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How can I start investing with a modest saving's account?

Discussion in 'Business, Careers & Education' started by GreenFrog, Mar 17, 2011.

  1. GreenFrog

    GreenFrog Senior member

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    I'm a senior in college about to graduate. Still looking for a job, interviewing here and there. I have a modest amount of savings I've accumulated throughout my tenure at college (less than $10k but more than $5K, which is unarguably laughable to some of the big timers out there lol) and I'm trying to figure out what I can do with this instead of it just letting it rot away in my account.

    I'm aware that small capital = small gains, but hey, gotta start somewhere, right? Should I just wait until I get a full-time job and accumulate more capital and then start investing? What should I invest in? I actually wouldn't mind investing in some riskier assets/equity for higher returns, but I wouldn't know where to begin.

    Also, another question I have concerns 401ks. My plan is to max out my 401k contribution each and every single time, but I'm starting to wonder whether that's worth it, considering that that money will be locked away until I can take it out decades later. I'm sort of thinking that maybe I should contribute a modest sum (say, a couple hundred each time) and invest the rest of the money that I would be contributing into something else.

    Does anyone have any insight? I love nice things and love money, but I've come to terms that I need to live with as small a budget as possible and invest as much money as possible so I can take advantage of compounding gains.

    I really have no idea where to start, and while I do realize there are a lot of investor guides and books out there, I'd rather hear some surface level tips from SFers. After getting an idea of what would be best, I will look further into it, whether it be by books or advisors or whatnot.

    So yeah, where the hell do I begin?

    Thanks to anyone who takes the time to give me some advice!
     
  2. acidboy

    acidboy Senior member

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    this is a very very good move on your part and I admire you for it, seriously. wish I did this when I was your age.

    anyways, there are many ways to invest, primarily depending on how much risk you're willing to take. if I were you I'd talk to an investment manager you like and trust to know what your options and goals are. good luck!
     
  3. cretaceous_cretin

    cretaceous_cretin Senior member

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    Max out your 401K, especially if your prospective employer will match part of the contribution. Also look into saving in either a Roth OR regular Individual Retirement Account.

    Whatever you do, learn something about investing, how to read corporate balance sheets, and annual reports. There is probably a good class at your college in the business department on personal investing, or maybe at a college near you after you get a job.

    Learn about bonds and how they work - e.g. the price of a bond goes in the opposite direction of the interest rate, and is also affected by the term of the bond. For instance, now is not a good time to get into bonds, with prevailing interest rates being relatively low, and the Fed pumping up the money supply, higher interest rates will occur at some point in the future, before they will go down. In this case, you would get killed on the price of the bonds when the interest rates do go up.

    Learn about portfolio diversification - "don't put all your eggs in one basket". If you do a search of the forums, you will find several books recommended on the subject. The best advice: educate yourself.
     
  4. GreenFrog

    GreenFrog Senior member

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    So I should max out my 401k, despite there possibly being other investment opportunities out there that could yield better returns? Not trying to argue, just trying to understand whether maxing out my contributions is always the best solution. One of the firms I'm waiting to hear back from said that they match 50% of their employee's contributions. I sure hope I get this job..!!!

    That being said, does anyone have any experience with mortgage REITs? How about bank loan funds?
     
  5. bringusingoodale

    bringusingoodale Senior member

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    Do you have any debts? Best investment for this kind of money is to pay of debts.
     
  6. GreenFrog

    GreenFrog Senior member

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  7. CunningSmeagol

    CunningSmeagol Senior member

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    So I should max out my 401k, despite there possibly being other investment opportunities out there that could yield better returns? Not trying to argue, just trying to understand whether maxing out my contributions is always the best solution. One of the firms I'm waiting to hear back from said that they match 50% of their employee's contributions. I sure hope I get this job..!!!

    That being said, does anyone have any experience with mortgage REITs? How about bank loan funds?


    Yes, if they match it's free money, and if they don't it's still worth the tax incentive. If you have money left over open a brokerage acct and play with options until a) you lose it all and you get the risk out of your system or b) you get rich. Win-win.
     
  8. Matt

    Matt Senior member

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    good thread kiddo. good luck. i wish i'd put a bit away at your age.
     
  9. aj_del

    aj_del Senior member

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    y wife and I started saving for y son's education around 2 onths after his birth. We have 7 accounts in 7 different utual funds and put 5000 INR in each every onth through s systeatic investent plan (SIP). So 35000 INR (~775 USD at todays rate) every onth. We dont intend to withdraw it before his 18th b'day. THinking was to put away enough to get hi through college even if y business / other savings etc went totally bust. [​IMG] the on y keyboard is not working. y suggestions 1. DOnt put all your dough in one place or at one tie, spread it over tie 2. Put it for the long ter so you are unaffected by the short ter swings of the arket
     
  10. Matt

    Matt Senior member

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    you may want to get your M key looked at there AJ [​IMG]
     
  11. aj_del

    aj_del Senior member

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  12. otc

    otc Senior member

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    Unless you make a lot of money right out of school, I wouldn't suggest *maxing* your 401k (as in contributing up to the legal limit).

    I would suggest contributing at least as much as your employer will match.

    Take 5K of what you have now and open a roth IRA (doesn't even have to be all 5k). You can still count this as a 2010 contribution if you act fast. Since you probably paid very little to no taxes on this money as a student...the downside of the roth (having to pay taxes first) doesn't apply and you will be able to grow the money tax free forever.

    Part of the magic of compounding interest is that if you get started with a large amount early (sadly, most people do not graduate college with 5k in an IRA and intentions to immediately contribute to a 401k and IRA when they start working) you will have to worry less about making large contributions later. this should release you your fears about locking up too much money...it will give you extra spending money 10-15 years from now when other people get an oh shit moment and start contributing on an accelerated schedule.
     
  13. GreenFrog

    GreenFrog Senior member

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    y wife and I started saving for y son's education around 2 onths after his birth. We have 7 accounts in 7 different utual funds and put 5000 INR in each every onth through s systeatic investent plan (SIP). So 35000 INR (~775 USD at todays rate) every onth. We dont intend to withdraw it before his 18th b'day.

    THinking was to put away enough to get hi through college even if y business / other savings etc went totally bust.

    [​IMG] the on y keyboard is not working.

    y suggestions

    1. DOnt put all your dough in one place or at one tie, spread it over tie
    2. Put it for the long ter so you are unaffected by the short ter swings of the arket


    What's your definition of long term? I want to take advantage of compounding returns by reinvesting returns.. so if I keep some equity locked up for the long term, then I wouldn't be able to do that necessarily. Of course, my/your definition of long term largely defines that outcome.

    I wouldn't mind looking into riskier assets (i.e. mortgage REITs).

    Also, if I were to start investing right now, at approximately what age will I start to see the fruits of my investments? In other words, how old will I be when the "I'm so fucking glad I invested at that age" statement comes out, considering I'm only 22 right now? I know that largely depends on what I invest in, but just to get a general feel. Five years from now? Ten?

    Unless you make a lot of money right out of school, I wouldn't suggest


    *maxing* your 401k (as in contributing up to the legal limit).

    I would suggest contributing at least as much as your employer will match.

    Take 5K of what you have now and open a roth IRA (doesn't even have to be all 5k). You can still count this as a 2010 contribution if you act fast. Since you probably paid very little to no taxes on this money as a student...the downside of the roth (having to pay taxes first) doesn't apply and you will be able to grow the money tax free forever.

    Part of the magic of compounding interest is that if you get started with a large amount early (sadly, most people do not graduate college with 5k in an IRA and intentions to immediately contribute to a 401k and IRA when they start working) you will have to worry less about making large contributions later. this should release you your fears about locking up too much money...it will give you extra spending money 10-15 years from now when other people get an oh shit moment and start contributing on an accelerated schedule.


    Cool. I will look into that. Did you do the same? I searched through some threads and saw that you invest in mortgage REITs. Did you start doing that once you got a job and started having income? Is it even worth it to look at REITs with my capital right now?

    BTW, thanks again everyone for the tips!
     
  14. aj_del

    aj_del Senior member

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    What's your definition of long term? I want to take advantage of compounding returns by reinvesting returns.. so if I keep some equity locked up for the long term, then I wouldn't be able to do that necessarily. Of course, my/your definition of long term largely defines that outcome.

    I wouldn't mind looking into riskier assets (i.e. mortgage REITs).

    Also, if I were to start investing right now, at approximately what age will I start to see the fruits of my investments? In other words, how old will I be when the "I'm so fucking glad I invested at that age" statement comes out, considering I'm only 22 right now? I know that largely depends on what I invest in, but just to get a general feel. Five years from now? Ten?



    Your perspective and mine will be very different. I was offering very general inputs on how I am trying to build a what I hope will be a very nice nest egg/ fallback for my son.

    I am an Indian (dot, not feather) and a huge believer in India's future. Though the equity market here may be down for some short period of time, I believe that they are north bound over the longer period.

    You mentioned 2 time periods, 5 years and 10. I think both are very good. Even 2 years is good IMO barring a fiasco.

    Here is a comparison between India's National Stock Exchange and Dow Jones over the last 10 years. Though they may be 2 year period where a negative return is yielded, I dont think over a 5 year period there is a negative return.

    However, it seems that the DJIA gave a 10% return over the last 10 years. Ouch

    [​IMG]
     
  15. v0rtex

    v0rtex Senior member

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    Read Dave Ramsey, he's great for starting out. Follow up with Richest Man in Babylon and Millionaire Next Door.

    Ramsey's advice is not that exciting (pay off all your non-mortgage debt, hold 3-6 months expenses in cash, invest 15% into IRAs/pre-tax) but it is solid financial advice.
     
  16. xchen

    xchen Senior member

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    Read Dave Ramsey, he's great for starting out. Follow up with Richest Man in Babylon and Millionaire Next Door.

    Ramsey's advice is not that exciting (pay off all your non-mortgage debt, hold 3-6 months expenses in cash, invest 15% into IRAs/pre-tax) but it is solid financial advice.


    This is great advice.

    Invest this money in a Roth IRA, and leave it there until you retire. The more money you can sock away before you get to old, the better, because of a little thing called compound interest.

    I prefer mutual funds for investing, but it's not the only way to go and as long as you understand what you are investing in and don't overcomplicate it, you should be good.

    Lastly, PM me your email address and I'll forward you Dave Ramsey's e-Newsletter from today which had some good tips for investing.
     
  17. GreenFrog

    GreenFrog Senior member

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    Read Dave Ramsey, he's great for starting out. Follow up with Richest Man in Babylon and Millionaire Next Door. Ramsey's advice is not that exciting (pay off all your non-mortgage debt, hold 3-6 months expenses in cash, invest 15% into IRAs/pre-tax) but it is solid financial advice.
    I looked over the reviews of those three books. They sound fairly similar to Rich Dad, Poor Dad, which I've read already. The basic tenets are: 1) Pay off all debts 2) Live below your means 3) Invest 4) Find a passion and monetize it (sorta) 5) Continually educate yourself 6) Be patient I've got 1) covered, but I have my parents to thank for that since I didn't have to take out loans for college. 2) is something I can vastly improve on. I still have a job on campus and save as much as I can, but I do tend to eat out a lot which can cost $$ for a college kid. 3) is what I want to embark on. 4), can't say I've reached that point yet. 5) is currently ongoing. 6), well, okay haha.
     
  18. otc

    otc Senior member

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    Cool. I will look into that. Did you do the same? I searched through some threads and saw that you invest in mortgage REITs. Did you start doing that once you got a job and started having income? Is it even worth it to look at REITs with my capital right now?

    BTW, thanks again everyone for the tips!


    I opened my roth IRA following the summer before my last year of college (which had the lovely timing of letting me buy in at the bottom of the crash) with something like $2500-3500. It was sweet because up until then I had basically never owed income tax so my initial deposit and all of its interest will never be taxed.

    I hold one mortgage REIT and a REIT fund. I might suggest the fund but the single stock definitely qualifies as somewhere between a toy and a gamble and is *not* close to the bulk of my investments. Mostly look at some broad funds stuff like the S&P500 index funds (VFINX or its premium share classes that might be available in a 401k).

    When I started working for real, I signed up for the 401k as soon as I was eligible and set up automatic transfers to my Roth every 2 weeks (when paychecks come). 401k should take up to the employer match at a minimum (6% is matched at 50% for me). From there, if your 401k sucks and has bad fund choices...I wouldn't put anything else in it. If it has some decent options, you can balance between it and IRAs.
     
  19. Concordia

    Concordia Senior member Dubiously Honored

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    At the moment, I'm not sure I'd worry about "investing $5-10K." That's a bunch of months' expenses, and having liquid and safe savings is nice if you don't know exactly what your income will be.

    Now that you've salted that away, by all means think for longer term with new funds. Roth IRA, 401(k), etc. all have virtues especially if you get employer matches. Depending on where your employer plan is invested, you might have all you need to get a core portfolio together. Vanguard, for example, isn't exciting, but will give you diversification at low cost, as well as the opportunity to move into asset classes that look unusually attractive.

    For the late 90s through maybe 2006, my 401(k) was in REITs. Then I swapped it into emerging markets and energy. Which wasn't fun when I neglected to do anything about it in 2008-09, but the plan is now a lot larger than it's supposed to be when you start relatively late. (It helped that I had assets outside the plan, and a steady salary.

    That was a rare decade, though. Stocks were unusually high, and there were asset classes that were measurably cheaper and could be bought by people who weren't full-time traders. There are fewer havens to choose from now so I wouldn't do a lot of experimentation if you're not an expert in the business. A very basic policy portfolio like what David Swensen lays out in his book for individuals is probably your best bet until you get some really good specific opportunities.

    Oh, and mortgage REITs-- you might have inside knowledge on one that makes it worthwhile, but otherwise it's a bet that things will be kind of normal, that risk models won't break, and that managers will remain very competent.
     
  20. Concordia

    Concordia Senior member Dubiously Honored

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    They sound fairly similar to Rich Dad, Poor Dad, which I've read already.

    Now there's a damning indictment.
     

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