Investment strategies for a young adult

[Tonelli]

Hi all,

22-year-old college senior here. Will be entering the workforce in May making solid money at a large financial services company in Boston and am looking to plan out my short-term financial future.

First, some background on myself: intermediate investment knowledge (finance & accounting major, but never got too into the investments side of my curriculum) and pretty risk averse. I'm looking for an ideal investment strategy that gives me the opportunity to play around with my money while still earning a positive return.

My company matches my pre-tax 401(k) contributions dollar-for-dollar up to 4%. I'm aware of the effect of compound interest - however, what is an ideal amount to save? I'm not sure on any sort of cap yet, but I'm assuming its in the 10-15% range. Should I only put away the 4% each month and invest on the side? Or should I put in somewhere up to 10% + the company's 4% and forget any side investments?

Assuming I'm able to just SAVE over the next 3-5 years, what would mags suggest in terms of investing in the market? Being that I'm risk averse but still very young, I was thinking of looking into different small-cap mutual funds (full disclosure: the company I will be working for provides numerous mutual funds, which they offer to employees free of sales charges).

Like I've said - I'm not looking to retire by the time I'm 40. I just want to put money away and dabble in the market. Outside of rent, bills, loans (which are very manageable - shout out to mom and pops for that) and general expenses I'd say I'm relatively low maintenance. Once I get my feet under me I plan on visiting some friends out west, but other than that I don't foresee any huge investments.

I'm open to any suggestions/advice

[Dubbs]

Open a roth and max it out every year you can. Contribute as much to your 401k as you feel comfortable doing. Small cap is generally pretty volatile, thus not great for the risk adverse. However, it should play a part in your portfolio. Just make sure you have a nicely diversified portfolio and build it according to your risk tolerance. Though as a young dude you should be fairly aggressive. You're on the right track though. Can't start too early. Good luck!

[AdironRider]

I think you need to self assess a bit more. Everyone is on easy street after rent, bills, and loans.

Smarmy reply aside, put a minimum of 4% into your 401k. The match is a 100% return right off the bat so you cant beat that anywhere.

Then Id check out the offerings available there to see if its worth more. Some 401k plans can be shitty, do some research on all the funds available to you and see if its worth it. Just because your expense ratios will be small thats really only .5 or so of a point when it comes down to it, something better management can easily overcome.

If its good put more in. Id be shooting for 20% (with the match) of your income to go into savings, mostly retirement and like 5% for accessible funds. Do it now and let it work.

If the plan sucks, still plan on saving 20%, but just do the 4% to get the match and then buy some high yielding dividend etfs through a Roth IRA. You want taxable and non taxable accounts so if your going outside the company, you might as well start with a Roth. You can play around a bit here and see how you feel. You say you arent that risky but thats just talk till some moneys on the line. I know my investment strategy did once I saw my decisions costing me money.

I wouldnt invest a penny more than the 4% for the match until I had a couple g's for the inevitable bullshit that happens, then go for the 20%.

So yeah, these steps.

Save a bit for oh shit moments.

Start at the 4% match level and see how life feels. Paying for everything on your own is always more expensive than you think compared to the high school and college lifestyle youve lived so far.

Step up the investments once your comfortable in either the 401k or elsewhere once you are indeed comfortable and know how you handle market ups and downs.

Profit.

[ICEHOCEY77]

frozen concentrated orange juice

[hutash]

Hookers and blow, where else to pit your money?

[DirkaDirkaJack]

buy moar skis.

[Hugh Conway]

Start a bowl of dicks franchise in Boston.

[The Reverend Floater]

The fact that you are even thinking about saving puts you ahead of most people your age, so I'd quit your job and move to a ski town.

[Phill]

blue horseshoe loves anacott steel

[Hugh Conway]

Very nice. So what is it, *Mr.* Cocksucker now?

[keipow]

save money and pay your loans off.

[Platinum Pete]

1. Keep your lifestyle low cost
2. Do not buy things that depreciate dramatically, like cars and electronics
3. Do not buy on credit unless it is a house, and even then think thrice
4. Get the 4% match and save even more
5. Save up an emergency fund
6. Pay off loans ASAP
7. Monitor and maintain an excellent, spotless, credit report
Handle all that and you'll have plenty of dough leftover for saving. Maybe you'll be able to retire, whether you wish to or not, by the time yu are 40 - wouldn't it be great to have that choice?
Basically, you will not feel any pain saving a lot if you do not create an expensive lifestyle or pay more than something is worth because you pay interest on it. When it comes time to get a loan (house) you'll save tens of thousands by having a good credit score and getting a lower rate. From there, make sure you know you are getting a great deal - even in the crazy real estate days there were deals to be found. And learn some skills along the way outside of your job skill set - it costs a couple hundred bucks to have a plumber come out to snake a drain when you could, if you know a thing or two, handle it yourself for less than $40 - magnify that kind of thinking across every area of maintenance in your life.
Set yourself up to have way too much money later in life, get ahead and stay ahead, and life will be much simpler. Yeah, more money more problems, but those problems beat living paycheck to paycheck, losing almost everything when you get laid off,and have a steep climb back with a short time frame to get out of any hole. You can sock a lot away and still live well.

[Tuckerman]

buy low sell high

[huckbucket]

buy and hold is dead. just saying.

[goldenshowers]

Go back in time and buy gold or just put away 20-25% of your income and you'll be laughing. Buy real estate but NOT in the US!!!

[Brock Landers]

Do the match at a minimum.

Then figure out what your bills actually are- loans, rent, utilities, food, muff, etc. After that youll get a better idea of what you have on the margins. What you put into a 401k or an IRA will stay there till 59.5 in most cases, so maybe set up a savings account (or two) to save for things like a house in the future, Christmas, etc. Personally, I have one savings account that is strictly inflows, and another that is more of a slush fund.

What % of income that you save versus deposit to 401k versus play the market is totally up to you.

As far as your funds go, working at a financial services firm you may get access to your fund family's products with no charge but there may be access to other families as well. Investing in the R shares limits what youll pay anyway...

Small cap is defintely going to be a part of your portfolio, but figure out what "risk averse" means in real investing terms- risk averse is risk averse no matter what youre talking about, but youre young and may have a different perspective on "risk averse". You could be risk averse and figure over time an aggressive, diversified portfolio has its merits and want to invest that way. Or not- youre not into the volatility and would rather a dampened returns stream. Up to you.

Where are you working in May?

[4matic]

Buy real estate but NOT in the US!!!

Silly..

In the USA you still get the mortgage tax deduction and rates at ridiculous lows. I was looking at property in San Mateo California yesterday and nothing under $1 million was any good. If you can afford it there is no where better than prime locations in the USA.

[4matic]

buy and hold is dead. just saying.

Buy and hold was dead 12 years ago. It's a bit late now...maybe, I know your point but buy and hold has been working ok for the last three years.

To the OP: I save the maximum allowable in my 401k and spend the rest. I save it to the 401k as quickly as I can so I get an extra 7 months return each year. It works for me because I would procrastinate or spend the money to fund an IRA. I have plenty of credit if I need emergency money. There are better ways to save but I like to keep it simple.

[Tuckerman]

buy and hold is dead. just saying.

I have been feeling the same way. It seems like people are not making money on long term investments not compared to the in and out ppl. I don't know.

[XXX-er]

1. Keep your lifestyle low cost
2. Do not buy things that depreciate dramatically, like cars and electronics
3. Do not buy on credit unless it is a house, and even then think thrice
4. Get the 4% match and save even more
5. Save up an emergency fund
6. Pay off loans ASAP
7. Monitor and maintain an excellent, spotless, credit report
Handle all that and you'll have plenty of dough leftover for saving. Maybe you'll be able to retire, whether you wish to or not, by the time yu are 40 - wouldn't it be great to have that choice?
Basically, you will not feel any pain saving a lot if you do not create an expensive lifestyle or pay more than something is worth because you pay interest on it. l.

^^^ there is no way to know right now what investment is going to be hot in 20-30 yrs but anybody who followed the above advice is likely in a better place than someone who didn't ...things have changed a lot in 5 yrs

Investing doesnt have to be high risk or hard to understand just start putting $ away somehow, IMO if you don't understand an investment find something simpler to invest in, if you are going to play the market don't invest in anything you can't afford to lose

[4matic]

I have been feeling the same way. It seems like people are not making money on long term investments not compared to the in and out ppl. I don't know.

Cash pays zero. Ten Year bonds pay 1.8%. DIA trust returned almost 6% this year.

Who are these "in and out" people? Look at hedge funds this year. Terrible.. Trading is a full time job. Banging in and out of stocks has transaction costs and unfavorable tax rates.

[Brock Landers]

S&P returned half a percent.

Though I dont think buy and hold is dead, I think expectations of returns change over time. And every year or even 5 year period wont be great.

[irul&ublo]

Wait....you are going to work at a "large financial services" company and you are asking for advice from a bunch of internet addicted dentists?

[XXX-er]

well at least if you invested in cash you still got cash also there are times when cash is a good thing and the big one ...you did something

IME you can do the smartest things or the stupidest things cuz its really not much different than cashing in yer chips at poker night ...you count your winnings at the end

[Tonelli]

If its good put more in. Id be shooting for 20% (with the match) of your income to go into savings, mostly retirement and like 5% for accessible funds. Do it now and let it work.

Are there certain plans that I should avoid? I'm familiar with the difference between Roth and traditional, but aside from that are there any curveballs I should look for?

Then figure out what your bills actually are- loans, rent, utilities, food, muff, etc. After that youll get a better idea of what you have on the margins. What you put into a 401k or an IRA will stay there till 59.5 in most cases, so maybe set up a savings account (or two) to save for things like a house in the future, Christmas, etc. Personally, I have one savings account that is strictly inflows, and another that is more of a slush fund.

Based on decently conservative estimates, what I am considering as necessary expenses (401k, health insurance, loans, food, rent, cell phone) are about 64% of after-tax income. Setting up a separate savings account is something I've been considering but haven't acted on (considering I barely have enough $$ now to keep a checking account open!)

Small cap is defintely going to be a part of your portfolio, but figure out what "risk averse" means in real investing terms- risk averse is risk averse no matter what youre talking about, but youre young and may have a different perspective on "risk averse".

I've been creating a mock portfolio with some of the funds available to me free of sales charge. The minimum is $2500, which will likely take at least a few months to put together. I haven't read too much fine print, but is this an ACCOUNT minimum or a minimum required to invest in each fund?

Where are you working in May?

Call me paranoid, but I'm hesitant to shout it out over an online forum. The company is HQ'd in Boston and is the namesake of a certain founding father - I trust that is enough information for you.

Wait....you are going to work at a "large financial services" company and you are asking for advice from a bunch of internet addicted dentists?

I must have BS'ed well enough during the interview. If I go broke, I'm blaming you guys...