Is making 8% "some what" safely realistic?

[Fantasm]

Hi,
I'm a young (23) professional that is earning a decent income. In about 6 weeks, I will have $300K saved up. I am lost as to what I should be doing with the money I earn every month. Prior years I've spent (wasted) a lot on high line cars, toys, and other things that I have nothing to show for.
I tried speaking with Charles Schwab and they really didn't inspire any confidence in me (the local office at least) in that they would be able to manage my funds for me. My occupation keeps me busy and I don't have the time to learn and research investment options and opportunities so I need someone to handle it for me and make it hands-off on my part.
At least thats what I think my next step should be ... investing in the market (bonds, stocks, preferred shares with dividends, mutual funds, etc).
$15K of that $300K is in FPL (Florida Power & Light) Preferred Shares with 8.75% yield, and I wish I had bought more at the time as it has also increased in share value, but just getting 8.75% from a relatively safe (IMO) corp. would be better than earning <1% from the bank its sitting in now. I am currently able to save about $20K-$30K per month (depending on my spending, but if I really stop being a dumb@ss, I can for sure do at least $30K).

I have a problem where I get bored of things really quickly, and am always go go go, so because my money isn't making me any real sort of return right now, I am always looking for the next new thing to happen, which ends up being in the form of spending it.

I've asked on other forums, I've asked people in real life, and I'm still confused. The way the markets (all industries) are now a days, nothing really good is going on that I know of to put the money in, etc.
I am adverse to locking the money away for the long term as I want to see it getting immediate returns which always leads me back to the thoughts of investing in my own businesses ideas or angel investing as those are the fastest and largest methods of earning a return.

Not sure, just confused, frustrated and ranting.

 

[donheff]

You sound like a perfect candidate for a simple target retirement account from Vanguard or Fidelity. Let them take care of it until you get to a point in your life where you want to pay more attention. The odds are great that a simple account like that will do as well, more likely better, than a money manager would do after fees.

 

[LOL!]

Because you used the word "safely", the answer is definitely No. It is not realistic.

If you had enough time and inclination to post, you have at least enough time to read this short guide on getting started with investing: Investment Guide You should also note that if you use an advisor, they will not do any better than you yourself will do, but they can often cost you about 25% of your gains. That will make your 8% even more unrealistic.

 

[Midpack]

Lots of people turn their portfolio over to "professionals" to manage. But one day you will learn more about investing - and you'll look back in horror at how much of your money you gave away to a "pro" who most likely didn't do any better than you would have done yourself with just a little effort. It's your money, and there's no shortage of people out there who will gladly manage your money - for a "small" fee. My money is with Vanguard, but my 401k is with Schwab. You could do much worse than Schwab. Whatever you do, don't go with a full service, big name broker...

 

[Rustic23]

I am a believer in Scott Burns. I believe he sets forth an easy guide for investing. I also think you should 'grow rich slowly' rather than fast. It is not how much you make but how much you keep. That goes for spending and investing. For me, getting 8% in todays market would require a risk I would not be comfortable with. I don't watch my investments daily, and don't want to depend on getting in or out at the right time. Burns is into index funds, asset allocation, and low fees. That's long term investing, IMHO. Other forms of investing seem more like gambling, to me, than investing.

 

[samclem]

I agree with the others here. Sorry, I wish a safe 8% were possible, but it isn't. If it were, people would flock to it and they wouldn't have to pay 8% anymore. The capital markets are very efficient.

Most of us have been where you are now. In nearly every other part of daily life looking for bargains and "good deals" can pay off handsomely. And we all believed, at one time, that the same was true with investments. For the most part, it ain't so. Sure, there will be some guy starting a small business somewhere who needs money, and if you get in with him you'll make 20% annual returns. But, the ability to find these things and enough info to judge whether they will pay off very hard.

In investing, the trick is not to hit a home run (that's too hard and risky) but to avoid the costly mistakes and stay in the game. Giving your money to a high-fee "adviser" is a big mistake you'll want to avoid. Swinging for the fences with a large part of your nest egg is a big mistake you'll want to avoid.

I'd go with donheff's suggestion--for now, put your money in the Vanguard target retirement fund of the appropriate year. Then, read some of the stuff by Scott Burns or William Bernstein. Soak up knowledge and plan carefully. If you must, take a small part of your money and go for a ride on those "great opportunities" you'll be coming across (search on this site for "unclemick" and "Testosterone" for more on this). The bruising you'll probably take in those endeavors (like most of us have) can teach lessons that many of us couldn't have learned without "direct experience."

Meanwhile, concentrate on living life and on your job. That's where you'll get the dough that you'll be putting to work to carry you through the long term.

"Patience, grasshopper."

 

[freebird5825]

Definitely a candidate for Vanguard index or target retirement funds. Set it and forget it. Their customer service is fabulous.
I've dealt with several of the major fund families CS over the years (when I took the "Chinese menu" approach to investing before I knew better. )
Good luck!

 

[Rich_by_the_Bay]

If your attention span is short as you say, consider reading Solin's "Best Investment Book You'll Ever buy" (or something like that).

It's an eye-opener is packed with simple good advice.

 

[megacorp-firee]

8%? I'd be elated to find a 5% SAFE investment.
Let me know if you find one.

 

[CuppaJoe]

Hi,
I'm a young (23) professional that is earning a decent income. In about 6 weeks, I will have $300K saved up. I am lost as to what I should be doing with the money I earn every month....

Welcome to the forum, Fantasm!!

Maybe you could give advice on how to save up 300K by age 24. I'd be interested to know what would happen to that 300K if simply put into a CD ladder and rolled over for 40 years. Considering the fear of inflation we hear on this board, you might do very well with that.

Meanwhile you could set up other plans for new savings as you learn about investing and diversification.

300K saved while buying [-]Jaguars[/-] cars and other toys, did I hear that right?

 

[DayDreaming]

Hi,
I'm a young (23) professional that is earning a decent income... I am lost as to what I should be doing with the money I earn every month... My occupation keeps me busy and I don't have the time to learn and research investment options and opportunities so I need someone to handle it for me and make it hands-off on my part....

I'm and old guy (48) who wishes he took more interest in managing his own finances when he was younger. In my youth, I always maxed out my 401k but never paid too much attention to what funds I had the money going into. For a while, I used a financial advisor to manage my savings outside of the 401k. One day it occurred to me that I can't spend the rest of my life trusting someone else to manage my investments for me, so I did a little bit of reading and realized that

1. I was wasting a whole lot of $$$ by using that financial advisor
2. It ain't that hard to manage my own investments, it's actually pretty easy
3. It's very comforting to know that I can do this myself, rather than depending on someone else (who is obviously putting their own interests before mine)

I quit using the advisor, moved my money into some index funds at Vanguard, and could kick myself for not doing this sooner. Even though I managed to retire at 48, who knows, if I was smarter in my youth, maybe I'd have retired by 40.

I highly recommend that you read "The Boglehead's Guide to Investing" - it's a quick read, and for me it was a real eye-opener.

 

[mews]

Hi,
I am adverse to locking the money away for the long term as I want to see it getting immediate returns which always leads me back to the thoughts of investing in my own businesses ideas or angel investing as those are the fastest and largest methods of earning a return.

First, welcome to the forum. To be thinking about this at the age of 23 is fantastic!

Now, onward!

You need to be thinking long-term. You have, on average, about 62 years before you croak. Longer, depending on your family history - are your grandparents alive and well? How are their brothers and sisters?

Chasing returns is how to lose your money over time. You will have a lot of excitement, but it will be expensive entertainment!

You need to get into the "set it - rebalance - forget it" mode, except for (perhaps) 5% of your portfolio. That's the money you can use for excitement.

Read!

I rcommend going over to bogleheads dot org and doing 2 things -

Check out the wiki, and their recommended reading list - the Bogleheads Guide to Investing is in bookstores and I think it is good.

Sign up - they don't spam - read the guidelines on how to ask for portfolio advice, and post your question there. They ask for a fairly detailed breakdown of what you have, what you owe, your goals, etc.

You will get some very good, detailed advice from some very smart folks!

ta, & welcome again,
mew

(And if you aren't going to do that, just throw everything in a Vaguard Target Date fund, and don't mess with it!)

 

[travelover]

Excellent advice from mews.

The only down side of the target fund is that eventually you will want to try to segregate most of your bonds in a tax deferred account (401(k) or IRA) for tax efficiency. But at your age, the target fund will be almost all stocks, anyway.

My biggest investing regret was dithering over where to invest and letting valuable compounding years slip by.

 

[FIREd]

I used to think that, as a young professional with an hectic life, I just didn't have the time necessary to educate myself about investing and take care of my own money. But I quickly realized that taking care of the money I already had accumulated was as important as working hard to make more money. I used to have a pro taking care of my investments but, in hindsight, I paid a lot of money to someone who ultimately didn't add much value to my portfolio. As people often say around here, nobody cares about your money as much as you do.

As for making 8% a year safely, good luck with that. My portfolio has returned an average of 8% annually since 2000 but I can guarantee you that I had to take above average risks to reach that result. Perhaps the next decade will be more forgiving than the last one, but it is still unlikely that you will be averaging 8% a year "safely".

 

[Alan]

I am currently able to save about $20K-$30K per month (depending on my spending, but if I really stop being a dumb@ss, I can for sure do at least $30K)

Maybe you could give advice on how to save up 300K by age 24.

If I had enough income to save $20k - $30k per month I'm sure I could manage to save $300k in about a year

 

[eridanus]

If I had enough income to save $20k - $30k per month I'm sure I could manage to save $300k in about a year

AND, in "[p]rior years," he was buying high line cars and other toys.

Get ready for a pitch....

 

[accountingsucks]

I completely disagree with everyone saying 8% is not a reasonable SAFE return OVER THE LONG RUN OF 25+ YEARS. If you plan to retire at 50, you have 27 years of growth ahead of you. Does everyone honestly believe that there will be essentially ZERO real growth in the economy during that time? My portfolio is based on Canadian stocks that are dividend payers in the 3.5% range, so to get to 8% all I need is a 4.5% equity growth rate. Given inflation runs around 2% historically I now need my stocks to give me a 2.5% real return over inflation every year to achieve the 8%. Piece of cake in my opinion.

 

[Alan]

I am adverse to locking the money away for the long term as I want to see it getting immediate returns which always leads me back to the thoughts of investing in my own businesses ideas or angel investing as those are the fastest and largest methods of earning a return.

I completely disagree with everyone saying 8% is not a reasonable SAFE return OVER THE LONG RUN OF 25+ YEARS. If you plan to retire at 50, you have 27 years of growth ahead of you. Does everyone honestly believe that there will be essentially ZERO real growth in the economy during that time? My portfolio is based on Canadian stocks that are dividend payers in the 3.5% range, so to get to 8% all I need is a 4.5% equity growth rate. Given inflation runs around 2% historically I now need my stocks to give me a 2.5% real return over inflation every year to achieve the 8%. Piece of cake in my opinion.

Your answer is not what the OP was asking - he wants safe immediate returns of 8%.

 

[bow-tie]

20-30k per month!

With that kind of bank, give me a CD ladder. I'd be done working in LESS than 10 years. Holy cow....

 

[samclem]

I completely disagree with everyone saying 8% is not a reasonable SAFE return OVER THE LONG RUN OF 25+ YEARS.

Maybe you'll get 8% going forward, but the consensus seems to be against anything like that rate in the near term (next 5 or so years). I'm hoping for 5% real return over the next 15 years.

From the OP:

I have a problem where I get bored of things really quickly, and am always go go go, so because my money isn't making me any real sort of return right now, I am always looking for the next new thing to happen, which ends up being in the form of spending it.

It's probably just me, but this didn't sound like somebody looking at a 25+ year timeframe.

Given inflation runs around 2% historically I now need my stocks to give me a 2.5% real return over inflation every year to achieve the 8%. Piece of cake in my opinion.

Okay, so that's a different story. If we get to count inflation as return, then all one has to do is maybe buy TIPS (1% real return) and hope that inflation takes off at 7%. "I'm rich!!"

If you're counting inflation as "return" then maybe 8% is possible. But I don't know why anyone would do that.

 

[Meadbh]

I am wondering what type of career track a young professional could be in to earn enough to save $30K per month at age 23!

Fantasm can't be a high priced brain surgeon, because he would still be in med school at 23, and I don't know any lawyers who have finished their articling at that age.....so perhaps he's in professional sports. If that's the case, how long will the income stream last?

 

[accountingsucks]

Maybe you'll get 8% going forward, but the consensus seems to be against anything like that rate in the near term (next 5 or so years). I'm hoping for 5% real return over the next 15 years.

From the OP:
It's probably just me, but this didn't sound like somebody looking at a 25+ year timeframe.


Okay, so that's a different story. If we get to count inflation as return, then all one has to do is maybe buy TIPS (1% real return) and hope that inflation takes off at 7%. "I'm rich!!"

If you're counting inflation as "return" then maybe 8% is possible. But I don't know why anyone would do that.

If you are retired and continue to LBYM, you should pray for high inflation. If you have 2M saved and inflation runs up to 5%, you are getting a $100K return each year assuming you have RRB's with no premium above inflation. Sure your expenses are also going up 5% but the spread between your nest egg and yearly expenses X 25 metric just gets bigger and bigger.

 

[samclem]

If you are retired and continue to LBYM, you should pray for high inflation. If you have 2M saved and inflation runs up to 5%, you are getting a $100K return each year assuming you have RRB's with no premium above inflation. Sure your expenses are also going up 5% but the spread between your nest egg and yearly expenses X 25 metric just gets bigger and bigger.

And my required withdrawals also go up by 5% each year (to keep the same spending power with devalued dollars), so when I multiply by 25X to find my necessary portfolio value I see that I make exactly zero progress due to inflation. Except it's not that good--the US government DOES see all that phantom growth as "gains," so I get to pay taxes on it.

Sorry--your math doesn't make sense.

Try it yourself. Imagine you retire with a 1 million CDN portflio, and you plan to withdraw 40,000 CDN the first year (4%). You've got the whole thing temporarily in RRBs that earn 0% real return, but keep up perfectly with inflation. Unfortunately, you slip on some of that Canadian ice leaving your retirement party, hit your head and are unconscious for ten years (but, no cost for care--Canadian health care!). During that time, inflation has been running at 7% annually, and you are amazed to see that your portfolio is now worth 2 million CDN! Great! Then, take your first annual withdrawal (80,000 CDN). You're loaded! But, everything you want to buy costs twice as much. So, inflation hasn't helped you a bit. And, if you have to pay tax on this phantom increase in value, it has hurt you a lot.

 

[clifp]

I am wondering what type of career track a young professional could be in to earn enough to save $30K per month at age 23!

Fantasm can't be a high priced brain surgeon, because he would still be in med school at 23, and I don't know any lawyers who have finished their articling at that age.....so perhaps he's in professional sports. If that's the case, how long will the income stream last?

I hear that upper management in the distribution of recreational pharmaceutical products can make excellent money at a young age. Although most aren't overly concerned about saving for retirement.

 

[W2R]

I hear that upper management in the distribution of recreational pharmaceutical products can make excellent money at a young age. Although most aren't overly concerned about saving for retirement.

Agreed -- I have noticed a marked absence of big time drug dealers here on the forum. With no SS, no 401K, and no pension they just don't seem to be drawn to our forum in great numbers (poor fellows!). Given the scarcity of such members, it doesn't seem probable that Fantasm is engaged in that particular business.

I would guess that perhaps Fantasm meant to say that he might save $20K - $30K per year, instead of that amount per month.