BF2S Forums The value of saving and smart investing

Ilocano wrote:

John,

Curious what your living expenses are that you can invest $50K a year on $200K gross income, especially since you mentioned you live in an expensive area.   Rent/home, cars, kids to come, vacation fund, emergency fund, college fund, private school tuition, health/fire/car insurance, etc.

Expensive yes, but our combined salaries will still be about double the average for the area. So we'll be ok.

Pug wrote:

JohnG@lt wrote:

Buckles wrote:

The rest of the data you use has a massive bearing on the final result. I could skew the data I put into it to get any result I liked. I'm not trying to get one over on you mate, just show a more accurate modeller.

I used my original data of a $200k annual salary. I'm choosing to invest $50k a year, the modeller you linked said I only had to invest $32k a year in order to maintain the retirement I want. There's nothing flawed about my simple calculations except that I didn't include capital gains taxes.

"capital gains taxes" - just buy a Roth = no tax later, but investing $50k a year means you'd need like $75k a year ($25k in tax).

Ps.  Unbelievable people.  Fuck the message, let's rip apart the math.

You only get hit with capital gains when you divest or receive a dividend, no? Either way, 20% isn't terrible, especially compared to the 33% you're talking about with the Roth.

Last edited by JohnG@lt (2009-12-31 11:42:58)

JohnG@lt wrote:

Ilocano wrote:

John,

Curious what your living expenses are that you can invest $50K a year on $200K gross income, especially since you mentioned you live in an expensive area.   Rent/home, cars, kids to come, vacation fund, emergency fund, college fund, private school tuition, health/fire/car insurance, etc.

Expensive yes, but our combined salaries will still be about double the average for the area. So we'll be ok.

Well, good luck to you. 
$200k - $80k (40% for taxes) - $50K invest = $70K?  Uh huh...

OK, with creative tax deductions, living on $90K?

Dear John,

How do I, an 18 year old college student who is trying to get a job that will probably just pay minimum wage, make use of this advice you're giving us?

Pug wrote:

Hurricane2k9 wrote:

Dear John,

How do I, an 18 year old college student who is trying to get a job that will probably just pay minimum wage, make use of this advice you're giving us?

Oh, then print this thread, give it to your parents when you move back in

(sorry had to... lol)

lulz

but really

I mean John's plan sounds awesome but the careers I'm looking at won't give me $50,000 of expendable money a year... they'll give me $50,000 and that's it. To spend on food, clothes, car payments, ripoff insurance payments, utilities, etc.

Pug wrote:

Ok, got on a website an did a calc.

Saving $100 a month for 35 years, 8% return rate, 3.1% inflation =

$215,632 nest egg drawn down @ $1517/month within 20 years.

Note that you will likely be able to put more than $100 in the bank/month within a few years of working a job, even if it's a McJob.

And I'm not one to give out advice as I jumped around jobs earlier - but maybe if your career field has limited salary...change careers?

Yeah, every little bit helps. Sticking your money in a savings account actually hurts you because the interest rate they give you doesn't keep up with inflation. For the lazy investor, the best return would be with a market index mutual fund. It keeps pace with the individual indexes like the S&P or the DJIA and your money fluctuates with that. The best advice is to always remain patient and to never panic. The less you look at the stock market, the better off you will be because you won't make irrational decisions based on how it's doing.

Hurricane2k9 wrote:

What exactly is a market index mutual fund? What does "mutual" mean with these funds?

Is there a good book that explains all this stuff?

There are lots and lots of books
Here are two good ones:
http://www.amazon.com/reader/0609802720 … 0609802720
Here's one that I've read and recommend: http://www.amazon.com/Warren-Buffett-Wa … amp;sr=1-1
Then there is always: http://www.amazon.com/Investing-Dummies … amp;sr=1-1

JohnG@lt wrote:

Yeah, every little bit helps. Sticking your money in a savings account actually hurts you because the interest rate they give you doesn't keep up with inflation. For the lazy investor, the best return would be with a market index mutual fund. It keeps pace with the individual indexes like the S&P or the DJIA and your money fluctuates with that. The best advice is to always remain patient and to never panic. The less you look at the stock market, the better off you will be because you won't make irrational decisions based on how it's doing.

I'll take it one step further.

Pick a mutual fund.

Picking individual stocks is comparable to playing poker, where the other players all have won the WSOP main event.

I got clients that are brokers.  You know what's interesting?  They don't play in the market with their own money.

I think the value of saving is critical to an individual's well being, and for the economy as a whole. A sound economy is built on savings, not spending recklessly. Investing all your money, however, is not the same as saving. So I have a few things to say.

Things to remember:

1) The stock market doesn't always go up. Over the course of decades you can make a positive (nominal, not always real) return, but you clearly shouldn't invest all your money in equities. There are times to sit on the sidelines and wait for the flames to subside. I don't think the next 5 to 10 years are going to be great years for the stock market, and in fact I expect the stock market to begin showing more losses in 2010. It's still overvalued and the economy is way too unsound in my opinion. Some foreign markets may be a better choice, but be careful.

2) Mutual funds are really not worth it, unless you find a really good one. In fact, Indexes beat most managers, S&P says. If the market turns sour, so will your fund unless you pick a good fund. You also have fees to pay as well. Plenty of people got burned in 08. Plenty. There are a few out there that made some excellent returns during 08 while everyone was highly negative. Sitka Pacific and Merk Mutual Funds are a few that come to mind.

3) You can still profit if you're a good nimble investor, but you're taking a serious risk. Do your homework, read between the lines, and try to get an honest, clear picture of the market. There are some online sites where you can invest with pretend money with the market to test market strategies. If you are serious about it, play with a few stocks and see how it goes. Nothing too serious.

Save of course, but don't feel bad if you're 'missing' out on so-called huge profits. There's no such thing as something for noting, and we all can't expect to put our money in equities and cash in later and not see the market tank. Just doesn't work that way.

I say all this because my dad was all tied up in the stock market. Luckily, I told him to sell everything in Sept of 08. He missed out on some good rallies later on, but that was the worst that could happen. I wasn't tied up thankfully, but it's very unwise to invest all your savings in equities.

Play it safe people. Savings > 'potential uber big profit'. Considering a missed opportunity as a loss can be a dangerous mind set, because one it's not always true and two it can make you a bit reckless. I'm not saying investing is totally bad, but one may want to think about the current situation and the future before investing. I'm not a financial adviser, but use common sense. Don't invest all your savings in equities, even if you know exactly what you're doing.

JohnG@lt wrote:

Pug wrote:

Picking individual stocks is comparable to playing poker, where the other players all have won the WSOP main event.

Not so much. Yes, there is more risk involved in picking an individual stock, but you can limit your risk by doing your homework and choosing the correct ones. The return on a mutual fund vs the return on doing your homework and investing rather than speculating is quite large. Mutual funds may be the safer route but you're missing out on a lot of money if you have the time and desire to choose your stocks wisely.

Also, the main problem with most mutual funds is that they are quarterly report driven and so they must constantly stay in motion and keep up with current trends and show a profit or people start dumping them. If you take the long view with individual stocks it pays off better.

If you spend all day every day playing poker with a nice bankroll, most players need a few years to develop their skills.  Before you gain the experience required to play poker in the WSOP event, you are prone to losing your bankroll and starting over.

This is true of most poker players at the table, but unfortunately, the best players dictate the style of play during the event.  So not only do you have limitations in bankroll versus learning curve, but play is dictated by those who have no learning curve.  In fact, most of these players will change their style of play to take advantage of your inferior playing style, which will require an immediate change in playing tactics.  Plus some luck.

Are you up to it?  Are you willing to spend the effort to get there and stay there?

A portfoilo of $50,000 (one year's investment) properly balanced is usually broken up into $2,000 lots.  Since it's purchased throughout the year by salary reductions, you are talking about buying 25 stocks.  Once purchased, you have to constantly be on the alert to rebalance the portfolio.  Do you have enough diversity across the business sectors?

So next year...another $50,000 comes in...that's 25 more stocks...now you have 50 to manage...

And you stated mutual funds are evaluated quarterly, which isn't evaluating your investments often enough...how much spare time do you have?

I would say, given that you are looking at $50k per year, the best thing to do is to pay someone to do it for you.

I can't tell you how many people I know that day trade to major losses.  Smart people that understand the market too...

The secret, if it can be called that, is to pay your self first. Before bills and loans and all the other crap. Take 10% of every paycheck and invest it.
Compound interest will do the rest.

JohnG@lt wrote:

DrunkFace wrote:

They didn't make superannuation compulsory here for no reason.

That's a nice system you guys have set up. I still prefer to do it myself and I'm against making it mandatory on philosophical grounds, but it's nice nonetheless.

There's nothing stopping you having a self managed fund. Also contributions are tax deductible and earnings are only taxed at a maximum 15%.

DrunkFace wrote:

JohnG@lt wrote:

DrunkFace wrote:

They didn't make superannuation compulsory here for no reason.

That's a nice system you guys have set up. I still prefer to do it myself and I'm against making it mandatory on philosophical grounds, but it's nice nonetheless.

There's nothing stopping you having a self managed fund. Also contributions are tax deductible and earnings are only taxed at a maximum 15%.

How hard is it to get Aussie citizenship?