What should I do?

[whey2big4u]

Everyone knocks on daytrading. It is the hardest way to make the easiest money! Day trading is all psychology. If you follow a given set of rules and do not break them you will make money, and sometimes a lot of money! The problem is that 90% of the people in this world can not do that when it comes to trading real live money.

I think you can do it, but maybe you need some guidance or help in following some rules.

I have read a few books, but may I ask what those rules are?


also another thing is DisneySteve that if I was to move or move back in with my parents the traveling would actually cost me the same if not more to get to an from NJ. My parents live deep in NJ and with gas and tolls, especially since they just increase all the tolls....and even if I were to take a bus in I would still have to drive to the bus stop and then that would cost me for the bus $300 a month and I also know my mom would want some sort of rent.......It really is a damned if I do damned if I don't situation.....Also if I were to drive in then it would be more wear and tear on my car and then it would cost me more in upkeep!!

But I think Ive received a lot of guidance from everyone here and now know what I would like to do with my remaining income.

[TrunkMonkey]

Care to expand on that? Why do you think saving 20% is "hogwash" and how much do you think people ought to be saving?

Like the "4%" rule, saving 20% or some other rule of thumb have little evidence to back them up. People who blindly follow the rules or advocate these rules are wrong plain and simple.

I could agree with a statement that says, save 10K per year, and you will have an x% chance of accumulating y$ after 20 years. I would put it in context of risk.

Just make a budget and calculate how much you need to save. That should be step #1.

You plan on making about 90K in 3 years, awesome! Calculate how much you will spend each year, either by tracking past expenses coming up with some estimate.

Anyway, take your pay subtract expenses, and you have an estimate of your savings.

But what are your short term, and long term goals? in order to make a budget with savings goals you need to just write down a simple "plan". Then realize that shorter term expenses like saving for a down payment or car purchase would generally be put in more liquid safe investments. Longer term goals like retirement would be invested in riskier assets like stocks.

If you are making 90K as a personal trainer, I would get paid "under the table" if possible. Can you contribute to a 401K? If you only make 30K I would put it in a Roth.

It is amazing how many people fail to do these simple things and instead try day trading.

1. Make a budget - an estimate of past expenses and future expenses
2. Estimate your earnings
3. Subtract expenses from earnings to estimate future savings
4. Write down your long term financial goals - buying car, down payment on house etc...
5. Use the budget to estimate how long it will take to save for these goals.
6. Invest based on the length of time the money will be sitting, safer investments for short term goals, that is usually safer. #6 is an investment rule of thumb.
7. Don't day trade, don't invest in individual stocks. Any equity investments buy an ETF like the spider or S&P index.

That's pretty much how to do it.

[TrunkMonkey]

Here is why you should not buy individual stocks.

The stock returns are skewed, this means that if you take the average return on all the stocks you might get an annual return of about 10%. But if you took half of all stocks, the highest return of that 50% would be lower then 10%.

Since the stocks are skewed, you have a high probablility of earning less then 10%. Because really the 10% historical stock return is because of a few "high flying" stocks that bump up the overall returns.

Its the same principle as looking at the average US household earnings. The average is skewed by high earners making 1Million plus salaries.

1. The moral of the story is don't buy individual stocks!!!!!!!
2. For retirement savings I would invest 80% in a ETF that tracks an index like the S&P500
3. How much should you save? Answer these questions
- Will you inherit any money from family?
- Do you have any savings?
- How much will you spend in retirement?

I would put hypothetical savings into excel and assume a 5% return - this is 8% - 3% inflation. Try to have your retirement savings target a replacement to your income. It's really hard to estimate how much you will need to spend at retirement. But that is basically what your are doing. You are saving dollars that you could spend now, or fund a retirement that is the trade-off you are making.

If you make like 50K now, and spend after taxes and savings about 25K. Well you need to be able to replace about 25K per year.

How much should you save to fund a 25K per year retirement at age 65? Realize, if you pay social security, you will get about ~15K per year if you make 50K over 30 years. You can look this up here... Estimate Your Retirement Benefits. I don't know what it is off the top of my head, but it is VERY progressive.

So you need to save enough to fund 10K per year (in our example).
Save 4K per year for 30 years and you have about

4000 x (1.05^30 - 1)/.05 = 265,000

This can replace about 15K per year. These are just estimates but it gives you a rough picture of what you need.

[jpg7n16]

Like the "4%" rule, saving 20% or some other rule of thumb have little evidence to back them up. People who blindly follow the rules or advocate these rules are wrong plain and simple.

....

1. Make a budget - an estimate of past expenses and future expenses
2. Estimate your earnings
3. Subtract expenses from earnings to estimate future savings
4. Write down your long term financial goals - buying car, down payment on house etc...
5. Use the budget to estimate how long it will take to save for these goals.
6. Invest based on the length of time the money will be sitting, safer investments for short term goals, that is usually safer. #6 is an investment rule of thumb.
7. Don't day trade, don't invest in individual stocks. Any equity investments buy an ETF like the spider or S&P index.

That's pretty much how to do it.

Okay, so I have a math question for you. Let's try out your method.

Let's say you make $50k/year. (#2) Your income and expenses will both grow at 3%/year (#3). Your long term financial goal is to have enough money to last through retirement for 30 years (#4). During retirement, you will only spend 60% of your final salary (#1). You have 25 years until you hope to retire (#5). During retirement, you will invest conservatively at 7% expected returns (#7) but expenses will continue to increase at 3%/year.

What percentage of your income each year should you save in order to reach this financial goal? Assume you can earn 10% on your investments as you have enough time to take that risk.

I mean, I am using your own approved method to project this need so my answer should work out, right?

If you do the math, you will come up with a need to save 16% of each year's income. The lower the return on investments, the higher that number needs to go. (for instance, at 9% returns, you need to save 19% each year) So 20% is a conservative estimate of this long drawn-out process.

You'll notice I normally suggest that people should be saving from 15-20% of their income for retirement alone.


So why are you so against the 20% rule, when your own process yields close enough to the same answer? Would you rather do a ton of work and find your number is 17.2%, 18.1115% or 19.325%? Or just go with 20% and don't bother with the complicated math?

Worst thing that happens is you end up with too much money in retirement. Sorry about that - our bad!


(I have a spreadsheet created if you want to see the info for yourself. If you want a copy, PM your email address and I'll send you one)

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Oh and while I'm at it, I guess I could explain the 4% rule.

The 4% rule is a quick method to calculate an amount you may withdraw to guarantee that you never run out of money, even after accounting for inflation.

It's based on 7% returns in a 3% inflation world.

Essentially, if the underlying investments earn 7%, monthly withdraws in an amount that will withdraw 4% over the course of the year will allow you to withdraw money for 91.2 years. That means you'd have inflation adjusted money until you're 156 years old. (at just 7.2%+, withdrawals are literally unlimited and could literally go on forever; at 6% returns, you'd have 44.77 years - so to age 110)

Again, a conservative estimate for planning to not run out of money.


I'm posting this so that any reader can know that we didn't just make up these rules. There are legitimate reasons why they exist. And they already have risk taken into the equation.

[MrPolarZero]

I think you already have a fine set of investments here, so you can continue that. And though it is not necessary, you definitely would want to put away a small portion of your income for retirement every no and then.