T Nation

Advice On Saving For Retirement

Hello,

I’m turning 26 in a few days and my mind has been on planning for the long term suddenly. i havent saved more than 10g after 4 years of making 55g a year. I’ve lost about 30g total trading options in the last 3 and have decided to stop doing that. duh?

I had always heard about something where you invest 5,000 a year from age 20-25 and then stop. by age 65 it;s like a million dollars or something but no one really explained exactly how it worked.

having just finished my 25th year, i feel like i missed a great opprotunity.

my band is going to release an album in a month or so and i feel that we have what it takes to make it big, but i want some sound investing advice. just in in case.

thanks

[quote]cesliwakan wrote:
Hello,

I’m turning 26 in a few days and my mind has been on planning for the long term suddenly. i havent saved more than 10g after 4 years of making 55g a year. I’ve lost about 30g total trading options in the last 3 and have decided to stop doing that. duh?

I had always heard about something where you invest 5,000 a year from age 20-25 and then stop. by age 65 it;s like a million dollars or something but no one really explained exactly how it worked.

having just finished my 25th year, i feel like i missed a great opprotunity.

my band is going to release an album in a minth or so and i feel that we habe what it takes to make it big, but i want some sound investing advice. just in in case.

thanks

[/quote]

Trading options? Are you crazy? You should have just gone to Vegas.

I learned a lot reading the Motley Fool articles back in the mid 1990s. They still exist, in fact they may have gained even more credibility since then. Personally, I would look to an investing website for investing advice, as opposed to say a bodybuilding site.

I also heard someone (Shugart) recently mention Dave Ramsey in a positive light.

1.) forget options

2.) start an IRA or 401K (Depending on your situation)

3.) find an index or retirement date fund (Like fidelity’s Freedom Funds).

4.) set up 5% to 10% of your paycheck to be deposited automaticaly

5.) look at it and re-evaluate it once a year.

6.) don’t freak out if it looses $ occasionaly. you’re not going to retire tomorrow and responding to every market fluxuation is a great way to go crazy.

La’
Redsol1

Google future value. You will come up with many sites that have calculators, and explanations of the idea.

As to your question. If you have $25k at age 25 and leave it invested for 40 years will you have $1M? The answer is,it depends. If you get a 10% return on the money you will have over $1.1M. If you get a 5% return you’ll have around $176k.

The reason for this is compound interest. You earn interest on the money and each year the balance grows which means you have a higher principal that earns interest. Post up some more information, do you have a steady income or are you in a band full time? Family or plans for one?

Are you a risk taker or risk adverse regarding money. These are some of the questions you need to ask yourself.

[quote]cesliwakan wrote:
Hello,

I’m turning 26 in a few days and my mind has been on planning for the long term suddenly. i havent saved more than 10g after 4 years of making 55g a year. I’ve lost about 30g total trading options in the last 3 and have decided to stop doing that. duh?

I had always heard about something where you invest 5,000 a year from age 20-25 and then stop. by age 65 it;s like a million dollars or something but no one really explained exactly how it worked.

having just finished my 25th year, i feel like i missed a great opprotunity.

my band is going to release an album in a minth or so and i feel that we habe what it takes to make it big, but i want some sound investing advice. just in in case.

thanks

[/quote]

First, it’s good to see you are thinking about your future. Consider the $30g an expensive education! :slight_smile:

In regards to trading options, futures (or even shorting stock), I remember what a hedge fund manager told me once:
(paraphrase)
“buying stock for the long term, you just have to be right, shorting (or options and futures) you need to be right and right NOW”!

As for the investing $5000 between ages 20-25 (6 total yrs of investing at the beginning of each year) simply implies you earn ~8.5% each year and your investment is shielded from taxes. However if you only return 6% you’d end up with only $380,000 (10% would give you $1.9 million).

If you could actually put away $5000 each year starting at age 27-32 (again 6 yrs and at the beginning of the year) $595 thousand (again tax shielded).

The bottom line is you save what you can by determining what do you really want to do with your money? You don’t want to waste money now and hinder your later years, but you also don’t want to lose out on life now by only saving for your later years.

“Spend now or spend later?”

Good luck with the music and the investing.

[quote]Loose Tool wrote:
Trading options? Are you crazy? You should have just gone to Vegas.

I learned a lot reading the Motley Fool articles back in the mid 1990s. They still exist, in fact they may have gained even more credibility since then. Personally, I would look to an investing website for investing advice, as opposed to say a bodybuilding site.

I also heard someone (Shugart) recently mention Dave Ramsey in a positive light.

http://en.wikipedia.org/wiki/Dave_Ramsey[/quote]

i know. yes i am crazy. or greedy. pigs get slaughtered right?
just becuase this is a bodybuilding site dosen’t mean i cant find people on here who have sound investing advice.

[quote]john2009 wrote:
Google future value. You will come up with many sites that have calculators, and explanations of the idea.

As to your question. If you have $25k at age 25 and leave it invested for 40 years will you have $1M? The answer is,it depends. If you get a 10% return on the money you will have over $1.1M. If you get a 5% return you’ll have around $176k.

The reason for this is compound interest. You earn interest on the money and each year the balance grows which means you have a higher principal that earns interest. Post up some more information, do you have a steady income or are you in a band full time? Family or plans for one?

Are you a risk taker or risk adverse regarding money. These are some of the questions you need to ask yourself.[/quote]

right now i am making steady income. obviously i am not too risk adverse, or maybe it’s just stupid. hmmmm. hopefully the band thing will take up more of my time and we’ll get signed and make millions. but just in case.

i understand the idea of compounding interest but where do you get a consistant 10% return? in theory you could get a 10% depreciation one year and it’d throw the whole thing off.

http://www.amazon.com/Four-Pillars-Investing-Building-Portfolio/dp/0071385290/ref=pd_bbs_sr_1/105-0098378-7577276?ie=UTF8&s=books&qid=1173275688&sr=8-1

Good morning and good night.

[quote]Ruggerlife wrote:
cesliwakan wrote:
Hello,

I’m turning 26 in a few days and my mind has been on planning for the long term suddenly. i havent saved more than 10g after 4 years of making 55g a year. I’ve lost about 30g total trading options in the last 3 and have decided to stop doing that. duh?

I had always heard about something where you invest 5,000 a year from age 20-25 and then stop. by age 65 it;s like a million dollars or something but no one really explained exactly how it worked.

having just finished my 25th year, i feel like i missed a great opprotunity.

my band is going to release an album in a minth or so and i feel that we habe what it takes to make it big, but i want some sound investing advice. just in in case.

thanks

First, it’s good to see you are thinking about your future. Consider the $30g an expensive education! :slight_smile:

In regards to trading options, futures (or even shorting stock), I remember what a hedge fund manager told me once:
(paraphrase)
“buying stock for the long term, you just have to be right, shorting (or options and futures) you need to be right and right NOW”!

As for the investing $5000 between ages 20-25 (6 total yrs of investing at the beginning of each year) simply implies you earn ~8.5% each year and your investment is shielded from taxes. However if you only return 6% you’d end up with only $380,000 (10% would give you $1.9 million).

If you could actually put away $5000 each year starting at age 27-32 (again 6 yrs and at the beginning of the year) $595 thousand (again tax shielded).

The bottom line is you save what you can by determining what do you really want to do with your money? You don’t want to waste money now and hinder your later years, but you also don’t want to lose out on life now by only saving for your later years.

“Spend now or spend later?”

Good luck with the music and the investing.[/quote]

thank you!

if i start putting away 5g a year where do i put it though? tax protected would be a roth ira right? but how do a set things up to give me the 8.5 -10 percent per year? and i think there are limits to roth ira yearly contributions right?

Start a Roth IRA and add to it when you can afford to do so.

[quote]cesliwakan wrote:
Hello,

I’m turning 26 in a few days and my mind has been on planning for the long term suddenly. i havent saved more than 10g after 4 years of making 55g a year. I’ve lost about 30g total trading options in the last 3 and have decided to stop doing that. duh?

I had always heard about something where you invest 5,000 a year from age 20-25 and then stop. by age 65 it;s like a million dollars or something but no one really explained exactly how it worked.

having just finished my 25th year, i feel like i missed a great opprotunity.

my band is going to release an album in a month or so and i feel that we have what it takes to make it big, but i want some sound investing advice. just in in case.

thanks

[/quote]

If you are able to I would first look into the ROTH accounts such as the ROTH 401(k) which is fairly new. As for your market investments I would find a good mutual fund and put your money in it for the long term.

It is impossible to give you specific financial advise to your current needs and situation over the internet, so I would suggest going to a Northwestern Mutual location and they may be better able to help you set up a tax sheltor and plan for the long term. (I only suggest them b/c they have such a good track record, but other places are doable as well.)

As for picking out stocks, mutual funds, ect. you do not need a broker but should do some reading in advance. Since you were trading options and lost that much I would suggest an easier read to begin with such as Suze Orman.

Once you find a company you like to invest in or mutual fund I suggest going to a public library and looking in Value Line and see what they say about the company.

All else fails and you just want a short term buck, look at yahoo finance and see their 5 stocks you need to know for today. They are usually good in the short term, but be prepared to lose some money on some of the picks.
If you have any other questions PM me.
Pierce (B.S. in Finance and Accounting)

[quote]redsol1 wrote:
Some good stuff including…

2.) start an IRA or 401K (Depending on your situation)

[/quote]

To go into a little more detail here… If your current employer offers matching for the 401K then do that first. The match is basically like free money, and your contribution comes out before taxes so you will miss it less. After that, pump money into your Roth IRA.

As far as quick simple answers

  1. I’m a fan of Suze Orman. Read the Young Fabulous and Broke book. (I know the title sounds like it will sap your T. Just read it.)

  2. Figure out where your money is going with Moneydance or Quicken. Software like this takes a little time to setup, (maybe a couple hours depending on number of accounts and how user friendly your bank is) but once in place, it takes like 5 minutes a month to download bank/cc transactions, then label them as food/rent/hookers/booze.

Then they can spit out little graphs so you can see if you really are blowing cash on stupid shit as opposed to necessities. This drastically changed my spending habits.

A good advice column:

[i]Advice I’ll Pass Along to My Daughter
December 10, 2006

In 1985, I graduated from college. This past August, I dropped off my daughter Hannah for her freshman year.

Despite the two decades in between, I can still vividly recall the financial struggles of early adulthood, including grappling with credit-card debt, scrambling to come up with a house down payment and watching as one of my stocks plunged 80% in a few short months.

Hannah, of course, will have her own financial struggles, and those will teach her far more about money than I ever could. Still, there are nine key financial insights I’m hoping to pass along – and most have precious little to do with picking stocks and buying mutual funds.

1 More isn’t always better.

Money may not make you happy. But it could make you desperately unhappy. Lots of folks stagger through life, buffeted by credit-card debt, unpaid bills and gnawing fears about their financial future.

Sure, these worries are more likely to hit those with lower incomes. But don’t kid yourself: Collecting a handsome salary won’t necessarily save you from financial stress. How you handle money is far more important than how much you earn.

2 Forget appearances.

That brings us to the family down the road, living in the McMansion with the pristine lawn and his and her European sedans gracing the driveway.

You can’t be sure the family has a boatload of money. But you can be absolutely certain they’ve spent a boatload. In fact, the cars may be leased, the house may be fully mortgaged and the couple may spend their evenings huddled over the kitchen table, sweating over how they will pay the bills.

3 Save yourself.

All of this is a reminder that the secret to financial success isn’t much of a secret: You’ve got to spend less than you earn.

And, no, you won’t be missing out. You may get a brief thrill from the new sofa or the faster car. But, as everybody eventually learns, the thrill doesn’t last and soon enough you are lusting after something else.

Indeed, it is one of those basic life choices: You can spend your days chasing after material goods that will always ultimately disappoint – or you can step off this treadmill, reduce your financial stress and instead devote your energies to far surer roads to happiness, such as seeing friends, pursuing hobbies and helping others.

4 Buy right.

I am not suggesting that you constantly defer gratification and that you always pinch pennies. This isn’t just an unpleasant way to lead your life. It can also be shortsighted, especially when it comes to possibly the biggest financial decision you will ever make: buying a home.

If you are purchasing a house in an area where you foresee staying for a long time, consider stretching to buy the home you really want, even if it is a little more expensive than you can truly afford. The fact is, trading up is enormously expensive, so your best bet is to buy the right house the first time around.

5 Valuable lesson.

If you can develop some financial competence, you will save yourself a lifetime of heartache and a heap of money. Suppose that, over the course of your adult life, you have an average portfolio balance of $250,000.

If you use a broker or financial planner, you might pay the adviser 1% of that sum each year, or $2,500. That is $2,500 you would save if you learn to manage your own money.

Maybe more important, by learning to build your own portfolio and pick your own mutual funds, you will have that comforting sense of control that comes with fully understanding your finances.

6 Give it time.

As soon as you enter the work force, start saving and investing. Initially, your financial progress will seem agonizingly slow and the sacrifice involved will hardly seem worth it.

But if you sock away 10% or 15% of your salary every year for 10 or 15 years, you should hit critical mass – and suddenly your portfolio will start growing by leaps and bounds.

7 Buy yourself options.

This burgeoning wealth could come at just the right time.

At age 22, your career may fill you with excitement. At age 42, the excitement will likely have faded and you may be hankering for a change. If you have money, you have options.

What if you have little or no savings? Put it this way: It’s pretty depressing to be in your 40s, stuck in a job you hate – and knowing it will be decades before you can escape.

8 Sit quietly.

We all tend to think we’re better-than-average drivers, pretty good looking and smarter than most. This overconfidence spills over into our investing and fuels our headstrong pursuit of market-beating returns.

Yet this is almost always self-defeating. Trying to beat the market typically involves a heap of investment costs, and those costs mean our efforts to beat the market usually fail miserably. Indeed, you will probably fare far better by sitting quietly with a handful of low-cost mutual funds, preferably market-tracking index funds.

But it isn’t just that efforts to beat the market are usually self-defeating. They are also unnecessary. Want to retire rich? All it takes is time and regular savings.

9 Know yourself.

Overconfident investors misjudge not only the markets, but also themselves.

It is easy to talk tough and act brave when the market is going up. It’s a completely different story when prices are headed the other way.

The reality is, until you have been through a brutal bear market, with your portfolio deeply underwater and everyone around you filled with doom and gloom, you won’t truly know how much risk you can tolerate.

Self-confident, decisive action may serve you well in the work world. But in the financial markets, it will leave you with a fistful of disappointing stocks and a longer road to retirement. My advice? Try humility.[/i]

As for your investments, go with the Roth IRA as you have a relatively low tax bracket now – you will not get to deduct now, but the money will grow tax free and, more importantly and in contrast with a traditional IRA, can be withdrawn tax free (and is not subject to minimums either).

Then just try to be diverse – I would recommend buying a diverse mix of ETFs and then adding as you can. In the alternative, you could go with mutual funds – many have lower initial required purchases within an IRA account.

I would recommend this ETF mix for starters:

Total domestic stock fund: iShares Russell 3,000 (IWV), iShares S&P 1,500 (ISI), Dow Jones Total Market Index (IYY) or Vanguard Vipers Total Market Index (VTI).

Total international stock fund: iShares Morgan Stanley EAFE (EFA)

Treasury inflation-protected securities fund: iShares Lehman TIPS (TIP)

After that building block, if you want some more diversity, try some of these:

A REIT fund: iShares Dow Jones U.S. Real Estate Index (IYR) or iShares Cohen and Steers Realty Majors Index (ICF) or Vanguard REIT Vipers (VNQ).

An energy fund: Vanguard Energy Vipers (VDE) or iShares S&P Global Energy Index (IXC) or iShares Dow Jones U.S. Energy Index (IYE) or SPDR Energy (XLE).

An emerging markets fund: iShares MSCI Emerging Markets Index Fund (EEM) or the Vanguard Emerging Markets VIPERs ETF (VWO).

Note that all three of these sectors have been hot the last few years, so don’t over allocate to any of them at this point.

Unfortunately, there is currently not an ETF that is a good un-hedged international bond mix (it needs to be unhedged to be a good currency risk hedge for you), but this mutual fund would serve that purpose:

American Century International Bond (BEGBX)

It’s never too late to invest. Make sure to think long term and forget any short term “double your money in a year” thoughts. Things that I would consider in this order:

  1. 401K - if this is offered then you would be a fool not to invest. If your company matches, then invest up to the maximum you company matches to start. This is free money so you want to maximize their investment. If your company does not offer a 401K, go to #2 below.
  2. Roth IRA - I would do this once you are able to max out your 401K or at least max out to your company’s match limit. There is a yearly income maximum in order to qualify. At your age I doubt you would be disqualified for a Roth.

Not sure if you are married, but if you are or plan on getting married and have kids then I would also plan on life insurance and then college savings.

  1. Term life/whole life - you should at least look into some sort of life insurance. Term life is cheap, but you are giving money and get no returns (except if you die). A whole/universal life type policy you are putting money into an investment fund with the insurance company. Your policy has a cash value and increases (theoretically) over the years. At retirement you can “borrow” from the fund or take out the full cash value. If you die you get the death benefit amount. Being young and healthy is when you should consider looking into life insurance. Rates are much cheaper than if you wait 10 years or more and you can lock in the rate.
  2. If you have kids, then consider a 529 College Savings account. This is like a Roth IRA for college. You can put money into the investment account and it accrues interest. Each state has their own plan, but you can enroll in any plan from any state. Some state plans have better state tax benefits than others. Once an eligble person (kids, cousin, yourself, etc) enrolls in college (or a qualifying educational institution), you can withdraw the funds to use tax free for tuition, books, etc.

Now if you still have some spare cash after all the above then you can consider other investment options like single stocks, mutuals, options, etc.

I would definitely consult a PROFESSIONAL to get information and help about any of these choices. Even discuss with an accountant. You banking institution have these type people or you can go to an Investment Company. You can do this on your own, but I would still consult with a Pro to get some guidance and options. Be carefull of service charges or other hidden charges if you open an account with them. They will nickle and dime you to death, taking away any profit you may make.

Edit: I forgot to add, if you are renting then you should also consider buying a house or condo. No need to give your money to someone else for a place to live. Take what you are spending on rent use that as a base. Speak to a realtor if consider this option. Invest in a home and you will not regret it. After 2 years if you sell, the profit is tax free.

right now i am making steady income. obviously i am not too risk adverse, or maybe it’s just stupid. hmmmm. hopefully the band thing will take up more of my time and we’ll get signed and make millions. but just in case.

i understand the idea of compounding interest but where do you get a consistant 10% return? in theory you could get a 10% depreciation one year and it’d throw the whole thing off.[/quote]

You’re right, a 10% loss one year could throw things off and when that year happens will make a difference in your total $ at the end. Nothing will pay a guaranteed 10% every year over 40 years. If anyone knows something post it up here.

I’ll start off by saying that my advice shouldn’t count for much, because I just started investing also. I’m 25 and planning on going back to school. Right now though I’m able to put away about $700 a month simply because I don’t have car payments or other bills. I figure out how to do without.

I’m making high risk investments that I believe will pay off, but if they don’t, I’ll have to start over when I get out of med school. If they do, I’ll have part of it payed for all because I didn’t get a new car, and live in a nice house.

[quote]cesliwakan wrote:
thank you!

if i start putting away 5g a year where do i put it though? tax protected would be a roth ira right? but how do a set things up to give me the 8.5 -10 percent per year? and i think there are limits to roth ira yearly contributions right?
[/quote]

Buy a fucking book. While I don’t like to quote people in the athletic field (because they’re usually pretty stupid), I remember Berardi saying a while back how people will spend hours and hours looking for information online instead of spending a few dollars on a book and digesting it.

You don’t need to be an active investor because you clearly know nothing about the market. If you wanted to be an active investor the correct place to start would be a ‘building blocks’ financial book anyway. Go buy A Random Walk Down Wallstreet or The Four Pillars of Investing and stop looking to the internet for answers. There are a few sites that would give you something of value, but nothing ‘pulled together’ like in those books.