25 year old ready to open first account, please help!

[dpark6]

Hello,

I'm 25 years old and currently work full time. Long story short, I'm finally ready to invest some of my hard earned money into the money market to kick start my Early Retirement Fund.

Below is an outline of my current/future siutation/plan:

- I have $3,000 that I would like to use as my initial investment
- I would like to retire at the age of 55-60 (year 2043-2048)
- I make $36,000 anually before taxes
- At my current rate, after expenses, I'm able to save about $8,000 a year
- My company matches 5% of my 401K contributions

I've had very little knowledge in regards to investing and still have much to learn. The past month I've been doing a lot of research on IRAs, Roths, and Mutual Funds. I've become interested in opening a Vanguard Target Retirement Fund, particulary with the VTIVX, and setting it up within a Roth IRA. I

I suppose my question then would be, if you were in my shoes, would you consider investing in this mutual fund? If not, what would you suggest I do with my $3,000 to kick start my Early Retirement Fund? Any input would be much appreciated, thank you

 

[tinlizzy]

Are you contributing to your 401K yet? Opening up a Roth Ira at Vanguard is a great addition. If I were your age I would use my Roth Ira for a stock fund.

 

[Midpack]

Same reaction as tinlizzy, I'd enroll in the company 401k and contribute at least enough to get the maximum company match if not more. A Roth IRA is a great next step, and while you're just beginning to build a portfolio, a broad balanced mutual fund like the Vanguard Target Retirement Fund is a very good choice. No reason to think about a more elaborate asset allocation until your portfolio grows some.

Educate yourself, the more you know and the less you rely on paid or free advice from others, the better. Unfortunately you will inevitably get some good and some bad advice, and unless you educate yourself, you won't be able to separate good from bad.Investment Books

Oh, and congrats, you're off to a very good start with saving & investing - you're at least 5 years smarter than I was way back when...

 

[dpark6]

Thanks for your response!

I understand at my age I should (and am) be willing to take on a little more risk in hopes for greater returns. However, I feel skeptical about investing soley on a stock fund because of the higher volatility associated with it.

Are you considering that I should invest in a stock fund given my financial situation? Or because of my youth I shouldn't be afraid to do so?

 

[dpark6]

Same reaction as tinlizzy, I'd enroll in the company 401k and contribute at least enough to get the maximum company match if not more. A Roth IRA is a great next step, and while you're just beginning to build a portfolio, a broad balanced mutual fund like the Vanguard Target Retirement Fund is a very good choice. No reason to think about a more elaborate asset allocation until your portfolio grows some.

Educate yourself, the more you know and the less you rely on paid or free advice from others, the better. Unfortunately you will inevitably get some good and some bad advice, and unless you educate yourself, you won't be able to separate good from bad.Investment Books

Oh, and congrats, you're off to a very good start with saving & investing - you're at least 5 years smarter than I was way back when...

I have started contributing to my company 401K plan this week. I'm contributing the maximum amount my company matches, which is 5%.Thanks for the link you've provided, I'll definitely be doing more research. I appreciate the input!

 

[target2019]

Thanks for your response!

I understand at my age I should (and am) be willing to take on a little more risk in hopes for greater returns. However, I feel skeptical about investing soley on a stock fund because of the higher volatility associated with it.

Are you considering that I should invest in a stock fund given my financial situation? Or because of my youth I shouldn't be afraid to do so?

You will get to the first 100K much quicker if you invest in the total us stock market. Then you can begin to think of adding fixed investments. Of course much more reading is necessary. And no one can predict how things will go.

How much of a drop in the total invested would you be OK with?

 

[dpark6]

You will get to the first 100K much quicker if you invest in the total us stock market. Then you can begin to think of adding fixed investments. Of course much more reading is necessary. And no one can predict how things will go.

How much of a drop in the total invested would you be OK with?

At the moment, I'm comfortable investing in $3000 and would be okay if I dropped it. Of course I wouldn't be happy about it, but it's what I'm willing to go with.

 

[Walt34]

Oh, and congrats, you're off to a very good start with saving & investing - you're at least 5 years smarter than I was way back when...

Or in my case, ten years. Some of us are slow learners.

 

[dpark6]

Or in my case, ten years. Some of us are slow learners.

Give yourself some credit Walt, look at you now. 6099 posts later and now you're a moderator! And doing well I'm surre

 

[KB]

dpark6,
]
The Target retirement fund mentioned is a fund that is comprised of 4 other Vanguard funds. Looking at Target 2045 (your proposed retirement date) it has:

Total stock market index fund 63%
Total international fund 27%
Total Bond market fund 8%
Total International bond 2%

The other Target retirement funds have different percentages of these funds changing the risk level of each one.

So, investing in one of these actually gives you 4 funds.

 

[dpark6]

dpark6,
]
The Target retirement fund mentioned is a fund that is comprised of 4 other Vanguard funds. Looking at Target 2045 (your proposed retirement date) it has:

Total stock market index fund 63%
Total international fund 27%
Total Bond market fund 8%
Total International bond 2%

The other Target retirement funds have different percentages of these funds changing the risk level of each one.

So, investing in one of these actually gives you 4 funds.

I just realized that this particular fund has the majority of funds going towards stock.. For some reason I thought more investments in bonds were involved, thanks for pointing that out for me.

 

[birdie]

Regarding KB comment....+1

Sound like you are off to an excellent start. Congratulations!
Now work really hard...at your age the sky IS the limit. You'll enjoy increases in your salary over time. Learn to put some of that away. Your nest egg will grow beyond your dreams. Once you learn to live on less than you make...you have learned the greatest lesson.
Having said that do not forget to live and enjoy yourself. You've earned it.
Keep us posted as well all enjoy your journey. Good luck!

 

[seabourne]

If your company offers the option I'd recommend using a Roth 401k accoujt since you're in a low tax braclet.

 

[Rothman]

+1 for a Roth 401k option, or Roth IRA outside of 401k. The reason your target fund is so high on equities is the long away target year, as you approach the target the bond % will increase. Key rule at your age is to stay in equities when the market goes down, many panic and leave stocks in bad market and then buy late into market rallies. Stay the course, and enjoy all the milestones 10k, 25k, 100k, they are great achievements, don't withdraw or loan against just grow your contribution, think of this as paying yourself, and you come first.

 

[dpark6]

birdie- Thanks! I'm definitely enjoying my life right now, I'm very fortunate to have the job that I have. I have the pleasure of working with one of my best friend's Father's company and he treats me well. I've had close to 3 months worth of work off this year traveling Europe and South America! I have a feeling I might be working for him for awhile

seabourne- Unfortunately, my company does not offer a Roth 401K account.

Rothman- Thank you for your input. I don't anticipate ever withdrawing my funds until it's time for me to retire, that's the plan at least!

 

[RE2Boys]

Make sure you have a "rainy day" pot set aside for the unexpected before investing in anything else but the 401k match. If your car needed $2K of work, it'd be a shame to have to withdraw funds from an IRA and eat the penalty for the lack of funds to cover the unexpected.

 

[dpark6]

Make sure you have a "rainy day" pot set aside for the unexpected before investing in anything else but the 401k match. If your car needed $2K of work, it'd be a shame to have to withdraw funds from an IRA and eat the penalty for the lack of funds to cover the unexpected.

That's a great idea, thanks for the input!

 

[Bateauxdriver]

Lots of great advice in this thread. My simple suggestions:

Keep debts low, every time you get a raise live as if you didn't. Invest the rest.

Get your max company match out of your 401K first.

Open the ROTH IRA asap. It is the best thing going. Pay your self today we pretaxed dollars and pay yourself later tax free. Also can be used for education. Vanguard is a wonderful resource.

Don't buy too much house. It costs a lot to maintain an expensive house. Interest is a stupid tax.

Drive your cars till the wheels fall off. My lifetime personal automobile expenses average is under $2000 per year including (cash) payment and repairs for my entire life. I've been driving for 30 years for $60,000. One vehicle today can cost that much! Make smart purchases. I'm currently driving a 2005 F-250, 4-wheel drive, diesel King Ranch in near perfect condition. You can have luxury, buy smart.

Take smart vacations. National Parks (they are back open yeah!), national forests trails, Couchsurfing, camping, national seashores and motel 6. For hundreds and not thousands you can have the time of your life and get healthy exercise.

Credit cards are evil. Never use one unless you have the cash immediately available to pay it off. Interest is for stupid people to pay.

 

[dpark6]

Lots of great advice in this thread. My simple suggestions:

Keep debts low, every time you get a raise live as if you didn't. Invest the rest.

Get your max company match out of your 401K first.

Open the ROTH IRA asap. It is the best thing going. Pay your self today we pretaxed dollars and pay yourself later tax free. Also can be used for education. Vanguard is a wonderful resource.

Don't buy too much house. It costs a lot to maintain an expensive house. Interest is a stupid tax.

Drive your cars till the wheels fall off. My lifetime personal automobile expenses average is under $2000 per year including (cash) payment and repairs for my entire life. I've been driving for 30 years for $60,000. One vehicle today can cost that much! Make smart purchases. I'm currently driving a 2005 F-250, 4-wheel drive, diesel King Ranch in near perfect condition. You can have luxury, buy smart.

Take smart vacations. National Parks (they are back open yeah!), national forests trails, Couchsurfing, camping, national seashores and motel 6. For hundreds and not thousands you can have the time of your life and get healthy exercise.

Credit cards are evil. Never use one unless you have the cash immediately available to pay it off. Interest is for stupid people to pay.

Wow, that's incredible you've been able to minimize your driving costs to that average for such a long period of time. Thanks for your advice!

 

[target2019]

At the moment, I'm comfortable investing in $3000 and would be okay if I dropped it. Of course I wouldn't be happy about it, but it's what I'm willing to go with.

I should have picked my words more carefully. What percentage drop can you tolerate? Obviously if all of the 3k disappears the game is over. Unless you invested in a few stocks only, that won't occur.

If you invest in the target fund with 90% equities, would you be OK with a drop of 45 percent? It sounds like you would be.

 

[dpark6]

I should have picked my words more carefully. What percentage drop can you tolerate? Obviously if all of the 3k disappears the game is over. Unless you invested in a few stocks only, that won't occur.

If you invest in the target fund with 90% equities, would you be OK with a drop of 45 percent? It sounds like you would be.

Yes, I would be.

 

[Rothman]

In fact having the courage to buy more after the drop is even better, unfortunately most individual "investors" do the opposite, and talk about how bad the market is. Sounds like you are thinking right, stick your ground when all the experts say sell

 

[dpark6]

In fact having the courage to buy more after the drop is even better, unfortunately most individual "investors" do the opposite, and talk about how bad the market is. Sounds like you are thinking right, stick your ground when all the experts say sell

Whatever portfolio I choose to go with, I intend to stick with it. I realize there will be speed bumps along the way, but I'm committed to continue to invest even through the hard times.

From the positive input I've received, it seems as though my goal to match my company 401K contributions (5%), and take an additional 5% of my paycheck every month and contribute it to my portfolio (which I intend to setup within my Roth IRA) is a good start.

I'm going to buy myself a Kindle Paperwhite tomorrow and get my first investment book, Investors Manifesto by Bernstein. Time to educate myself!

 

[Amethyst]

Nothing against the Kindle, but think of the $$ you'd save (for investment) if you went to the library and borrowed paper investment books, instead! If your local branch doesn't have Bernstein, they may be able to order it from another branch in their system.

Good luck! You sound like a very level-headed person who will do well.

Amethyst

I'm going to buy myself a Kindle Paperwhite tomorrow and get my first investment book, Investors Manifesto by Bernstein. Time to educate myself!

 

[dpark6]

Nothing against the Kindle, but think of the $$ you'd save (for investment) if you went to the library and borrowed paper investment books, instead! If your local branch doesn't have Bernstein, they may be able to order it from another branch in their system.

Good luck! You sound like a very level-headed person who will do well.

Amethyst

Thank you for the suggestion!

I do a lot of traveling and often times I find myself bored out of my mind! I think the Kindle will help me become more of a reader, something I need to do more of