WANTED: Guidance..

[LUCHO]

Hi,
First off, it's a pleasure to be in a room full of people with a shared mindset. I am in my mid 20's and fantasize about retiring early. I have recently taking a step towards this ultimate goal. I opened up a ROTH IRA in Nov. of '07 and only contributed $3,400. I plan to max out every yr. I have also opened up a taxable investing acct. to accumulate wealth. I have set up automatic contributions of $100 p/mo. for this acct. I have an emergency account of $1000 which I'm also building up.
A quick breakdown of my finances:

INCOME: $2900 after taxes p/mo

EXPENSES: (incl. rent,utilities,CC,etc.) $1,300-$1,600

Roth IRA (T. Rowe-Total Equity Index Fund): I only have $3,400 so far. I'm contributing $400 every
month.

INVESTING ACCT.: (T. Rowe-Capital Appreciation Fund): I only have $100 so far in this account. Every month I'm contributing $100.

EMERGENCY FUND: $1,000 . I throw left over cash here.

** What would you guys do differently? Should I diversify more? Should I be investing more aggressively (increase from $100)? Any type of advice that would help me retire in my 40's would be appreciated. Thanks for taking the time to read.

[JohnDoe]

Do you have a 401k with matching contributions available to you?

[LUCHO]

My job doesn't offer a retirement plan. It's one of those stepping stone/while I finish school jobs.

[headingout]

Great start. Living on (much) less than you make is how most of us got where we are. Keep building up your emergency fund: "experts" say 3-6 months of expenses, I say at least 12. You don't want to have to sell stocks or dip into your IRA for an emergency.

Then I would start learning about other kinds of investments (all preferably low-cost mutual funds/ETF's). Diversity is key to long-term performance and also to keeping your resolve when the market gyrates (because something you own will always be doing well). So check out commodities, energy, real estate, precious metals, bonds: intermediate and inflation-indexed, and international and value stocks. Don't make big commitments to any at the start, but learn how these asset classes behave and start to invest in them gradually.

[Coach]

LUCHO, you are making a great start! At your point in the process I think it's as much about controlling expenses as it is smart investing. Commit to never paying interest on a credit card, never falling in love with a new car, and never letting peer pressure dictate your spending. And when you get a chance, read The Millionaire Next Door.

I'm glad you've joined us!

Coach

[Dawg52]

Congrats on your good start. When I was 25, I was just interested in paying my rent, car note, and having some running around money. Not entirely true, I was putting some aside for a down payment on my first house.

Looks like you have your head screwed on correctly.

[innova]

I think you're doing an awesome job so far. I would echo the recommendation of at least 6mo expenses in your emergency fund.

When you move on and get a job with a 401k, the best approach will usually be:

1) 401k to match
2) Roth to max
3) 401k to max
4) Taxable investing

Since you have no option now, taxable is fine. However, I would reconsider this:

INVESTING ACCT.: (T. Rowe-Capital Appreciation Fund): I only have $100 so far in this account. Every month I'm contributing $100.

It is a good fund in the sense that it has moderate returns and has not suffered a down year overall. However, its not a great choice for a taxable account due to the capital gains and dividends it throws off.

I would approach your entire portfolio as ONE account. The best holdings for a taxable account would be a total stock market fund such as VTSMX/VTI for a domestic holding, or VFWIX/VEU for an international holding. These have rock-bottom expenses and low tax drag. Taxes probably aren't a huge issue now given your income level, but you should always invest with an eye on the tax man.

Aside from that small point though, good job, and you are thinking the way you need to think.

[TickTock]

Stay in starving-college-student mode as long as possible and coninue to sock away the money.

[slazenger]

Buy a disability policy if you don't have one.

[Texarkandy]

Guidance? Ok - here ya go

Spend it all as fast as you get it - borrow as much as you can & spend that too- eat, drink & be merry for tommorrow we die - social security will not be there for you - whatever you manage to accumulate the socialist politicians elected by the masses who can't or won't plan will tax it away from you to give pay for healthcare for illegal aliens - the currency will collapse & you'll lose it all anyway - you wheelbarrows full of cash won't buy you a loaf a bread - chaos & destruction lie ahead - buy some tin-foil hats

And above all: Have a nice day

(Welcome to the board)

[FIREdreamer]

Hi LUCHO,

welcome to the board. I started saving and investing in earnest at age 26. I started saving a few hundred dollars a month and over the last 8 years it has added up and grown to a very sizable portfolio (off course now that I make more money, I save a lot more per month). But the key is to get started as early as possible, and you seem to be doing just fine! What I would recommend, if you want to retire in your 40's, is keep your expenses in check even as your income increases. That will allow you to save more and more each year and reach your goal that much sooner.

[LUCHO]

Thanks to everyone who chimed in. Have a good weekend

[LUCHO]

This might sound as a weird question, but has anyone FIRE'd before having kids? This is a dilemma I've been thinking about as far as my situation goes. I would love to hear from people who have FIRE'd before having kids. I would really like to have kids as much as RE, but some how I feel this is a contradiction and not feasible. I also have an inclination to think that it would be stupid to RE before having kids since the expenses would deplete the funds. Then again , I wonder if having kids at an earlier age would benefit me in RE as long as I can afford it....

[billips1002]

Follow innova's advice above for your taxable money. That's my suggestion.

Vanguard index funds will allow you to allocate your resources across many different stock asset classes such as US large cap, US LC value, US Mid-cap, US MC value, US Small-Cap, US SC value, International developed markets, Int'l emerging markets. In any case, VG's expense ratios, distributions and fund turnover are low. This means you'll pay less of your money to 1) your brokerage house 2) Uncle Sam. You'll eventually have to pay the taxes when you sell, but in the mean time, your money can grow faster. This is like a interest-free loan from the government.

If, in the future, you become interested VG also offers bond funds of varying durations, an energy fund, a precious metals fund, a real estate investment trust fund, a healthcare fund, and many actively managed stock mutual funds. All of these come with higher costs and higher turnover, which makes them more appropriate for tax-sheltered accounts like a 401K, IRA, or Roth IRA.

Almost every VG mutual fund will require a minimum initial investment of $3K. In my opinion, you'll be best served to save your money in a high interest money market account such as HSBC until you reach the minimums to invest in those funds. I use an internet bank called OneUnited and my interest rate is currently 3.6%. If I were you, I would not risk loss of capital in the mean time investing in other, higher cost, higher turnover brokerage's stock mutual funds.

I would recommend you read DR. William Bernstein's book titled The Four Pillars of Investing.

Best of luck in all your endeavors. Let me know if you'd like any more explanation.

-Rich

[billips1002]

Originally Posted by Texarkandy

Guidance? Ok - here ya go

Spend it all as fast as you get it - borrow as much as you can & spend that too- eat, drink & be merry for tommorrow we die - social security will not be there for you - whatever you manage to accumulate the socialist politicians elected by the masses who can't or won't plan will tax it away from you to give pay for healthcare for illegal aliens - the currency will collapse & you'll lose it all anyway - you wheelbarrows full of cash won't buy you a loaf a bread - chaos & destruction lie ahead - buy some tin-foil hats

Texarkandy,

Although I sense sarcasm in your tone, my concerns about the socialist politicians echo yours. I'm afraid that, in this era, a strongly motivated intelligent socialist is more likely to go into politics in our country than a strongly motivated intelligent capitalist. The capitalists are too busy working for the rich companies making their fortunes.

The always complaining, never satisfied socialist would rather live high off of taxpayer's dollars, flying on private jets and spend countless hours stumping to hardworking taxpayers about how all the country's problems would be solved if they agreed (by vote) to redistribute their vast earned wealth to those who are less fortunate, or rather less inclined to get an education or work long, hard hours.

There are no longer moderates. The United States' political landscape is in a very sad state, indeed.

I like this afro smiley:

[RunningBum]

Originally Posted by TickTock

Stay in starving-college-student mode as long as possible and coninue to sock away the money.

I agree with this. For young dreamers who are discouraged by how little progress they think they are making, it really starts to pile up as you make a better salary IF you put most of the salary increase into savings. If you are only able to put $100 month away now, but get a $125/month increase after taxes and put $100 of that increase away, all of a sudden you have doubled your savings amount. Keep doing that with every raise -- and those often get larger in amount as your salary base increases --and all of a sudden you see that you are making real progress.

The important thing right now is to get the mindset to save something, and LBYM.

Meanwhile, as others have pointed out, keep learning about how to invest and diversify.

[LUCHO]

Billips - I will definitely contact you in the future for more information. I'm really glad you provided me with those details. I've been looking into VG myself. I'll probably make the transition for my taxable account soon. Again thanks, for your words of reassurance.