Investments as a young person

ExplorerXLT95 · 07-26-05, 07:01

The following is a very simple question that will hopefully lead to a good discussion and some good information.

What is the single, best thing to do with your money as a young person in terms of investment?

For the purposes of this question, let us define "young" to be between the ages of 21 and 25. Also, if you would answer differently based on whether or not that person is married, please state your answers for both cases.

Hope we get some good discussion and advice out of this

rad21 · 07-26-05, 07:09

Two words Real Estate. Of all my investments- stocks, bonds, mutual funds, real estate has done better than all of them. If I was your age again, I would buy real estate- land, a house, etc.

themightytimmah · 07-26-05, 07:17

^ what he said, espicially if you can get your hands on either a multi-family home or waterfront property. With a multi-family, you can live in it and pay down the mortage with rental income (basically live for free if you play it right), and waterfront property NEVER goes down in the long run. I plan on buying a lake house as soon as I get out of college, and building up a portfolio over time. Of course, that's the plan, I'll probably end up blowing the money on fast cars and expensive women

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guapsnaman · 07-26-05, 07:18

WOW! Only if I had enough money to buy land or a house! I don't know much young people today that can afford to buy land/house.

Setec Astronomy · 07-26-05, 07:21

Quote:

Originally Posted by themightytimmah

...I'll probably end up blowing the money on fast cars and expensive women

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That's supposed to be expensive cars and fast women.

Dom · 07-26-05, 07:31

Real estate is not the correct answer, IMO. Never put all of your eggs into one basket. Real estate is hot now, but it won't always be. I guess nobody remembers the early 90's in southern california...

Anyway, probably the best thing would be is to maximize your 401k at work (currently allowed to put up to $14000/year), or if no 401k, then maximize an IRA. Either account should be well diversified (i.e., you didn't want to have 100% of your 401k in tech funds in Dec 2000).

Compound interest over long periods (we are talking 20-30 years here) will do wonders.

I wish I had started funding my IRA when I was 21 (started at 25, and those 4 years will make a big difference over the long haul).

On Edit: I don't mean to say that you should avoid real estate. Real estate can and probably should be a portion of a well balanced portfolio. While I don't have any investment properties, I do have a percentage of my assets in REIT's (Real Estate Investment Trusts).

themightytimmah · 07-26-05, 07:40

Guapsnaman - therein lies the beauty of owning a multi-family house. If you can buy a 3-family house for under 300,000 or so, and lease out the other two apartments for ~1000 a month, it's quite affordable. It only works in some markets though, no way are you gonna find that kind of price in NYC or Boston, but it can be done around here.

guapsnaman · 07-26-05, 08:57

Quote:

Originally Posted by themightytimmah

It only works in some markets though, no way are you gonna find that kind of price in NYC or Boston, but it can be done around here.

yup yup. I would sometimes called these real estate agents (who, if you've read Freakonomics, are "cheaters") to see how much houses around my neighborhood, and other less wealthy neighborhoods in Queens would cost, and you can't even imagine.

G35stilez · 07-26-05, 09:05

Interesting discussion. I am eager to here more

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LightngSVT · 07-26-05, 09:13

Me too! Althought Im a bit past 25 (32), I need to start investing wisely for extra income and for future. Currently Ive only been putting a small amt in savings and doing 401k. The wife and I need to start making our money work instead of just "enjoying" a great deal of what we make. Since you are talking the "Whats" it may be helpful to also talk about the "hows" of actually getting started, budget or financing plans, etc.

Teck · 07-26-05, 09:41

I'm 26 and here is what I have learned.

Unless you have a good match a roth IRA should be first priority before 401k IMO. If you have a match contribute up to the max match available then use the other funds to fund a roth ira. Remember roth's are funded with after tax dollars so you will never pay tax on them. Also you can never go back to fund prior years in a roth. Best investments in the roth are income generating vehicles for example I try to put my reits and div. bearing instruments in the roth when I can. Also as oppsed to a 401k your principle can always be withdrawn in a roth just not any of the gains if you have an "emergency". With a 401k there will be penaltys and tax consequences for any withdraw.

Also the sooner your money is in the account and invested the more you will make. Dollar cost averaging is bogus over a long investment horizon if your diversfied.

Make sure to choose low expense ratio non loaded funds if your gonna go the mutual route. As soon as it is plausible I will be switching to an all ETF portfolio. Always stay diversified!! If your not inclined to create your own portfolio target funds are a great easy way. I own some fidelity target funds for my projected retirement year I know that vanguard also offers similar funds. Start with the minimum and then use auto purchases to directely purchase monthly.

If your going to trade individual stocks make sure you know how to use stop losses. Another great feature many borkers also have now is a trailing stop so you can lock in gains and trail up as the market moves but you will get stopped out at a certain % if it starts to come off. I'd have as ton more moeny today if I had of used stops on all my positions in the 00' crash. I just sit and let all my positions trail down always thinking/hoping they would come back. Lesson learned.

hmm i could go on forever.........

Dom · 07-26-05, 10:37

Teck,

I thought there were penalties for both IRA and 401k for withdrawal, regardless. My learning was to do 401k first then IRA (401k max = $14,000, IRA= $3,000, and I think both will increase again this year). Typically this is because of company match. Also, your traditional IRA may not be deductible if you have a company 401k plan. Roth IRA is a different vehicle, you can't get a deduction for funding it. Roth vs traditional IRA is probably something people should read up on to decide which one to fund. I currently fund both a 401k to the max, and a traditional IRA to the max. I may be better off with a roth-IRA in my position, but that is something I am considering. And, like I said, I wish I had started earlier.

I agree with all of your other advice. Just to add some things:

By using a monthly auto purchase plan, you are in essence doing a type of dollar cost averaging. On months when the price is down, you purhcase more shares for your given amount, and on months when the price is up, you purchase fewer shares.

For low expense ratio no-load funds, Vanguard is a good bet, but they do have fund minimums.