Ask HN: I'm a Developer, I make good money, Where do I put it?
11 comments
I'd stick with index funds. Personally, I'm a big fan of Vanguard funds -- they're really low expense ratio.
I'd do 90% stocks, 10% bonds, assuming you don't need the money until retirement. You could go down to 80% or up to 100% (I actually do 100%, but I also do individual stocks plus index funds).
S&P 500, a broader-market fund (3000-5000 companies in the US market, to get smaller businesses too not covered in the S&P), and some kind of global fund. Depending on how your 401k is held, you want to take that into account when allocating the rest of your money, and be careful because a lot of 401k plans have horrible funds (high expense ratios).
You might want to look at Roth IRAs too --it's a post-tax contribution, but never taxed on the gain or withdrawal. There are income limits to contribute, but there's a backdoor by contributing to an IRA (not income limited) and then converting it to a Roth.
I'd do 90% stocks, 10% bonds, assuming you don't need the money until retirement. You could go down to 80% or up to 100% (I actually do 100%, but I also do individual stocks plus index funds).
S&P 500, a broader-market fund (3000-5000 companies in the US market, to get smaller businesses too not covered in the S&P), and some kind of global fund. Depending on how your 401k is held, you want to take that into account when allocating the rest of your money, and be careful because a lot of 401k plans have horrible funds (high expense ratios).
You might want to look at Roth IRAs too --it's a post-tax contribution, but never taxed on the gain or withdrawal. There are income limits to contribute, but there's a backdoor by contributing to an IRA (not income limited) and then converting it to a Roth.
Good advice. How do you recommend contributing? That's one thing that confuses me. Let's say every month I have excess income, how do I decide when and at what interval to put that money into a given index fund? Do I just set an automatic transfer or do I try to time my investments?
EDIT: And as for as I know, IRA's have a income ceiling of $110k/yr correct?
EDIT: And as for as I know, IRA's have a income ceiling of $110k/yr correct?
Generally the advice is to not try to time the market; set it up to be automatic and forget about it. You're investing for (presumably) 40-60 years, so a 5% move now shouldn't be that big a deal. The bigger thing is to just keep contributing even in down markets (when you might otherwise be reluctant), because by putting in the same amount every month, you buy a larger number of shares when prices are depressed.
However, I always wait until the end of the tax year to contribute (due to laziness) or do it at the beginning of the year (because I have extra cash then).
However, I always wait until the end of the tax year to contribute (due to laziness) or do it at the beginning of the year (because I have extra cash then).
Roth IRAs are about $105k/yr limit. (it fades out up to $125k)
You can do a 401k rollover to Roth without any income limit.
You can do a Traditional IRA without income limit, although deductibility DOES have an income limit (56k since you have a 401k). I'm not exactly sure how a non-deductible IRA rolls over into a Roth; I've only ever done 401k to Rollover IRA to Roth. I don't think you get taxed twice on the money.
You can do a 401k rollover to Roth without any income limit.
You can do a Traditional IRA without income limit, although deductibility DOES have an income limit (56k since you have a 401k). I'm not exactly sure how a non-deductible IRA rolls over into a Roth; I've only ever done 401k to Rollover IRA to Roth. I don't think you get taxed twice on the money.
> You might want to look at Roth IRAs too --it's a post-tax contribution, but never taxed on the gain or withdrawal.
Assuming Congress doesn't change the rules, that is.
Assuming Congress doesn't change the rules, that is.
Index funds are great when you want to do direct deposits every month.. the don't have front-load costs so you can just set up an automatic transfer.
If you invest in ETF's which are traded like stocks then you have to contend with trading fees. The rule of thumb (I've garnered from reading blogs/ literature) is that if your portfolio is < $50,000, then set up automatic payments for all index funds.. however if you have a larger portfolio then it would be worth getting a discount brokerage account and using that to invest in ETFs. This is because having a larger portfolio means that your brokerage house will offer you a discounted trading fee. The advantage of ETFs is generally a lower management-expense ratio than index funds and more importantly you get access to things like REITs and other non-standard financial vehicles.
If you invest in ETF's which are traded like stocks then you have to contend with trading fees. The rule of thumb (I've garnered from reading blogs/ literature) is that if your portfolio is < $50,000, then set up automatic payments for all index funds.. however if you have a larger portfolio then it would be worth getting a discount brokerage account and using that to invest in ETFs. This is because having a larger portfolio means that your brokerage house will offer you a discounted trading fee. The advantage of ETFs is generally a lower management-expense ratio than index funds and more importantly you get access to things like REITs and other non-standard financial vehicles.
I wrestled with the ETF vs. Index mutual fund debate too, but I realized that pretty much each Vanguard ETF has an index fund equivalent with the same expense ratio if you invest at least $10,000 to get Admiral Shares. For example, VFINX: https://personal.vanguard.com/us/FundsSnapshot?FundId=0040&#....
At this point, there are only two differences between the two: 1) You can't day trade index funds 2) You can't auto invest in ETFs
Auto investing was really important to me for dollar cost averaging, so I decided to go with index funds rather than ETFs in the end.
By the way, Vanguard does have index funds for REITs: https://personal.vanguard.com/us/funds/snapshot?FundId=0123&...
At this point, there are only two differences between the two: 1) You can't day trade index funds 2) You can't auto invest in ETFs
Auto investing was really important to me for dollar cost averaging, so I decided to go with index funds rather than ETFs in the end.
By the way, Vanguard does have index funds for REITs: https://personal.vanguard.com/us/funds/snapshot?FundId=0123&...
I put mine into new opportunities.
Mostly equipment for the day I might venture out on my own.
I have an entire music studio (hardware and software), creative studio (cintiq, nice cameras [video and still], adobe creative suite), and the start of an electrical engineering lab in my apartment. I have built a pretty good home theater in my living room (projection system), and lots of DVDs for inspiration. Lots and lots of boooooks.
It's pretty expensive, but makes me feel more secure. I'm not worried about money; I am worried about boredom. Make sure to get good insurance.
I would spend some of it curating a taste in something as well.
The most important thing you have to spend is time. Whatever you can buy to save time (without losing control over things you need control over) is a good investment.
Mostly equipment for the day I might venture out on my own.
I have an entire music studio (hardware and software), creative studio (cintiq, nice cameras [video and still], adobe creative suite), and the start of an electrical engineering lab in my apartment. I have built a pretty good home theater in my living room (projection system), and lots of DVDs for inspiration. Lots and lots of boooooks.
It's pretty expensive, but makes me feel more secure. I'm not worried about money; I am worried about boredom. Make sure to get good insurance.
I would spend some of it curating a taste in something as well.
The most important thing you have to spend is time. Whatever you can buy to save time (without losing control over things you need control over) is a good investment.
I see a problem with this approach. In 5 years much of your equipment will be obsolete and have almost zero value on the second hand market. And if you do decide to use them, everyone will have moved on to new media/software.
Technology only becomes obsolete when it no longer solves a problem you have. It becomes irrelevant when it solves a problem you no longer have.
He is investing in stuff that will allow him to create. The only problem is if he can't create stuff faster than his competitors (not much of a problem if you have enough talent and skill) or if people suddenly become no longer interested in the stuff that he wants to make (which also seems unlikely).
He is investing in stuff that will allow him to create. The only problem is if he can't create stuff faster than his competitors (not much of a problem if you have enough talent and skill) or if people suddenly become no longer interested in the stuff that he wants to make (which also seems unlikely).
I don't see anyone creating anything with an 8-track or VHS tape except as a novelty because it would be painfully slow and the quality not up to par compared with what we have now. It's only useful if he's creating stuff and earning money/fame/fulfillment or whatever rocks his boat. But as 'investment' for some future date when he decides to use them he might be better off investing the money pending that future date which brings us back to square one.
You're describing obsolete formats. Some stuff that was first created during the 8-track era is still desirable and available in other formats.
Besides, I took his comment to mean that he's buying the equipment to develop new and marketable skills.
Besides, I took his comment to mean that he's buying the equipment to develop new and marketable skills.
"I'm not worried about money; I am worried about boredom."- Investing done right.
I've started putting more and more money into lendingclub. The returns have been great and you can scale how much you put in slowly. Would definitely suggest checking it out.
Ping me offline if you have any questions.
Ping me offline if you have any questions.
That's pretty interesting, I didn't know about those services in the U.S.
Here's an article on Mint.com which educated me on its existence:
http://www.mint.com/blog/investing/should-you-take-the-plung...
Too bad there isn't a similar service here in Uruguay, it would absolutely kill the competition - OTOH credit risk and regulations are both a lot harder here, that's why lenders can get away with 43% annnual interest rates, which after inflation and costs mean they're getting at least 20% return on their money (I used to work for Equifax Uruguay, and they were doing extremely well).
Lending Club offers 9% according to that article, but it's lower risk.
I would suggest investing in Uruguay, but investing abroad is not for everyone, and most likely not for someone in his mid-twenties.
Angel investment or venture capital or soft loans for startups in Uruguay / Argentina would be very welcome, though :) and I'm pretty sure there's a good opportunity there.
Here's an article on Mint.com which educated me on its existence:
http://www.mint.com/blog/investing/should-you-take-the-plung...
Too bad there isn't a similar service here in Uruguay, it would absolutely kill the competition - OTOH credit risk and regulations are both a lot harder here, that's why lenders can get away with 43% annnual interest rates, which after inflation and costs mean they're getting at least 20% return on their money (I used to work for Equifax Uruguay, and they were doing extremely well).
Lending Club offers 9% according to that article, but it's lower risk.
I would suggest investing in Uruguay, but investing abroad is not for everyone, and most likely not for someone in his mid-twenties.
Angel investment or venture capital or soft loans for startups in Uruguay / Argentina would be very welcome, though :) and I'm pretty sure there's a good opportunity there.
[deleted]
Real Estate has proven profitable for me. Look for cheap multi-family units. You could live in one-side rent the other for tax benefits, or rent both sides.
Stocks, bonds. 80% stocks, 20% bonds given your age and the fact you are already saving for retirement.
If you own a home, pay extra on your mortgage. Depending on how much extra, you could pay off your home in 5-10 years versus a standard 30.
Or you could use it for advancing freelance/etc. For instance, I pick up freelance web-dev jobs and do some advertising consulting with my background in the printing industry.
One last thing, still have fun with it. It gets easy to become so focused on investing that you are living for 10 years from now, and missing living-in-the-moment.
Stocks, bonds. 80% stocks, 20% bonds given your age and the fact you are already saving for retirement.
If you own a home, pay extra on your mortgage. Depending on how much extra, you could pay off your home in 5-10 years versus a standard 30.
Or you could use it for advancing freelance/etc. For instance, I pick up freelance web-dev jobs and do some advertising consulting with my background in the printing industry.
One last thing, still have fun with it. It gets easy to become so focused on investing that you are living for 10 years from now, and missing living-in-the-moment.
> pay extra on your mortgage
Unless your mortgage is like 8% or more, it would be wiser to put that money in stocks for the long term.
You're borrowing money at (say) 4% to own a home. That's a great rate, why be in a hurry to pay it back if you could earn 8% per year over the next 10yrs in the stock market?
Secondly, I believe we're on the cusp of significant double digit inflation. So your debt will inflate itself away. Put that cash you have now into something that will protect against inflation, that means something that will inflate itself. Stocks aren't a bad choice for that either.
If it turns out to be economic collapse type inflation, well then you might want to spend that money on actual hard things, like firearms, ammunition, food, fuel.
Obviously if you have any credit card debt in the range of 15%, pay that off first.
Unless your mortgage is like 8% or more, it would be wiser to put that money in stocks for the long term.
You're borrowing money at (say) 4% to own a home. That's a great rate, why be in a hurry to pay it back if you could earn 8% per year over the next 10yrs in the stock market?
Secondly, I believe we're on the cusp of significant double digit inflation. So your debt will inflate itself away. Put that cash you have now into something that will protect against inflation, that means something that will inflate itself. Stocks aren't a bad choice for that either.
If it turns out to be economic collapse type inflation, well then you might want to spend that money on actual hard things, like firearms, ammunition, food, fuel.
Obviously if you have any credit card debt in the range of 15%, pay that off first.
Coming from someone who has intensively studied stocks and done very well in the market over a few years:
Invest in index funds. First max out your 401k match, then your Roth IRA, then the rest of your 401k, then open a taxable account.
I highly recommend Vanguard's LifeCycle funds. Asset allocation is one of the most important factors in determining your returns, and Vanguard will automatically adjust your asset allocation while charging very small fees.
Invest in index funds. First max out your 401k match, then your Roth IRA, then the rest of your 401k, then open a taxable account.
I highly recommend Vanguard's LifeCycle funds. Asset allocation is one of the most important factors in determining your returns, and Vanguard will automatically adjust your asset allocation while charging very small fees.
Get a copy of this book: "I will teach you to be rich" by Ramit Sethi. It answers all your questions and has information on more.
How do you decide what index funds to put money into?
edit: Furthermore, how did you come to the decision to put money into index funds instead of something else?
edit: Furthermore, how did you come to the decision to put money into index funds instead of something else?
My limited reading and research into stock market investing. I liked the sound of low cost management as opposed to mutual funds, as well as history has shown index funds to do fairly well. I have chosen funds based on companies I respect that are larger percentages that the index fund allocates to, such as S&P 500.
You might want to look at index funds of different countries not just the US stock market (S&P). Then your portfolio becomes a question of how you weight countries rather than choosing stocks.
Your you want to invest in a startup or company?
I make good money, but not at any position to be an angel investor. My main goal is to grow my net worth and not lose money because it sits in a bank account somewhere and loses because of inflation
The upcoming JOBS and CROWDFUNDING acts are close to becoming law. This means that non-accredited investors will be able to invest small amounts of money in startups that advertise through funding portals. Think Kickstarter but for capital raising. I wouldn't be surprised to see Startup Index Funds that invest across many startups thus making everyone an angel investor.
Http://www.wealthfront.com was built for you.
Buy an old domain from Flippa. Hire cheap writers, put ads. Repeat.
Does this actually work? Could I email you offline about your process?
[deleted]
agreed.. more info please... what kind of numbers can you make with this technique?
More info: I contribute max to my company's 401k to maximize my matching, the startup I was a part of was bought by aforementioned company so I get payouts quarterly, and my investment strategies so far have been centralized around the stock market, mostly in index funds.
Advice appreciated!
Edit: My main goal is to have generalized advice, so it doesn't just pertain to me, but to a wider audience, especially young developers who have excess income each month and want to be smart about preserving and growing their net worth intelligently.