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Advice for a newbie investor?


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I came into money about a year ago. My taxes are paid on it. I invested already into an IRA and $5000 in a money-market account that gained a bit in 2021 and now is losing money. I have about $30,000 left in savings. I want to leave some of it there as a new small business I started (and invested money in) has potential but is just really paying my bills now. 

Any advice for me? I'm fairly young (36) but at that age where I probably really need to be making some choices. Aside from a pension and 403(b), I got basically as part of my compensation when I was  a teacher, I never really did any kind of investment in anything. Thanks for really anything. I feel like I'm totally clueless when it comes to that stuff and it feels like a lot of you on here have some expertise. 

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This thread may be of use to you. 

My quick points: 

  • One simple, easy to read book to cover the basics is The Elements of Investing.
  • Pay off any credit card (or other high interest) debt before you worry about investing.
  • Broad-based index funds (or ETFs) are your friend.
  • As much as possible, avoid paying fees to have other folk manage your money.  They usually underperform the market and overcharge for the privilege.

Kevin Slater

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3 hours ago, keroscenefire said:

I came into money about a year ago. My taxes are paid on it. I invested already into an IRA and $5000 in a money-market account that gained a bit in 2021 and now is losing money. I have about $30,000 left in savings. I want to leave some of it there as a new small business I started (and invested money in) has potential but is just really paying my bills now. 

Any advice for me? I'm fairly young (36) but at that age where I probably really need to be making some choices. Aside from a pension and 403(b), I got basically as part of my compensation when I was  a teacher, I never really did any kind of investment in anything. Thanks for really anything. I feel like I'm totally clueless when it comes to that stuff and it feels like a lot of you on here have some expertise. 

Take a look here for solid and free advice on how to attack this topic. 
https://moneyguy.com/resources/

The “Financial Order of Operations” is a good step by step guide.  It reminds me of Dave Ramsey’s “Baby Steps” I listen to their weekly webcast on YouTube if the topic is of interest to me.  

Like @Kevin Slater I use and recommend low cost, broad based index funds to my friends. Avoid active management and high fees (products like annuities) - don’t let financial institutions pick your pocket. Just my 2c - PM me if you have questions. 

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5 hours ago, FrankR said:

Take a look here for solid and free advice on how to attack this topic. 
https://moneyguy.com/resources/

The “Financial Order of Operations” is a good step by step guide.  It reminds me of Dave Ramsey’s “Baby Steps” I listen to their weekly webcast on YouTube if the topic is of interest to me.  

Like @Kevin Slater I use and recommend low cost, broad based index funds to my friends. Avoid active management and high fees (products like annuities) - don’t let financial institutions pick your pocket. Just my 2c - PM me if you have questions. 

Thanks! The money market account is fairly low-cost index fund. Maybe I should just put more money into that. Overall it has made money though it has lost money recently. 

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3 hours ago, keroscenefire said:

Thanks! The money market account is fairly low-cost index fund. Maybe I should just put more money into that. Overall it has made money though it has lost money recently. 

I'm confused.  Money market commonly refers to an interest-bearing account (similar to what you'd get at a savings bank), not funds invested in stocks.  Is this account your referring to simply a deposit earning interest or is it invested in actual index funds?

Kevin Slater

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First answer the question: When do you intend to spend this money?

If the answer is less than 5 years, then by all means stay in money market or CDs.  You don't want to lose principal in the stock market.

If the answer is more than 10 years, then go all the way in diversified stocks.  (To start, just pick an S&P 500 index fund).  Stop checking your balance every quarter or even every year, because it may very well go down this year and next and the year after that.  You may even see a "lost decade" where your balance is the same a decade from now (as we saw from 2002 to 2012).  But then it'll suddenly double in two years and you'll be thankful you stayed in and didn't pull out those years you lost money.

Edited by Vegas_nw1982
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8 hours ago, Vegas_nw1982 said:

First answer the question: When do you intend to spend this money?

If the answer is less than 5 years, then by all means stay in money market or CDs.  You don't want to lose principal in the stock market.

If the answer is more than 10 years, then go all the way in diversified stocks.  (To start, just pick an S&P 500 index fund).  Stop checking your balance every quarter or even every year, because it may very well go down this year and next and the year after that.  You may even see a "lost decade" where your balance is the same a decade from now (as we saw from 2002 to 2012).  But then it'll suddenly double in two years and you'll be thankful you stayed in and didn't pull out those years you lost money.

This is all good thank you. This may be part of my dilemma. Ideally, I'd like some returns within the next 2-3 years even or certainly within 5. I'd like to be able to afford trips and like that. I really live a pretty frugal lifestyle in a studio apartment. But for trips and men, I'd like some cashflow.

But of course, saving for retirement is prudent. And I do have some saved...it's unclear how much that will really provide.

So I think both then. Maybe that is exactly right. $5K towards more prudent conservative investments including the CDs I already have (that's where most of this money sits at the moment).

And then $5,000 towards index fund-types that will have more return in the long-term.

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On 6/11/2022 at 1:31 AM, keroscenefire said:

I came into money about a year ago. My taxes are paid on it. I invested already into an IRA and $5000 in a money-market account that gained a bit in 2021 and now is losing money. I have about $30,000 left in savings. I want to leave some of it there as a new small business I started (and invested money in) has potential but is just really paying my bills now. 

Any advice for me? I'm fairly young (36) but at that age where I probably really need to be making some choices. Aside from a pension and 403(b), I got basically as part of my compensation when I was  a teacher, I never really did any kind of investment in anything. Thanks for really anything. I feel like I'm totally clueless when it comes to that stuff and it feels like a lot of you on here have some expertise. 

Half in cash and the other half in a consumer staples fund.  Consumer staples have a lower beta.  I think things are going to be hairy for a while.  Energy stocks have low p/e's and high dividends, but the political climate against them is awful as the left is trying to shut down all fossil fuels even though we need them!

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Posted (edited)
On 6/11/2022 at 12:43 PM, Kevin Slater said:

I'm confused.  Money market commonly refers to an interest-bearing account (similar to what you'd get at a savings bank), not funds invested in stocks.  Is this account your referring to simply a deposit earning interest or is it invested in actual index funds?

Kevin Slater

 

Thanks. I'm getting my investments confused. I do have money in a money market account at my bank. But actually you're right that this money is invested into an index fund. That index fund gained solidly in 2021 but is now losing money. I'm still ahead of my original investment though. And I suppose it would be best to just stick it out longer since typically those types of funds do better over time? Is that correct?

Edited by keroscenefire
typo
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42 minutes ago, keroscenefire said:

 

Thanks. I'm getting my investments confuses. I do have money in a money market account at my bank. But actually you're right that this money is invested into an index fund. That index fund gained solidly in 2021 but is now losing money. I'm still ahead of my original investment though. And I suppose it would be best to just stick it out longer since typically those types of funds do better over time? Is that correct?

Yes, index funds do better than money market funds over the long haul.  And you probably don't want to be selling at these levels.

Kevin Slater

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57 minutes ago, Kevin Slater said:

Yes, index funds do better than money market funds over the long haul.  And you probably don't want to be selling at these levels.

Kevin Slater

Thanks Kevin. I'll just keep it going and hopefully it'll gain again soon. 

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On 6/11/2022 at 5:39 AM, FrankR said:

I use and recommend low cost, broad based index funds to my friends. Avoid active management and high fees (products like annuities) - don’t let financial institutions pick your pocket. Just my 2c - PM me if you have questions. 

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Annuities can be very worthwhile investments depending upon where you are at in your retirement, what your risk tolerance is and what your objectives are.  They are one of the only investments where some will guarantee you income for life.

For a newbie though, and someone in their mid 30s - it’s probably not a consideration at the moment as they can take on more risk.

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Good for you that you have come into some money, and you are wise to plan carefully with  what to do.

some have said to pay off debt and I would agree to pay off high interest debt (anything over 10% for sure.

I would then suggest that you keep an emergency fund - like in your money market acct that can be accessed easily.  6 months of funds is a good rule.

As for investments- have you considered Real Estate?  Maybe use some as a down payment to avoid mortgage insurance.  You can invest in real estate through some ETFs and REITS.  You are young so you can weather the ups and downs of the stock market.  The market has been tough this year but it also means that there are some values out there to buy low and then sell high later on.  

I’ve always liked Warren Buffetts advice. Invest in companies that you know and trust.  And do your best to avoid the temptation of buying into something that you don’t understand.  Stick to equities, mutual funds, bonds, money market, and ETFs at this time.  Index funds are a good way to start and you can grow your portfolio by enrolling in an auto dividend reinvestment plan and using recurring mutual fund purchase plans.  Finally, research tax liability of your investments as there are considerations to be had.  If necessary get a tax advisor.

Best wishes!
 

 

 

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9 hours ago, 5280Dane said:

Good for you that you have come into some money, and you are wise to plan carefully with  what to do.

some have said to pay off debt and I would agree to pay off high interest debt (anything over 10% for sure.

I would then suggest that you keep an emergency fund - like in your money market acct that can be accessed easily.  6 months of funds is a good rule.

As for investments- have you considered Real Estate?  Maybe use some as a down payment to avoid mortgage insurance.  You can invest in real estate through some ETFs and REITS.  You are young so you can weather the ups and downs of the stock market.  The market has been tough this year but it also means that there are some values out there to buy low and then sell high later on.  

I’ve always liked Warren Buffetts advice. Invest in companies that you know and trust.  And do your best to avoid the temptation of buying into something that you don’t understand.  Stick to equities, mutual funds, bonds, money market, and ETFs at this time.  Index funds are a good way to start and you can grow your portfolio by enrolling in an auto dividend reinvestment plan and using recurring mutual fund purchase plans.  Finally, research tax liability of your investments as there are considerations to be had.  If necessary get a tax advisor.

Best wishes!
 

 

 

Thanks for this excellent advice. Real estate is going to be a bit tricky for me for the time being. Both because Denver is a crazy market and because with my new business I actually don't have a lot of monthly income on paper, which would make it very hard to get a mortgage. But as it grows, I expect to be able to show that I have the income necessary for a loan. That may still be 3-4 years away though. 

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On 6/16/2022 at 1:47 PM, keroscenefire said:

Thanks for this excellent advice. Real estate is going to be a bit tricky for me for the time being. Both because Denver is a crazy market and because with my new business I actually don't have a lot of monthly income on paper, which would make it very hard to get a mortgage. But as it grows, I expect to be able to show that I have the income necessary for a loan. That may still be 3-4 years away though. 

The mortgage lender looks more at the value of the property and how much down you are doing.  The larger the amount down, the safer the loan and less dependent on your personal sssets and income.

Going the REIT way, your income/assets make no difference.

 

Edited by bigjoey
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Just now, bigjoey said:

The mortgage lender looks more at the value of the property and how much down you are doing.  The larger the amount down, the safer the loan and less dependent on your personal sssets and income.

That has not been my experience.  They want to be sure all all counts, including their perception of your ability to pay.

Kevin Slater

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Just now, Kevin Slater said:

That has not been my experience.  They want to be sure all all counts, including their perception of your ability to pay.

Kevin Slater

It depends on the property.  I have a single user piece of property leased to a solid NYSE company.  I had 80% down and the mortgage lender hardly seemed to care about my income or assets.  The company had a 25 year lease (the lease ended last year and they renewed for another 20 years).

The lender looked at the strength of the tenant and joked with me at the time that it was like a bond.  The location was a top location that they figured would only go up in value over time (it has).

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9 hours ago, bigjoey said:

It depends on the property.  I have a single user piece of property leased to a solid NYSE company.  I had 80% down and the mortgage lender hardly seemed to care about my income or assets.  The company had a 25 year lease (the lease ended last year and they renewed for another 20 years).

The lender looked at the strength of the tenant and joked with me at the time that it was like a bond.  The location was a top location that they figured would only go up in value over time (it has).

A second trick with such a piece of property: when the first mortgage is paid off, take out a new mortgage.  That money comes out TAX FREE😀.  Do NOT spend that money but reinvest it in more similar properties.  Rinse and repeat.  This works when you are young and have a long investment window.  It worked for me because I started early and am now 76😇.

Highly simplified example:

1-buy a $1 million dollar building . 20% down and $800,000 mortgage. It needs to be a building with a good tenant and a steady income stream.

2-once that mortgage is paid off, take out a new $800,000 mortgage.  Your basis in the original building drops to $200,000 (for purposes of the example, let’s omit effects of depreciation on basis).  Do not spend the money on personal items but reinvest it.  Buy four new $1 million buildings with 20% down.  You now own five $1 million dollar buildings.  Rinse and repeat.

3-depreciation has sheltered some of your income from rent and gives you a higher after tax return on your investment.

4-the downside is after the second or third mortgage, the building will have a negative basis.  IF you sell the building,  that gives you a huge gain.  HOWEVER, their are alternatives to selling so that money you got with each mortgage remains TAX FREE: 1031 exchange, donate to charity, never sell the building and your heirs get a stepped up basis.

5-this works if you are disciplined and reinvest the money and not spend it for personal needs.  It is taking a long term view to build wealth.  Luck is involved as your tenants need to be strong financially with long term leases and the sites need to be good ones and the leases triple net leases (tenants pay all the expenses).

A separate issue that I did NOT do because my properties were all triple net leases, is putting personal expenses onto the rental property.  If you own rental property and manage it yourself: when you are putting in a new parking lot, the contractor puts in a new driveway at your home; when you put in landscaping at the rental property, landscape your own house; appliances, carpet, painting and repairs can all be written off on the rental property as business expenses.  I am NOT advising or advocating this but just note it is often  done.  I list this as an observation only.😇

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12 hours ago, bigjoey said:

The mortgage lender looks more at the value of the property and how much down you are doing.  The larger the amount down, the safer the loan and less dependent on your personal sssets and income.

Going the REIT way, your income/assets make no difference.

 

Unfortunately in Denver, even condos are pretty expensive and I just don't think I'm in position yet to put down all my savings on a mortgage. I think real estate is a better option for me in 2-3 years when I'm a bit more stable in my business and hopefully have a bit more saved as well. 

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3 hours ago, bigjoey said:

A second trick with such a piece of property: when the first mortgage is paid off, take out a new mortgage.  That money comes out TAX FREE😀.

That's interesting, in Australia interest is only tax deductible if the money has been borrowed to use for an income producing purpose, the collateral is irrelevant. So in your example, it would be the fact that it was used for a new property that made it a tax deduction not how you got the loan. Having a contractor do work at your home and include it in a job at an investment property (or attributing any other personal expenses to it) would be 'do not pass go, do not collect $200' material in this country.

If someone wants property investments, there are mutual funds and ETFs that cover that market, and they enable you to make smaller investments and to spread them.

Critically, obtain independent financial advice and tax advice from licensed advisers.

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Not to oversimplify, but my advice is to learn from a recession business environment and apply it in future investment decisions and business cycles.  I have found over 40 years of investing that I made more money by far from the decisions I made during bad times as opposed to the decisions I made during good times. In 2008 - 2010, I nervously chose  to invest in stocks during a terrible recession and have been rewarded well over the Long Term.  Good luck to all.  

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