T Nation

Tips for Investing in Youth


#1

In addition to some other things I am working on Ive also been reading a lot about investing and making smart financial decisions. Ive got about 2 grand in savings, 1000-1500 Id like to invest. My gut feeling tells me the market is overvalued right now (stock prices don't match increases (or lack their of) in growth of wealth in the middle class) and I anticipate that we are up for another dip, at which point in time Id like to invest when everybody is scrambling to get out.

Ive been reading about investing in the euro or foreign stocks too, but I doubt with a small sum of $1000 that will be an option. Some of my research has also lead to the conclusion that investment in hard assets or necessities (water, electricity, real estate, etc) is the way to go right now. Currently I've got matching contribution in my 401K up to 6%, so that is taken care of.

Any ideas are helpful; there is a lot to learn on your own!


#2

I thought this thread was going to be about underage sex/slave trade or something of that nature. The thread title is deceiving.


#3

You can afford one lot of a $10-15 priced stock right now, before fees.

Put that grand in a savings account for a rainy day, and keep reading and saving for now.

Up your 401(k) to 10% (16% total with match) or to the max, whatever the most you can afford right now…


#4

[quote]Aero51 wrote:
In addition to some other things I am working on Ive also been reading a lot about investing and making smart financial decisions. Ive got about 2 grand in savings, 1000-1500 Id like to invest. My gut feeling tells me the market is overvalued right now (stock prices don’t match increases (or lack their of) in growth of wealth in the middle class) and I anticipate that we are up for another dip, at which point in time Id like to invest when everybody is scrambling to get out.

Ive been reading about investing in the euro or foreign stocks too, but I doubt with a small sum of $1000 that will be an option. Some of my research has also lead to the conclusion that investment in hard assets or necessities (water, electricity, real estate, etc) is the way to go right now. Currently I’ve got matching contribution in my 401K up to 6%, so that is taken care of.

Any ideas are helpful; there is a lot to learn on your own!

[/quote]

Your gut huh…

What is your goal with this?

If you aren’t a broker and/or you aren’t going to use a professional I would suggest the following if your goal retirement wealth:

  1. Rainy day fund 2-6 months of salary
  2. Max out annual 401(k) contributions if you have a 401(k).
  3. Max out annual Roth IRA contribution while you’re still in a low tax bracket.
  4. Max out annual Traditional IRA

It ain’t sexy, but it’ll get you to a solid enjoyable retirement.


#5

#2 should actually be: pay off any outstanding debt.


#6

How much does a broker cost? My understanding is cheap ones aren’t very helpful and the best are only accessible to millionaires.
I think I am rightfully concerned about a bubble in the market by the way. Im not expert but anyone who takes the time to read can see the stock market has shot up completely disproportionally to the wealth of the average American. Im not sure how this is sustainable or reflects “recovery”.

I don’t have a mortgage or credit card debt but I do have car payments and student loan payments I make monthly. Student loan payments are already at 500/month and the car payment is at 350/month. Rent is $730. The car payment will be paid off in 5 years… The student loans… I don’t want to think about (around 20 because I am overpaying each month right now).


#7

[quote]Aero51 wrote:
How much does a broker cost? My understanding is cheap ones aren’t very helpful and the best are only accessible to millionaires.
I think I am rightfully concerned about a bubble in the market by the way. Im not expert but anyone who takes the time to read can see the stock market has shot up completely disproportionally to the wealth of the average American. Im not sure how this is sustainable or reflects “recovery”.

I don’t have a mortgage or credit card debt but I do have car payments and student loan payments I make monthly. Student loan payments are already at 500/month and the car payment is at 350/month. Rent is $730. The car payment will be paid off in 5 years… The student loans… I don’t want to think about (around 20 because I am overpaying each month right now). [/quote]

What’s the interest rate on the car loan?


#8

You cannot time the market, so you shouldn’t even try. Are you comfortable with the prospect of losing a substantial amount of your original investment in the short term? If not you should not be in the stock market.

If you are in it for the long haul, your best bet is use a passive, low-cost index vehicle, like an S&P 500 fund or a Russell 2k or 3k fund.

If you are in a low tax bracket, take advantage of the Roth option. Keep fixed-income (bond) like investments in there while holding your stock investments in a taxable account. To the extent that stocks don’t pay any dividends, they have a built-in tax deferral so there is little reason to keep them in a tax-advantaged account.


#9

[quote]Aero51 wrote:
How much does a broker cost? [/quote]

It depends.

[quote]
My understanding is cheap ones aren’t very helpful and the best are only accessible to millionaires. [/quote]

Cheaper ones are more than likely going to be less helpful and your portfolio (I’m assuming here) is going to be too small for most firms.

[quote]
I think I am rightfully concerned about a bubble in the market by the way. Im not expert but anyone who takes the time to read can see the stock market has shot up completely disproportionally to the wealth of the average American. Im not sure how this is sustainable or reflects “recovery”.[/quote]

People made money during the recession…

My point is that the blanket statement you made is exactly why you should be careful about dabbling in the stock market, imo. It isn’t so simple as “The market” goes up and down and we’re due for a down.

[quote]
I don’t have a mortgage or credit card debt but I do have car payments and student loan payments I make monthly. Student loan payments are already at 500/month and the car payment is at 350/month. Rent is $730. The car payment will be paid off in 5 years… The student loans… I don’t want to think about (around 20 because I am overpaying each month right now). [/quote]

How much interest are you paying on the car loan and the student loans? Can you reasonably expect to see a greater ROI in the stock market over paying down an interest bearing loan?


#10

You can also use that roll to make smarter purchases of stuff you’re going to pay for anyway.

Like you KNOW you’re gonna work out this year. So pay for the year at the gym up front to get 3 months free. That $95 “savings” is real money.

Meal plan and grocery shop or pack lunches or whatever to save a few bucks. Grocery shop somewhere that sells gas, and gives you points. Fill up once a week on “Fantastic Friday” or whatever they call it when you use your points for discounts.

Buy handles (1.75 litre bottles) instead of Fifths of liquor.


#11

Pay off your car loan. You don’t have much money to invest, so shedding some debt and increasing your cashflow will be much more effective later on. Also, I believe that the market is over valued(I know, you can’t time the market but this is a fact according to historic market P/E ratios) and the fed will be raising interest rates in the next year or so, so were due for a market correction.

By paying off your debts and allowing the market P/E to drop a bit, you will be in a great place to invest all your excess cash month after month.

Also, while you start your career, the easiest (IMO) is to pick up a market ETF like VTI. Vanguard is great in that the investors own the company vs. loaded mutual funds that are run by money managers(who are paid on commissions). Until you educate yourself more on investing, this is the simplest way to go.


#12

I wouldn’t invest in the stock market without any savings excess the price of a new car or down payment for home (if you don’t have one yet). Also now is a bad time to start investing for anyone given the market conditions, if you’ve been incrementally investing thats one thing but dumping in everything you have now to start is a horrible plan.


#13

[quote]usmccds423 wrote:

How much interest are you paying on the car loan and the student loans? Can you reasonably expect to see a greater ROI in the stock market over paying down an interest bearing loan? [/quote]

Pretty much all that needs to be said. If you’re paying more than, say 5 percent, pay off the damn loans first.

I was also thrown off by the title. I thought it was going to be about volunteering or mentoring or something.

Super basic financial advice:
1 - Make a budget, cut frivolous expenses, and set goals (short term: pay off car loan, and long term: retire by 70 w/ $1,000,000)
2 - Save emergency fund
3 - Max out 401k contribution
4 - Pay off high interest debts (over 4 percent or so)
5 - Maximize IRA contribution for the year (something w/ a low expense ratio)
6 - Pay off school loans (this may fall under high interest if it’s grad school)
7 - Add to 401k
8 - Save for other goals


#14

I like this…


#15

^Ya I like that too.


#16

I was thinking of selling the car actually, I would break even on it and not owe any additional money. I could pust most of what I would save towards the student loans and pay it off in a shorter time period. I also think a lot of those charts aren’t applicable in todays economy for young people because of these fucking student loans. I owe 66 grand with a 6% interest rate, which requires laying out about 700$/month to pay it off in 10 years.

It is basically financial slavery for a few reasons, but I wont get into those views here. I see a lot of people scambling to pay it off as fast as possible, and I just don’t know if that is the smartest way. What is the point of living in poverty for 10 years? So I was trying to think of a creative way out of the debt aside from killing myself or leaving the country.


#17

Because basically, if you pay the loans off quickly investing anything else isn’t possible (savings, retirement, you name it). If you make lower payments the interest accrues and you have to pay the interest off before the principle. It is completely bullshit and many people my age are hurting because of the predatory loan practices the federal government and private lenders have taken.

You cant get a job without a degree…blah blah blah…I would have been better off hanging out with the stoners in high school who never got a degree and work in a gas station. And then you have these asshole kids and their egos who think they are high and mighty for sacrificing everything to pay the debt, when in reality they are just validating predatory lending in the first place. I’ve thought about just refusing to pay and protesting too, but nobody has the balls to do it with me.

Im thinking investing might be my only way out of this.


#18

[quote]Aero51 wrote:
I also think a lot of those charts aren’t applicable in todays economy for young people because of these fucking student loans. [/quote]

The type of loan is irrelevant. Interest is interest is interest. Saving on interest expense is real money in your pocket.

[quote]
I owe 66 grand with a 6% interest rate, which requires laying out about 700$/month to pay it off in 10 years. [/quote]

Is that the minimum payment? Can you afford to pay $50-$100 more?

[quote]
It is basically financial slavery for a few reasons, but I wont get into those views here. [/quote]

That’s probably good thing because most here are going to disagree. Slavery has never been voluntary last I checked…

[quote]
I see a lot of people scambling to pay it off as fast as possible, and I just don’t know if that is the smartest way. [/quote]

It’s very smart.

[quote]
What is the point of living in poverty for 10 years? [/quote]

No one has suggested that. Everyone is saying to be frugal and plan for long term financial success.

[quote]
So I was trying to think of a creative way out of the debt aside from killing myself or leaving the country. [/quote]

Jesus…

Take that $2K to Atlantic City and roll the dice then.


#19

[quote]Aero51 wrote:
Because basically, if you pay the loans off quickly investing anything else isn’t possible (savings, retirement, you name it). [/quote]

You don’t need to invest in anything other than an emergency fund and your work retirement plan. There is absolutely no need to dabble in the stock market when you have a 10 year 6% and 5 year x% loan outstanding. You’ll be spinning your financial wheels and more than likely rolling backwards.

1)Sell your car and buy a beater that gets the job done. Use cash if possible.
2)Continue to get the 401(k) match.
3)Put $100 in a separate bank account every month for an emergency (use direct deposit if your company does that).
4)Come up with a reasonable plan to pay your student loans off as quickly as possible.
5)Bank whatever else you can .

[quote]
If you make lower payments the interest accrues and you have to pay the interest off before the principle. It is completely bullshit and many people my age are hurting because of the predatory loan practices the federal government and private lenders have taken.[/quote]

You can’t see it, but I’m playing my heart cries for you on the worlds tiniest violin as I type this.

No one made you take those loans out. No one.

[quote]
You cant get a job without a degree…blah blah blah…I would have been better off hanging out with the stoners in high school who never got a degree and work in a gas station. [/quote]

This is ridiculous. You’re an engineer if memory serves. I’d guess $50-$55K at least. Your stoner friends probably make $15K a year at said gas station. Get some perspective man…

[quote]
And then you have these asshole kids and their egos who think they are high and mighty for sacrificing everything to pay the debt, when in reality they are just validating predatory lending in the first place. [/quote]

Why do you care what other people think?

[quote]
I’ve thought about just refusing to pay and protesting too, but nobody has the balls to do it with me.[/quote]

Great, another defaulted loan I can help pay for. Are you going to give your degree back?

[quote]
Im thinking investing might be my only way out of this.[/quote]

IMHO this is a terrible idea and it’s a terrible idea because you are thinking too small. Life does not exist in a bubble. The gains you make in the stock market (less trading prices, commission, etc…) have to be greater than the savings you would achieve by paying off your debt.

Why don’t you get a part time job and put every penny of that income into your student loans?


#20

[quote]usmccds423 wrote:

[quote]Aero51 wrote:
I also think a lot of those charts aren’t applicable in todays economy for young people because of these fucking student loans. [/quote]

The type of loan is irrelevant. Interest is interest is interest. Saving on interest expense is real money in your pocket.

[quote]
I owe 66 grand with a 6% interest rate, which requires laying out about 700$/month to pay it off in 10 years. [/quote]

Is that the minimum payment? Can you afford to pay $50-$100 more?

[quote]
It is basically financial slavery for a few reasons, but I wont get into those views here. [/quote]

That’s probably good thing because most here are going to disagree. Slavery has never been voluntary last I checked…

[quote]
I see a lot of people scambling to pay it off as fast as possible, and I just don’t know if that is the smartest way. [/quote]

It’s very smart.

[quote]
What is the point of living in poverty for 10 years? [/quote]

No one has suggested that. Everyone is saying to be frugal and plan for long term financial success.

[quote]
So I was trying to think of a creative way out of the debt aside from killing myself or leaving the country. [/quote]

Jesus…

Take that $2K to Atlantic City and roll the dice then. [/quote]

1)No, these lenders are sneaky, you can actually pay less than the interest accrued. I absolutely cannot afford above 500 (which I am paying now).

  1. It is financial slavery for a few very serious reasons. Amongst them student loans cannot be discharged in bankruptcy (they are in the same category as child support and court expenses, so if you miss a payment you can have your wages garnished, go to jail, lose your retirement and social security, permanently destroyed credit, etc). You can go to vegas, gamble, lose everything, and get forgiveness, yet you have to live like shit for the next 10-30 years if you went to college? I’m sorry, but you know that is bullshit and completely unreasonable. Not to mention congress doubled the interest rates around 2013, just because they could. If they raise them again I’m not paying. I’m done getting taken advantage of. /endrant

  2. It is not a matter of suggestion it is a matter of fact. Between rent, car loan, electric/water bills, and taxes, there is not room for anything else. Do you understand what that means? No savings, no retirement, no vacation, no saving for a house, no new clothes, no emergency bills, no additional investments in education. I am paying less so maybe I can afford these things, maybe invest in myself and make more money and live a better life.

  3. I’m sick of explaining this to the older generation who have this archaic mindset from 40 years ago “When I was living like you kids I walked 15 miles both ways and got’s me a summer job on pappy’s farm and paid my dem der schoolin of in 1 summer!” Older people today have no clue what it is like to be young in America today and make it on your own. Call me an asshole but I don’t have a million saved up in retirement to fall back on if things go south.