23-Year Old In Very Liquid Position

[StockSlinger]

Hey all,

I've recently joined your great forums and have a quick question for you.

I'm a 23-year old trader from Chicago and have been blessed to find a great job that pays me well. I have zero debts currently and have about $150,000 just sitting in a high-yield savings account. I've allocated $50,000 (2 years expenses) allocated to a separate savings account as an emergency fund. While I realize this is very high, my compensation can vary tremendously so I upped the traditional recommendation for an emergency fund by a good deal.

Now with the remaining $100,000, I'm considering three main options: invest using an asset allocation plan I've developed for long-term appreciation, purchase a home to live in, or delay the decision by approximately a year until my current lease runs up at which time I may wish to purchase a home.

Now some basic information about me; my compensation currently is between 150k-250k, although it will likely increase a good deal in the next few years. However, this number can vary which is why I wish to be extra cautious. My current monthly expenses are around 2000-2500 I would guess, although I don't keep an exact budget.

Out of the three options, I'm leaning towards diving into the market and holding out on any real estate endeavors as I don't want to deal with the responsibilities of owning a home. I have a long-term girlfriend I'm currently living with, and although we could use a bit more space, I'm a diehard LBYM type guy and don't want to let lifestyle inflation keep up with my compensation. That being said, it does irk me a little to be paying rent to a landlord when I could be building equity in a place of my own.

Another consideration is I the risky nature of my job, so I wish to keep my investments perhaps a bit on the conservative side. My goal is to use the next 5-10 years of my life not necessarily to become completely financially independent, but to build a solid and stable base which will allow me to take riskier and perhaps more profitable paths in my career.

I also have a good deal of free time, so if you have any other suggestions on using my good fortune to pursue more active business/investment opportunities, that'd be greatly appreciated as well!

I realize that my problem is a nice one to have, I just want to make the best decision possible to set me up on a good start for my future. Thanks again and I'm looking forward to contributing to the community!

 

[FIREd]

Hi there,

23 and making $150K-250K already! Good for you. The trick is not to let it go to your head. Keep your expenses low and save, save, save! And when your income goes up, don't increase your spending but rather increase your savings. You should be able to build a nice base in just a few years. Even if you don't have a budget, you should definitely track your expenses. You might be surprised at how much you truly spend when you add it all up.

As for what to do with the 100K... Well it doesn't sound like you are prepared for home ownership yet. So I would invest the money in the market (I'd go for cheap, broadly diversified index funds). Besides, you make so much money that you could probably save up a decent down payment in a matter of months when you are ready to take the real estate plunge...

 

[Lusitan]

You've got a great start -- well done! The two biggest assets you have are your LBYM mentality and your obvious hard work and skill at your profession, in that order.

Don't sweat the "building equity" issue yet -- you're young, and I wouldn't recommend tying yourself down with real estate for at least a couple of years. Especially in this market, where there's no guarantee that you'll be building any equity given declining property values. The flexibility and freedom of renting are ideal for someone your age. But don't deprive yourself too much, or you'll be short-changing the LIVING part of LBYM. As a compromise, perhaps you can look at renting a slightly bigger place to alleviate some of your space issues.

So I vote for putting your asset allocation investment plan into action. I also vote for getting out there and seeing the world, travel, have fun, and do all the things you should be doing in your early twenties. You seem well-grounded enough to do all this without being wasteful, and this is the time of your life to do so. There's plenty of time to buy a house and mow the lawn in the future ...

 

[DangerMouse]

The first thing that comes to my mind is what is your goal, because without that who can determine what direction you should go.

 

[cardude]

The first thing that comes to my mind is what is your goal, because without that who can determine what direction you should go.

That's a great point, because it makes it a lot harder to save a huge portion (50%+) of your salary if you don't have written goals. Saving most of your pay is not all that fun, but if you know you want to have, say, 2 million in 10 years so you can be on your way to FI and be able to stick it to the man, it makes it a little easier.

 

[Bestwifeever]

(as posted on your Hi, I am.... thread):

The successful traders that I've known are very conservative in their own financial decisions. Perhaps you could talk with some of the people in your field and get their advice?

 

[easysurfer]

Hi StockSlinger,

You mentioned that you have pretty much free time on your hand. If I were you, I'd go to a bookstore such as Borders and pick up some books in the personal finance section and read up on books. That's a great way to build a foundation for yourself
to know what's the most important for yourself.

Welcome to the board.

Easysurfer

p.s. great screen name btw for your profession.

 

[aaronc879]

Hi StockSlinger,
If I were you, I'd go to a bookstore such as Borders and pick up some books in the personal finance section and read up on books. That's a great way to build a foundation for yourself
to know what's the most important for yourself.

Why would you buy a book? Go to the library and get one for free. Little things like that are over-looked too often. They really add up.

 

[StockSlinger]

Thanks everyone for your helpful replies!

I feel pretty well-educated when it comes to most finance matters and am always reading more books.

Great point on having a goal Dangermouse, I'll have to think of a motivating one. It will probably be some net worth figure at a specific age, maybe $2 million by 30? I'd love to eventually start my own firm, but I'm not sure how much capital I would need to do so.

My motivations aren't really to quit my job as I have a pretty ideal work situation (lots of freedom, I'm basically my own boss, etc.).

Also, I much prefer to purchase my finance books instead of getting them from the library. Typically I'll refer back to particular points over time and all it takes is one actionable piece of advice from the book to produce a great return on your investment!

 

[freebird5825]

...Also, I much prefer to purchase my finance books instead of getting them from the library. Typically I'll refer back to particular points over time and all it takes is one actionable piece of advice from the book to produce a great return on your investment!

Welcome to the forum
Seems like you have the right path set for yourself!
I also purchased some of the classic investing books back in the late 90s into early 00s. I waited and bought them several years after publication, at deeply discounted prices. I do pick them up periodically, as needed, to read pertinent sections as a refresher. It's nice to have an analog reference library on hand. Current info is obtained online.

 

[Running_Man]

Hey all,

Now with the remaining $100,000, I'm considering three main options: invest using an asset allocation plan I've developed for long-term appreciation, purchase a home to live in, or delay the decision by approximately a year until my current lease runs up at which time I may wish to purchase a home.

Option 3 wait one year would be my reccomendation. I can see Ceres right now from the window of my office downtown. My reasons for this are :

Do not be fooled by the present bullishness conveyed by the recovery in the market. There are wieghty financial issues to be resolved in the markets of the US and poor loans in China to be resolved and this is not going to be pretty. As you might already now, the City of Chicago has no money, the state of Illinois is running broke from pension obligations and the US government is going to run a 2 trillion dollar deficit next year. Funding all of these is going to suck money out of the economy and that realization is just around the corner now.

In a year how this is going to play out will be much clearer than it is at this time and cash money will be worth quite a bit more than it is today. The BDI has been sinking again for 3 months and has been a terrific leading indicator for the past 2 years on the directions in markets as a whole.

Any big jump in inflation, which would make jumping into housing as quick as possible would be foreshadowed by interest rates quickly moving up in excess of 6 percent, this same action will hold home prices down even as interest rates go down due to cost of financing and would be the time to buy a house. Far more likely though is another big downdraft in prices as taxes and economic activity cause record amounts of loans to implode, either way I think waiting is the best bet.

 

[brewer12345]

A suggestion:

Be very conservative in your investment portfolio (i.e. lots of bonds, TIPS, CDs, cash, etc.). You are in a higher risk career path with a high burnout rate and high income volatility. As such, it would be disastrous to have your career come apart at the same time as your investments. So play it safe, be conservative with you portfolio and pile up the ducats while you can.

 

[nun]

You should obviously be maxing out 401k and ROTH and then I'd set up an automatic investment plan with someone like Vanguard. As your time horizon for this money is less than 10 years I'd be fairly conservative, maybe 50/50 income to equities.