, 4) Concentrate on keeping up your grades.

If you have any time left after that, start learning about investing.
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Old 08-19-2008, 10:59 PM   #3
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I second the keeping up your grades part. Education is an investment, too. If you sock the max IRA amount into a Vanguard index fund every year, you'll be well on your way to ER.
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Old 08-19-2008, 11:10 PM   #4
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Watch out with investing in non-tax exempt mutual funds. The capital gains distributions can be killers.
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Old 08-19-2008, 11:42 PM   #5
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I'd also suggest watching out for what you really want to do. If it's steady lucrative engineering employment with a great savings plan, so be it. But don't feel like you cannot take a chance on something else you really love or really want to try or even starting your own thing if you get a great idea, just because you have to stick with some (excellent) savings program. Early retirement is great, but living a life you are happy with is great too.
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Old 08-20-2008, 08:32 AM   #6
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Don't get me wrong, I'd never question anyone's desire to retire early. And you're smart to start thinking about saving, investing, etc. at such a young age, regardless of your ER expectations.

But that said, I'm curious about your focus on retiring as soon as possible from a career/profession you have yet to even start. Are you going into engineering simply for the money or is it something you actually enjoy? In my experience, even if you're on a fast track to ER, the hours, days, years wasted in job you don't like - even if it pays a lot - are just that: Wasted. Is it possible that you might enjoy your upcoming career or still chose another field that might make the years between college and ER something more rewarding than just a 401K? Remember, live every day as if it's your last ... because one day, you'll be right.

Stay Cheap!
-Jeff Yeager
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Old 08-20-2008, 09:39 AM   #7
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leahcim, although we're all about retiring here, many of us had rewarding, fun, challenging careers. I hope you'll have an opportunity to experience that as well!

Welcome to the forum.

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Old 08-20-2008, 10:01 AM   #8
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Well, as for deciding on what someone will enjoy doing, it is important to understand the extremely fuzzy words of "degree" and career".

A degree is simply a piece of paper that opens the doors for certain occupations. A particular degree is required for certain occupations, optional for others, and mostly useless for everything else.

A career is actually a word that is slowly dying out, at least under the current conditions, thanks to corporate hiring and “cleaning” practices. A career involves staying at a particular type of occupation for the long haul, and usually implies staying at the same company.

An occupation though, is what the person does in order to occupy their time in order to make money.

There are three general types of occupations.

Straight pay: You work for someone else, for some sort of fixed pay, each year. These types of jobs are the ones that predominantly require degrees. Additionally, the higher your fixed pay rate is starting out, the higher your credentials will need to be, the jobs also get progressively more difficult and/or boring. The ones that don’t require degrees in this category pay almost nothing.

Commission pay: You work for someone else, for some sort of fixed commission, each year. These types of jobs are a mixed bag as to whether they require a degree, but many of the occupations on commission pay pretty well, since they usually require something a degree really indicate very well, the ability to market/sell something. The more complex jobs generally require a degree/certifications.

Paying yourself (not to be confused with saving): You work for yourself, the pay is completely variable each year. Working for yourself rarely requires a degree unless you are practicing a profession. Lots of people love the idea of this, but can’t really practically pull it off without some sort of backup. For those from a wealthy family, they have the backing of their parents, but otherwise, it usually requires some sort of cash reserves or a fallback occupation.

I am an engineer, but only have it as a degree, it helped me move on to bigger and better things. As for occupations, I am only 24 and have probably worked at 8 or 9 occupations, a different one just about every year after I could drive. The first ones were boring, somewhat physically taxing, and low pay. The middle ones were just boring, and somewhat low pay. The latest ones have been fairly interesting and good pay. My next step is to move on to something really interesting with very good pay (working for myself, at least mostly).

To be specific my occupation list went like this: lawn mowing caddy astronomy lab assistant shoe salesman data tester/data input/computer repair database management/hardware engineering special type of law/learning finance and safe ways to invest

My next steps are going to be (most likely): entrepreneur/web development. These will be in conjunction with my latest fixed pay occupation. I may also do a small amount of real estate.



The best way to reach FIRE quickly is to put a high premium on your time, doing things purely for the sake of them being fun/easy will generally directly conflict with this, at least when you are starting off. I only say this to counterbalance all the advice you will constantly get to enjoy life, which you should.
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Old 08-20-2008, 01:18 PM   #9
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I agree with plex. You're only 19 and could likely change your mind before you graduate. I was dead set on being an archaeologist and decided to add a second biology major my junior year.

I'm 25 and I work for a pharmaceutical company doing something I had never even heard of before (histology). I thought I wanted to work in genetics.

Sometimes life takes you places where you never thought you're degree would.

And you may be in for some culture shock if your first job doesn't pan out to as much money as you hoped for. My first job was only $30K. Thank god I got some experience and moved on from there. I now make $60K working for a better company.

Just concentrate on saving and not spending your money on beer and you'll be fine. But don't forget to enjoy college. I didn't work much or save much through college, but I sure as hell enjoyed the time I had there (not drinking either) and I wouldn't give that up for any amount of money in the world.

Here's my job timeline if you will to follow plex's example:
Sandwich Artist -> Slop Line Slopper -> Archaeology Lab Director -> Athletics Facilities Assistant -> Boxing Coach -> Construction Laborer -> Scientist
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Old 08-20-2008, 03:01 PM   #10
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Quote:
Originally Posted by leahcim View Post
I want to retire ASAP (after I start working of course).
I got a pretty good laugh out of reading that line.

Keep your grades up and do your best to get a good job after graduation. Try to maintain the "starving student" lifestyle for as long as possible, since you will probably already be used to it (used furniture, cheap booze, free entertainment, etc.). Always live below your means. Max out your Roth and 401(k) if you have access to one. Read some good investment books (e.g. Four Pillars of Investing) and create and asset allocation that you're comfortable with and then stick to it through good times and bad.

You're way, way ahead of your peers, and way ahead of where most of us were at 19.
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Old 08-20-2008, 03:53 PM   #11
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My job timeline:
Grassmower->paperboy-> grocery stockboy-> retail store assistant manager-> factory assembler-> electric motor repairman-> district sales rep financial co-> auditor->street rod fabricator-> factory technician-> next stop small business owner/operator/retiree.


Early retirement is one thing, but one must enjoy himself along the way. The journey to retirement should be just as much fun, for one never knows how much time he has left. My Dad enjoyed life to the fullest, did not save much for retirement and passed away at 60, two years before he was going to retire.
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Old 08-20-2008, 05:23 PM   #12
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Thanks for all the good advice. I am co-oping to make money when I am not in school, and when I am in school I'll make money through scholarships, so that's how I hope to earn $.

I'll definitely continue working hard towards a computer engineering degree. It really is what I want to do. On the side, when I have time I develop websites. But I enjoy it. I definitely enjoy life.

Even if I had an awesome job I don't think it would ever beat just having every day open (did that this summer). I liked being able to do whatever project I wanted to, and just chilling some days.

So ya, thanks again. I don't think I can get a 401k co-oping, but if so I'll use it. I'll also have to research like a vanguard index fund and see if it is different than a mutual fund I have now.

After college when I get a real job, right now I think it would be cool to live in Melbourne, FL. Good surfing, and one of the lowest costs of living on the beach. Plus Northrop Grumman is there and hires engineers. Is it probably better to rent for like 600 a month vs buying for like 70k? The way I see it is if I bought that 70k would take like all my $ in savings, then I am starting over. But if I rent I can continue to save a lot, and keep my other money in savings.


Thanks
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Old 08-20-2008, 06:11 PM   #13
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Buying a house as your primary home is better if the total amount for the house is only 100-150 times more than your monthly rent for something somewhat comparable. You also have to want to live in the area for more than a few years. If it is 70k, and the house isn't falling apart, it might be worth it. You can get a low rate loan without PMI if you just put down about 14k and have a decent credit history.
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Old 09-20-2008, 10:54 AM   #14
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Hello, I've been just putting my money into a savings account, and slowly researching mutual funds. I'm just guessing that now is a good of a time as ever to finally put my money in something...

I have like 4k I want to invest. I was looking at these:

Aberdeen Intl Equity A (GIGAX)

GIGAX - Mutual Fund Quote for Aberdeen Intl Equity A - MSN Money



Kinetics Paradigm (WWNPX)


WWNPX - Mutual Fund Quote for Kinetics Paradigm - MSN Money


and


Oakmark Global I (OAKGX)


OAKGX - Mutual Fund Quote for Oakmark Global I - MSN Money


I would be leaving my money in for a long time, but hopefully if my plan works out, I would be pulling it out before I'm like 63. I think I can put it all in as roth. I was thinking I would put:

2,500 in wwnpx

and

1500 in oakgx

Then, every week I could contribute 500 into one, the other, or something else.

Any advice?

Thanks
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Old 09-20-2008, 11:33 AM   #15
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Very expensive funds in terms of expense ratio, and the returns can be matched or exceeded by similar, less expensive funds.
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Old 09-20-2008, 11:47 AM   #16
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CFB, you beat me to it - OP, costs add up when you consider a long timeline.

ta,
mews
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Old 09-20-2008, 11:50 AM   #17
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Quote:
Originally Posted by leahcim View Post
Hey, I'm 19 and I want to retire ASAP (after I start working of course). When I'm 21 I'll have a degree in Engineering and hopefully about 50-60k $ saved. When I get a full-time job my plan is to save as much as possible (maybe rent an apartment instead of buying a house)... Right now my plan is to max out my Roth IRA (so it is tax free later), and put the rest into mutual funds.
Is there anything else I can do better?

Thanks a lot!
it is posts like this that go a long way to restore my faith in young America...ambition, saving up, thinking ahead, pursuing a degree....all at age 19. my hat goes off to you!
Engineering is an excellent field to go into. But i'm biased cuz that was my field.
You have a good initial plan set up, re Roth and mutual funds. Please read all the books on investing that you can on semester breaks or after you graduate. Bogle, Bernstein, Tobias...others here can chime in on other authors.
Good luck with your mid term tests!!!!
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Old 09-20-2008, 12:11 PM   #18
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Thanks for the input and the kind words.

I didn't like GIGAX because of the 5.75% front load. However, when looking at the 1,3, 5 year returns, are those before or after you pay fees?

I was guessing the returns are after fees...If not, my second guess is that to reliably compare return rates for mutual funds, you take the yearly return % and subtract the Expense Ratio percent.
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Old 09-20-2008, 12:30 PM   #19
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Most published returns are without consideration of the front end load fees. To model this, simply reduce your investment by 5.75% and then subtract the fees annually if the numbers given dont already have those incorporated.

For most of these funds, you'll have given up 7-8% before you're even out of the gate. Thats a lot to make up.
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Old 09-20-2008, 01:23 PM   #20
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Loads and expense ratios are NOT accounted for in a funds performance. So, when there are high fees and/or when there are loads, and/or redemption fees, it eats huge chunks out of your return. As you would suspect, that is really bad, the fund will have to drastically outperform similarly allocated funds (and you can get funds allocated with the same sort of allocation for much less).

As such, I would recommend avoiding such funds except as an absolute last resort (such as when your employer 401k only has those funds and you need to get the match, even then, I would beg my employer to please improve their horrible 401k plan). Certain asset classes will be more expensive if they are exotic.

When you look at a fund, look at its 30-year return, anything much less than that is going to make it extremely hard to predict with any certainty what the fund is going to do. If it doesn't have a 30-year return, you will have to use other indicators. The 1, 3 and 5 year return simply are not useful for figuring much out, no one knows what a particular fund is going to do in the short term.

Also, watch out for fund minimums, or minimums you have to put in to avoid fees.

Fees are a guaranteed way for your returns to be lower. A rule of thumb is to minimize them as much as possible.

Also, finally, know why you are buying a particular fund over other funds. If you cannot explain it to yourself, then you are not ready to invest in that fund. Starting out, there is no way you are going to know what too look for, so read up why people invest in particular ways, what fund types are, how much of each fund type is good...etc. (For example, you had two international funds, but how international are they? What are their allocations?). Be right on how a fund is taxed, taxes take out another huge chunk of your returns. You are guaranteed to have better returns if you minimize how much you will be taxed.
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