New to investing, not sure where to start

[Krieger]

Sorry if this is long. I am in need of some financial advice. I am 21 years old, sitting on about 17,000 in my checking account. I grew up dirt poor, so I've never had anyone to give me good advice on investing. My money has been steady growing since I turned 17 and enlisted in the Marines. I now hold a federal job and school is being paid for mostly by my GI bill. I own my own house, living with 2 roommates currently but engaged to be married in September. My fiancee just graduated the nursing program and is also making decent money working at the hospital. I have thought about investing for a while now, but in what I do not know. I have toyed with the idea of Stock market, gold or other metals, IRA's, and the housing market. My stepmother is a real estate agent and got me a great deal on my house, so I'm debating buying another to rent out. My only bills are the ones for my house. I have no debt, and I save about 60% of my paycheck. The rest goes to utilities, my share of the rent, etc. My car and my motorcycle are paid for, though I may be in need of a new car, as my daily commuter is a 79 trans am. Runs great, with a new motor, but not a good daily commuter as its more for show. But I work 3 miles away from home so it works out. Anyways, what is the best investment option? Should I dip a little bit into each? are there better options out there? I know sitting on 17,000 grand is a terrible idea. I am willing to take risk as well. I'm not so keen on the IRA's, because I'd rather have the hope of a big payoff soon rather than waiting til I'm 60 to enjoy my cash. I also have TSP through my federal job, and I believe I have around 1,200 in that right now. Its sort of like the governments version of a 401k. Obviously I don't want all my eggs in one basket, but I would like so good, substantial advice. I have tried to educate myself in the stock market, but it seems very difficult to learn without someone to teach me. It also seems like now is a terrible time to get into stocks, because of the state of the economy...

[Mr Nice Guy]

My first investment is my 401k. I am not sure how your TSP is set up, but with my 401k, I can choose what percent of my total money to allocate towards different mutual funds. Some are riskier than others, but you typically will gain more the higher the risk the investment is. This was a great way to learn about mutual funds, stocks, bonds, etc.

I would start an IRA first, so you can utilize the beauty of compounding interest to have a wealthier retirement, however you want it to look. My strategy with investing with equities (stocks, etf's, and mutual funds) is buy and hold, but I think we have some traders on this site if that is what you want to do. However i have heard that day trading is very risky if you dont know what you are doing.

[gambler2075]

As someone who has traded intensively for the past 8 years, I'd like to chime in... First, I am not a financial advisor, so everything I say is my own opinion and experiences.

I also have a 'real' job so although I trade, I also am not trading 'scared' money. Meaning that I could lose it all and still do ok, since I am in my mid 30's and my job is a good-paying one.

I will say that the path to becoming a trader (heck, even just beating the markets) is littered with broken dreams and lots of tears. The vast majority of people who try managing their own investments lose significantly... you might have heard of them, but for most it is their dirty little secret. In fact, I think it is part of the reason that almost everyone says 'it is impossible to beat the markets' because they may have tried on their own but didn't really put the time and effort it would take to possibly succeed. (I say 'possibly' because even with a huge investment of time and effort, you are not guaranteed to ever succeed).

I 'blew up' my account several times before I became somewhat reproducibly successful... I lost 10K$ chunks a few times over the first few years, then stayed flat for the next few. Essentially after being completely clueless about trading for the first few years, during the next few I figured out pretty much what to do, but did not understand the concept of risk management, and would do well for a while, then implode in impressive fashion with some ridiculous leveraged trade gone bad.

Now I am at a point where I have had a couple of years of good returns, and am getting better at controlling risk.

The point of this little tangent is that I think for the vast, vast majority of people with normal jobs and who don't have the ability to spend tons of time (and I mean like 10 hours a day, 5 days a week, for 4-5 years), then they should not even bother buying individual stocks. I was fortunate in that I went to a very very difficult undergraduate school, and medical school was much easier, so I had lots of time to trade. Then I went into a job as an emergency room doctor that allowed me the flexibility (since the ER is open 24-7 and many of my shifts were when the market was closed) to get those thousands of hours of screen time watching trades to get past the point of total trading incompetence to decent at it.

Since most people are not in a position where they can do that, and at least 95% of all traders that I know (from seeing them start out on stock messageboards) fail, and of those 5% that eventually succeed, ALL of them failed for at least the first few years of dedicated attempts, I would say that for almost everyone, you should not even try to manage your own investments, as it is far, far better to only make 2% per year in some mutual fund than it is to lose 50% of your money.

Just my 2 cents.
g

[Nicholas22]

The recent situation of the real estate business is not looking good as the prices are touching the sky. At least a billionaire person should be required to get involved in this type of business specially the the area with lots of business activity.As the commercial real estate has gone to the value that only a financial firm that is a bank can afford it.The investment decision is always tough and you need lots information to avoid the risks involved.

[disneysteve]

I am 21 years old

I have toyed with the idea of Stock market, gold or other metals, IRA's, and the housing market.

My only bills are the ones for my house. I have no debt, and I save about 60% of my paycheck. The rest goes to utilities, my share of the rent, etc. My car and my motorcycle are paid for, though I may be in need of a new car

I know sitting on 17,000 grand is a terrible idea. I am willing to take risk as well. I'm not so keen on the IRA's, because I'd rather have the hope of a big payoff soon rather than waiting til I'm 60 to enjoy my cash.

Welcome. And congrats on what you've achieved so far. Having 17K saved at your age puts you way ahead of 95% of your peers. There is absolutely nothing wrong with having that 17K sitting in your checking account if you aren't sure what to do with it. At least it is safe.

I would tally up your monthly expenses and keep an emergency fund equal to 6 months worth of them in liquid savings - checking account, money market account.

What percentage of your income is currently being put in the TSP? Your goal should be to have a total of at least 15% going to retirement savings between your TSP, IRA, or any other investments earmarked for retirement (and that doesn't include any employer match).

You should also be setting money aside for your next car purchase so that you can pay cash and not take on any new debt.

I'm a bit concerned about your statement about looking for a "big payoff" rather than waiting until you are 60 to enjoy your money. Sorry, but it doesn't work that way. You need to find a comfortable balance between enjoying life now and planning for your future. That planning should involve slow and steady investing over the next 40 years in a diversified portfolio. That may be your TSP, your IRA or some other things.

Personally, I wouldn't get involved in rental real estate quite yet. I'd build a solid foundation first including that emergency fund and 15% contribution to retirement accounts. Once those are in place, then real estate might be a reasonable next step to explore.

[Krieger]

Since most people are not in a position where they can do that, and at least 95% of all traders that I know (from seeing them start out on stock messageboards) fail, and of those 5% that eventually succeed, ALL of them failed for at least the first few years of dedicated attempts, I would say that for almost everyone, you should not even try to manage your own investments, as it is far, far better to only make 2% per year in some mutual fund than it is to lose 50% of your money.

Just my 2 cents.
g

Thank you for your post. This really helped in deciding a little more about the stock market.

The recent situation of the real estate business is not looking good as the prices are touching the sky. At least a billionaire person should be required to get involved in this type of business specially the the area with lots of business activity.As the commercial real estate has gone to the value that only a financial firm that is a bank can afford it.The investment decision is always tough and you need lots information to avoid the risks involved.

I'm not sure I am following what you are saying. I thought the housing market was at an all time low? And that for new buyers now is the time to buy because interest rates are dirt cheap? I bought my 4 bedroom townhouse last year for 150,000$ with an interest rate of 4.3% but when it was built in 2005 it sold for 265,000$. Not to mention I got the 8,000$ tax credit for being a first time buyer. That is my reasoning for wanting to get into real estate. The town houses in this area rent for FAR higher than my mortgage is. The way I see it, if I find another deal similar to my townhouse, I could literally make money pending I find someone to rent it, which doesn't seem to be a problem in this area.

What percentage of your income is currently being put in the TSP? Your goal should be to have a total of at least 15% going to retirement savings between your TSP, IRA, or any other investments earmarked for retirement (and that doesn't include any employer match).

You should also be setting money aside for your next car purchase so that you can pay cash and not take on any new debt.

I'm a bit concerned about your statement about looking for a "big payoff" rather than waiting until you are 60 to enjoy your money. Sorry, but it doesn't work that way. You need to find a comfortable balance between enjoying life now and planning for your future. That planning should involve slow and steady investing over the next 40 years in a diversified portfolio. That may be your TSP, your IRA or some other things.

Personally, I wouldn't get involved in rental real estate quite yet. I'd build a solid foundation first including that emergency fund and 15% contribution to retirement accounts. Once those are in place, then real estate might be a reasonable next step to explore.

I appreciate your post. Only 5% of my income is going to TSP, as the government will only match up to 5% of what I put in. The TSP also has a lot of different funds, and I think I am going to switch mine to what they call the "Lifecycle fund". It allocated your money based on your "time of need" horizon. 40 years out to be specific. As you get closer to your time of need, it changes the percentage of your money that is kept in funds with bigger risk, to more stable funds. I have been reading about it, and since it is all done automatically with my best interests in mind, I believe I will switch to that. I was unsure if the current stock market would affect that negatively or not.

I should have phrased myself better. I am not simply "looking for a big payoff" as I stated. I am just willing to try riskier things with a little bit of my money as I am young, and still single for the time being. In other words I would rather roll the dice now while I am young and have no family to rely on me. My fiancee graduates nursing school this May. This is also why I have considered beginning a business now. I would rather try and fail while I am young, that fail when I have mouths to feed. I also don't want to be the person who never tried at all.

[fruitbowlk]

You are still young you need to make sure you have an EF. You really shouldn't buy another house to rent out at this point in your life. That might be too much risk for you. Getting an IRA is for you to live well at 60 and beyond If you enjoy all your money now what will you do when you are 60? You might want to start saving up for a new car after your EF is in order. After that should start looking in to investing.

[Hadwin]

401k and mutual saving certificate or fund is the option you are looking for .
That really is a good way to start investing .

[yulianisakov]

good old fashioned investing

I suggest you take that money and invest it in a good old fashioned diversified portfolio. Based on your post, it seems that you are relatively aggressive and just looking for good returns. I think you should stay away from retirement-type vechiles that will tie up your money for a long time especially if you may need to be liquid in the short-term.

There are a lot of opportunities in the market right now, but with your limited amount of cash it may be difficult to build a truly diversifed portfolio. However, you can still diversify to an extent and great good returns, for example, the emerging markets right now such as Thailand, Brazil, Signapore, and others are generating double-digit returns, and an ETF that will expose you to the emerging markets such as Thailand (up around 60% for the year) can give you the returns you are looking for. But, you need to be cautious at the same time, even though you have a more aggressive risk level, you will need a financial advisor to monitor your investments, the economy, and the markets so that if there are any changes in the market, your are able to shift your positions from what's not working anymore to what may work going forward. So investing is a dynamic process. For example, right now many commodities such as gold and silver are doing extremely well, but that trend is not going to continue indefinitely and at some point you will need to reallocate some of those returns to something else.

As your investments grow, you will reinvest your gains to magnify future returns. There are other strategies you can pursue at the same time.

Yulian Isakov

[Krieger]

Thank you all for your advice. I'm really getting some good feedback. I know patience pays off but if I keep procrastinating investing, the money will never grow!

[facebookdigg123]

i know how you feel krieger. im about the same age as you and my money is sitting in a savings account that isnt giving me much.

[elessar78]

Not to be snide, but invest in a personal finance book (Dave Ramsey is a good place to start) and a beginning investing book. You'll get a lot of varying advice, similar advice with minute differences, and a lot of new terms thrown at you. You can listen to podcasts (again Dave Ramsey) or watch tv (Suze Orman). They are not an end all be all, but a good primer.

If nothing else, you'll get the scare stories of what a lack of financial knowledge and discipline can do to a person or family.

The members of this site generally provide good advice, but how would you know what is right or sound or what fits your life?

[Robert742]

Congratulations on your great savings rate and accumulated cash. I would avoid individual stocks & commodities(gold, silver, pork bellies, etc.). There is a huge learning curve and most people trading stocks lose money, or fail to beat the market.

Buying more real estate will eat up all of that 17k in a down payment and closing costs. Being a landlord can be a headache ( I know, I have been one)and one nightmare tenant can leave you with no rent for up to 6 months and expensive repair costs. Prices on houses are low, but the housing crisis is not over, and they could fall further.

If you don't mind learning tenant-landlord law, dealing with frequent, or late-night calls from tenants, have the skill and willingness to do your own repairs, have the funds to pay the mortgage for at least 6 months for periods of vacancy, and you are committed to living in the area for at least the next 10 years, buying a rental might be a good idea. But I would hold off until you have more money.

In my opinion, sitting on 17k is not a terrible thing, because it is not a lot of money. Use it as an emergency fund. I would check out a high yield checking account (if you can jump through the hoops - e-statements, direct deposit, 12 debit card charges). I get 3.75% on my rewards checking with Everbank. That would be putting your money to work for you with no risk of principal.

I would also start a Roth IRA and possibly another investment account with a discount broker. These accounts give you access to the money you invested without having to wait until you are 59 1/2 years old. Research index investing and dollar-cost average yourself into the stock market with automatic monthly deposits to your investment accounts. This is getting rich the slow way, and if anything I said is alien to you, I recommend Personal Finance for Dummies(any of the "for dummies" books are good).

I encourage you to tap into your entrepreneurial spirit. Find something you love and find a way to make money at it. But you are both working, going to school and getting married soon, so do you have the time to run a business?

You are going to get married in 9 months, and that is a huge life change. You will need to sit down with your wife and re-examine how you want to handle your budget and financial goals. Having that 17k in a safe account may come in handy.

I know you are okay with risk, but I don't think anyone can recommend any investment to you that is not both time consuming to learn to invest wisely, and much more likely to lose you money than make you money.

You might be better off spending some of that cash on one heck of a bachelor party. If you go the party route, I expect an invitation for suggesting the idea to you.

[disneysteve]

You can listen to podcasts (again Dave Ramsey) or watch tv (Suze Orman).

FYI, you can get the Suze Orman show in podcast form also at iTunes.

[Krieger]

In my opinion, sitting on 17k is not a terrible thing, because it is not a lot of money. Use it as an emergency fund. I would check out a high yield checking account (if you can jump through the hoops - e-statements, direct deposit, 12 debit card charges). I get 3.75% on my rewards checking with Everbank. That would be putting your money to work for you with no risk of principal.

I encourage you to tap into your entrepreneurial spirit. Find something you love and find a way to make money at it. But you are both working, going to school and getting married soon, so do you have the time to run a business?

You might be better off spending some of that cash on one heck of a bachelor party. If you go the party route, I expect an invitation for suggesting the idea to you.

Thank you again for more very good advice. I think that the things you mentioned are a great way to start. I will definitely look into a rewards checking similar to what you mentioned. If the money is going to sit in a checking account I might as well make something off of it. Wachovia currently has their "way to save" program that I am enrolled in...but it is something like 2% a year added to my account which is really just a few bucks and not worth having.

And don't worry, if I decide to blow 17k on a bachelor party, you'll all be invited! haha