What Age Did You Put $ in a Retirement Acct?

[kyphysics]

(Mods, feel free to move this thread to a more appropriate place.)

I've been learning (the basic) of investing and one question I have is about when to start - in particular, when to put money into a retirement account?

If you've got debt (student loans) and minimal income (I work part-time, while attending school), is it pointless to do at this point? When DO you start putting money in? After you're debt free? When you've got significant income to pay for your basic needs + savings (assuming you already have an emergency fund)?

What factors go into it? Is there a particular age that is optimal, along with those factors? TIA for the thoughts.

[p.s. In general, I know the earlier the better, b/c you let compound interest take over. But besides that generic rule of thumb, what else goes into it?]
[p.p.s. Also, how big of an emergency fund do you think is best?...Sorry guys, I know these are like separate questions, but still kind of related. Feel free to move this into some existing thread if it makes better sense.]

 

[dkotschessaa]

Usually the advice you get is to put as much money as you can towards paying off debt before investing. But it's always nice to put SOMETHING away, even if it's some small percentage. There's one big exception: matching. If the company you work for offers matching, then you're getting "free money" and so might want to consider really upping that contribution.

I've heard the "emergency fund" should be 3 to 6 months. But I'm certainly not there yet, and I'm 40. Those articles that say "Put 10% of your paycheck away until you have 3 months savings" tend to illicit hostile feelings from me to the person writing the article. If it were that simple I probably wouldn't be reading the article to begin with.

 

[russ_watters]

I'm not sure there is general agreement on this question because a fair amount has to do with human psychology, not math (we've had that discussion recently). Some people recommend starting early if for no other reason than behavior pattern setting, even if mathematically it leads to a lower return than paying off your debts first. You can also have a dual-purpose retirement account and rainy-day fund.

I prefer going with the math and choosing to do what is best rather than having to condition myself to via less than optimal choices. It's like the old golf adage about aiming to correct for your slice: never aim for the woods otherwise you risk punishing yourself for a straight drive!

There's also a flip-side to the issue of going along with vs opposing your nature: If your nature is to be weak-willed and you work-around it with other sub-optimal choices, you are training yourself to continue to be weak-willed. Conversely, deciding to act like you are strong-willed is itself a strong-willed choice that may help train you to make more strong-willed choices. Yes, there is risk in this philosophy, but as someone who's more often than not chosen to play it safe, I can say I regret more not doing or going after what I really want.

So the general guidance I would give is that you should pay of debts with interest rates above your projected investment return before you invest. In other words, if you plan to invest all your money in the S&P 500, which averages about 12% growth per year before inflation, then do pay off your 29% credit cards before investing but don't pay off your 5% mortgage or 3% car loan. Oh, and if your company offers 401K matching, the match rate is equivalent to an instant increase. Unless you are heavily into high-interest credit cards and don't expect to pay them off soon, you should take advantage of it.

As a result of this guidance, combined with the desire to own a house, I started-off rather late. In my mid-20s I had some credit card debt from buying furniture for my first apartment and otherwise being overanxious to get out of my parents' house. I payed that off before investing anything. In my late 20s I had no debt and I invested not for retirement but to save for a down-payment on a house. So I sold what I held to buy the house at age 30, then went into a some credit card debt to furnish and telescope it.

It took about 5 years to get out of the credit card debt from that, so I really started saving in earnest at around age 35, though I did have some ramp-up of the savings as the credit card debt ramped-down.

In hindsight, my choices weren't optimal in part due to difficulty projecting the housing market and also, freedom:

-If I had lived with my parents and extra 6 months I could have avoided early credit card debt, which would have put me in a much better position for the long term. That's just a life choice. (Similarly: when to buy a new car/what car, etc.)

-Due to the housing boom's late stage when I was starting out, if I had opted to stretch extra-hard for a zero down payment, crappy starter condo instead of saving for a house, I could have made money by selling it and used that money for the down-payment on my house. A buddy of mine upgraded twice in 5 years and made a profit on each. But I had no way of knowing how long the housing boom would continue and there is less risk in an apartment/rent than in buying a house.

 

[gleem]

Save when it is feasible for you to reasonably do it. Justify your spending and don't spend crazily. If or when you marry you will have additional constraints and make sure you discuss this with you fiance prior to your final commitment (money is a very big issue in marriage). Set a goal i.e. determine a reasonable income that you can retire on. Make a plan to achieve that goal. Always keep it in mind. Review it regularly. Adjust it for changing situations including your own and the general economy. Take advantage of any programs that will enhance the attainment of your goal. You have about 40 years to carry out this plan.

 

[Vanadium 50]

Those articles that say "Put 10% of your paycheck away until you have 3 months savings" tend to illicit hostile feelings from me to the person writing the article.

I think you mean "elicit", unless your feelings are unfair.

So why do you think this? Is it because you don't have 10% to spare? If that's the case, maybe the feelings are unfair - I think the case can be made that if you don't have 10% margin on your budget for savings, you probably are spending 10% more than you should: i.e. your standard of living is higher than is supported by your income. While that might be unfortunate, it's hardly the fault of the writer.

I think it's vital having savings. Things happen. Your roof might cave in. You might break your leg and be off work. Your brother may need to be bailed out of a Turkish prison. You need to plan for emergencies. If you have set your standard of living so high that you can not afford an emergency, when - not if, when - that emergency comes, in addition to everything else you are worrying about you will also have a financial emergency.

 

[dkotschessaa]

I think you mean "elicit", unless your feelings are unfair.

So why do you think this? Is it because you don't have 10% to spare? If that's the case, maybe the feelings are unfair - I think the case can be made that if you don't have 10% margin on your budget for savings, you probably are spending 10% more than you should: i.e. your standard of living is higher than is supported by your income. While that might be unfortunate, it's hardly the fault of the writer.

I think it's vital having savings. Things happen. Your roof might cave in. You might break your leg and be off work. Your brother may need to be bailed out of a Turkish prison. You need to plan for emergencies. If you have set your standard of living so high that you can not afford an emergency, when - not if, when - that emergency comes, in addition to everything else you are worrying about you will also have a financial emergency.

It's not that it's the writers fault. Although I do think the advice is somewhat tone deaf. It's written for people who can already pay basic bills if they buy a few less Lattes. We already had the emergency you speak of. My wife can't work as she has to take care of our son who was born 4 months prematurely. We already had to cash out both 401ks. All electronics pawned. One car repossessed. We are just catching up on the mortgage after applying for a home modification. If I have have an extra 10%, it belongs to somebody I owe money to, not me, so I don't really have it.

You can't budget what you don't have. So, you can imagine when i see an article that just tells me to budget, I kind of want to tell them to stuff it. It's not them, it's me.

-Dave K

p.s. oh and yes, thank you for the spelling correction.

 

[phyzguy]

(Mods, feel free to move this thread to a more appropriate place.)

I've been learning (the basic) of investing and one question I have is about when to start - in particular, when to put money into a retirement account?

If you've got debt (student loans) and minimal income (I work part-time, while attending school), is it pointless to do at this point? When DO you start putting money in? After you're debt free? When you've got significant income to pay for your basic needs + savings (assuming you already have an emergency fund)?

What factors go into it? Is there a particular age that is optimal, along with those factors? TIA for the thoughts.

[p.s. In general, I know the earlier the better, b/c you let compound interest take over. But besides that generic rule of thumb, what else goes into it?]
[p.p.s. Also, how big of an emergency fund do you think is best?...Sorry guys, I know these are like separate questions, but still kind of related. Feel free to move this into some existing thread if it makes better sense.]

The earlier the better. Putting away a small amount of money earlier and letting it grow through compound interest prevents you from having to put away a lot when you are older. To answer your question, I started putting money away into retirement accounts in my 20's. Since (in the US) IRAs or 401Ks grow tax free, it's amazing how large a small contribution in your 20s can be when you are in your 60s. I wouldn't even wait until you have paid off your student loans, but I admit that I didn't have student loans to pay when I started working full time.

 

[Vanadium 50]

It's not that it's the writers fault. Although I do think the advice is somewhat tone deaf. It's written for people who can already pay basic bills if they buy a few less Lattes.

Maybe, maybe not. But it's certainly not written for people who are in the midst of an emergency, and I would describe your present circumstances as being in the midst of an emergency. I would say that most people who are in the midst of an emergency aren't worried about saving for this or that goal, nor should they be. They are - or should be - focused on getting out of that emergency.

For people who are not in the middle of an emergency, I think the advice is good, because following it helps weather the inevitable emergency.

 

[jtbell]

I didn't start to save "officially" for retirement until I was 30, when I started my first teaching job after grad school and became eligible for a tax-deferred 403(b) plan (the equivalent of a 401(k) plan, but for non-profit institutions like schools, colleges and churches). I had saved about $5K in today's dollars, from my grad-student stipend, but I thought of that as a "cash cushion," not as long-term savings.

If I hadn't gone to grad school but instead started a "real job" earlier, I would have started my retirement savings then.

Fortunately I had no debt. Back in those days it was easier for parents to pay for undergraduate tuition, at least for only one kid, and I supported myself through grad school with assistantships. I kept costs down by always sharing an apartment, and not owning a car until about a year before I finished my PhD. And that car was a hand-me-down VW Beetle from my parents, so I didn't have to buy it. I didn't get married until I was settled in a long-term faculty position. My wife also had a stable teaching job comparable to mine, with her own retirement plan, so I didn't have to save for two people's retirement.

I started out contributing about 10% of gross salary to my 403(b) plan (including employer contributions), then increased it in stages until it was over 35% during the last few years of full-time teaching.

 

[kyphysics]

Thanks for the great discussion and feedback so far everyone. I'll re: you guys individually when I have the time.

Just a super quick follow-up: Is there any reason to not ever put everything into a Roth retirement account? Why would anyone go with a non-Roth?

 

[Vanadium 50]

Why would anyone go with a non-Roth?

1. Tax issues
2. Eligibility

 

[JaydenMartin28]

In high school business class we were taught about how compounding works. Our teacher showed us the math of how you could start with very little money when you were 18 or put in huge sums after you were 35 to get to the same amount at age 65. I was sold and started putting away little bits for retirement as I could right after high school.

 

[Greg Bernhardt]

I think not till I was 28. Way too late!

 

[jim hardy]

The earlier the better. Putting away a small amount of money earlier and letting it grow through compound interest prevents you from having to put away a lot when you are older. To answer your question, I started putting money away into retirement accounts in my 20's. Since (in the US) IRAs or 401Ks grow tax free, it's amazing how large a small contribution in your 20s can be when you are in your 60s. I wouldn't even wait until you have paid off your student loans, but I admit that I didn't have student loans to pay when I started working full time.

I second every bit of that. Especially since so many companies are ditching their pension plans.

I started saving within a couple months of starting my first job in 1969, buying company stock through payroll deduction. When 401's came along a few years later i signed up for 6% , maximum the company would match. After not very many years the stock dividends were contributing more than i was. The stock was a dog and I'm not rich but we have enough ..

The payroll deduction doesn't require any discipline so is the way to go.
If you can avoid the "New Car Trap" you will be able to live better - car payments are a huge robber of wealth . Drive secondhand cars and eat steak.

Social Security is a pittance.
"Delay Gratification" and save .
You'll be glad you did, grasshopper.

old jim

 

[OCR]

Now Jim !... that picture tends to elicit, illicit hostile feelings in me...!

And, I'll have you know... I've cleaned up my act ! .

"Most of the my humour is more miss than hit, though there are moments that elicit a chuckle."

Humour is the British spelling of humor, also...

 

[russ_watters]

Didn't see this before...

Just a super quick follow-up: Is there any reason to not ever put everything into a Roth retirement account? Why would anyone go with a non-Roth?

Well, "everything" is not an option since there is a limit of I think $5,500 a year, which isn't a lot to be saving for retirement. However, I recently had a debate with several people including the CFO of my company who argued that a traditional IRAis better. After some research, it turns out that it depends on your income level and expected retirement income.

For current high earners who tend to take out less when retired, they will be putting money in at a higher tax rate with and taking it out at a lower tax rate. So it may make sense to do a traditional IRA.

I don't think there is a clear answer to the question though, nor do I even think the rules of the game are static. I don't think any government-sponsored investment vehicle (401K, IRA, college savings funds, etc) is safe from the coming collapse of Social Security. I think odds are pretty good that when it comes, the government is going to start siezing those funds, making much of this discussion moot.

 

[russ_watters]

And since I'm going backwards:

I think it's vital having savings. Things happen. Your roof might cave in. You might break your leg and be off work. Your brother may need to be bailed out of a Turkish prison. You need to plan for emergencies. If you have set your standard of living so high that you can not afford an emergency, when - not if, when - that emergency comes, in addition to everything else you are worrying about you will also have a financial emergency.

It's worth pointing out that there are different levels of what one would call an "emergency". The first bar commonly cited is a $500 "unexpected expense" (a blown water heater, for example would be $300-$1000) and Americans' preparedness for such an event is downright pathetic, with more than half saying they would have to go into debt to handle such an expense.
https://www.cbsnews.com/news/most-americans-cant-afford-a-500-emergency-expense/

That's truly pathetic, as it is less than one *week's* income at the national median.

I had a couple of years of a cut-hours issue going into the last recession, soon after buying my house so I know how much financial issues can gnaw at you on a daily/constant basis. It's a rough way to live. But I also know people for whom their every six months car insurance payment or every 2 years set of new tires is a "surprise" expense that they can't handle, even though it shouldn't be.

Two months salary at the national median is about $6,000 (take-home). That covers most "moderate" emergencies, up to and including a significant but not disastrous medical emergency (knee surgery, but not cancer).

As I've said before, I don't believe in keeping "emergency" money in my checking account. Real minor emergencies can be expected to happen every few years, but that means having that money sitting in a checking account earning no interest for years at a time until needed. Having it invested in a way that can be accessed in a matter of weeks puts it in range of bill due dates and credit card cycles. An emergency that comes up *today* (say, a sudden need to buy a $2000 plane ticket), I'd put on a credit card and pay back before the next cycle. I usually have that much available in my checking account (not already earmarked in my budget), but I wouldn't even bother looking.

edit: and a bit on living within your means:

So why do you think this? Is it because you don't have 10% to spare? If that's the case, maybe the feelings are unfair - I think the case can be made that if you don't have 10%margin on your budget for savings, youprobably are spending 10% more than youshould: i.e. your standard of living is higher than is supported by your income.

Living within your means is difficult for most people because people always want more "stuff" and have expectations for what type of standard of living they "deserve". But for the 98% of us who aren't in the 1% or aren't in the midst of a serious emergency, living within your means is almost entirely a choice. Consider this: if you are struggling just to make ends meet at your current income, there is someone making 10% less than you who is also struggling to make ends meet at their income and 10% lower standard of living. So all you have to do to achieve a 10% savings rate is adopt their standard of living.

 

[donpacino]

Is there any reason to not ever put everything into a Roth retirement account? Why would anyone go with a non-Roth?

A non Roth will lower your taxable income

 

[russ_watters]

A non Roth will lower your taxable income

That's true, but it is only half a thought. The Roth and Traditional IRAs are opposites of each other:
-Roth funds are taxed before they are contributed and not taxed after being taken out.
-Traditional funds are not taxed before they are contributed but are taxed when taken out.

Another piece of logic I heard regarding the benefit of the Roth is it effectively allows you to save more of your gross income due to the tax structure. E.G., if your marginal tax rate is 30% and the contribution limit for both plans is $5500, the Roth actually let you contribute $7857 to the program ($5500 to the fund and $2357 via taxes). If it's all savings anyway, the "Traditional" people take that extra $2357 in gross income, pay the 30% tax on it and then invest it in personal accounts...where it is then taxed on the way out.

 

[donpacino]

Good Point!

I'm currently going through the rollover process now. I started contributing at 22 (26 now). My first employer out of school matched percentage, but olny contributed to a traditional IRA. All of my contributions went to a ROTH account, so at the moment my funds percentage wise are 50-50.

The part of 401k investments that always baffles me is which funds to invest in.

 

[russ_watters]

The part of 401k investments that always baffles me is which funds to invest in.

I've seen compelling research that suggests managed stock funds are almost criminally bad, so you should pretty much never put your high yield/long term money in anything but an index fund.

 

[Greg Bernhardt]

I've seen compelling research that suggests managed stock funds are almost criminally bad, so you should pretty much never put your high yield/long term money in anything but an index fund.

Since our last talk I've shifted most of my position into VOO. Slow but stable historically.

 

[jtbell]

The Roth and Traditional IRAs are opposites of each other:
-Roth funds are taxed before they are contributed and not taxed after being taken out.
-Traditional funds are not taxed before they are contributed but are taxed when taken out.

Therefore, if your tax rates at contribution time and at withdrawal time are the same, a given amount of pre-tax money at contribution time yields the same amount of after-tax money at withdrawal time with both types of IRA. The only difference is when you pay the taxes.

If your tax rate is lower in retirement than than during accumulation (contributions), you come out ahead with the traditional IRA / 401k / 403b. For many people that is indeed the case.

However, if you save a lot in a traditional IRA / 401k / 403b, a nasty effect kicks in at age 70. At that age, you have to start taking out a certain minimum amount every year, and pay tax on it. These are called Required Minimum Distributions (RMDs). To get the RMD amount at age 70, divide the account balance at the beginning of the year by 27.4; in succeeding years the divisor decreases, usually by about 1.0 every year.

My wife and I are also both delaying collecting Social Security benefits until age 70, so as to increase the monthly amount. After we have both SS and RMDs, our taxable income will be about as much as when we were both still working full-time, and we'll be in the same tax bracket as back then (not taking into account likely changes in tax law by then). So I should have started my Roth IRA earlier, to get more money into it instead of the 403b. Oh well, I'd rather have that problem ("too much" money in tax-deferred accounts) than not have enough saved up for retirement.

 

[jim hardy]

Is not the benefit of a Roth that if you make a killing in a Roth the gains are tax-free ?

 

[jtbell]

Sure. However, if you start with the same amount of pre-tax money, you can put more in the traditional IRA; you have to pay taxes on it before you put it in a Roth. If you invest the same way in both accounts, in proportion to the amounts invested, your gains (in dollars) are bigger inside the traditional IRA because you started with more money. If the tax rate is the same when you take the money out of the traditional IRA as it was when you put the (smaller) sum into the Roth, you come out even.

[added]

Now, if you make a real killing, and your eventual withdrawals are big enough to push you into a higher tax bracket, then you would have been better off using a Roth. But that fits the general statement that you're better off with a Roth if you're in a higher tax bracket during retirement.

[and now back to the baseball game...]

 

[Greg Bernhardt]

Is not the benefit of a Roth that if you make a killing in a Roth the gains are tax-free ?

Here are some important rules
http://www.schwab.com/public/schwab.../understanding_iras/roth_ira/withdrawal_rules

 

[Noisy Rhysling]

When I was 19 I started depositing body parts and life expectancy into my retirement plan. To my great amazement I survived long enough to cash in on that.

 

[jtbell]

The part of 401k investments that always baffles me is which funds to invest in.

If I were starting out now in a 401k plan that has a large menu of choices, I would first pick out the funds that have the lowest expense ratio (fees extracted by the fund managers), hopefully no higher than 0.4% or 0.5%. If you're lucky there may be index funds from e.g. Vanguard or Fidelity that have ERs in the 0.1% ballpark or even lower. I've seen people post fund menus with choices that have ERs of 1.0% or even higher, which is ridiculous in this day and age.

Then from that low-cost subset, pick at most three funds that include (1) a broad US stock fund (e.g. S&P 500 index or total stock market index), (2) a similar international stock fund if you want to include international, and (3) an intermediate-term bond fund or total bond market fund if you want bonds for stability. If you're young, (1) alone is OK and (2) is optional for more diversification. As you get closer to retirement (40s maybe), gradually add (3). I wouldn't mess with "sector" funds that specialize in particular industries or other "slices" of the stock market. I don't think there's any way to tell reliably which one(s) will do better in the future, so I prefer to have a bit of everything.

When I started contributing to my 403b plan (managed by TIAA, which is common for college and university retirement plans) back in the mid 1980s, I had exactly two choices: (1) the TIAA Traditional account, a stable-value fund, mostly bond-based, which is guaranteed to have a minimum return of about 3%, and has always given me more than that, and (2) the CREF Stock account which is basically a broadly-based stock mutual fund which behaves a lot like an index fund even though it's actively managed, and has a 70/30 domestic/international split.

At that time we were coming off a long period of stagnation in the stock market from the late 1960s through the early 1980s, and interest rates were high, so even though I was only 30, I chose to split my contributions 50/50 between Trad and Stock, and hope that stocks would start to go up consistently.

Later my college's TIAA plan added more options including a US index fund, a bond market fund and a real-estate fund, but I was lazy and stuck with my 50/50 Trad/Stock mix. It's worked fine for me. A few years ago I read with amusement that Ben Bernanke, the former Federal Reserve Board chairman, had the very same mix at TIAA when he was a professor at Princeton.

 

[Vanadium 50]

I don't think any government-sponsored investment vehicle (401K, IRA, college savings funds, etc) is safe from the coming collapse of Social Security. I think odds are pretty good that when it comes, the government is going to start siezing those funds, making much of this discussion moot.

Why just government-sponsored? There are already calls for a wealth tax.

 

[Vanadium 50]

Is not the benefit of a Roth that if you make a killing in a Roth the gains are tax-free ?

Well, if your retirement plans involve "making a killing" I would say that you should rethink those plans.

Here's how it works - suppose you are in a 25% bracket and you have $1000 to invest. In a traditional IRA, you invest the $1000, it grows to $10,000, and then you pay $2500 of taxes on it, for a net gain of 6500. In a Roth, you pay taxes on the $1000, invest $750, it grows to $7500, and then you pay no taxes on it. Again, the net gain is $6500. It doesn't matter which kind of IRA you use.

The difference comes about when looking at the tax rate. If you are in a low bracket now but will be in a high bracket in the future, a traditional IRA works best. If it's the reverse, a Roth works best.

 

[russ_watters]

Why just government-sponsored? There are already calls for a wealth tax.

Agreed, but it is easier to alter an existing tax - even easier to eliminate an exception - than to create a brand new one.

So my fear for both types of IRAs is that the government will simply eliminate the exemptions from the income tax. For the Roth that will mean essentially a double-dip: the government gets income tax on the way in and way out (which would destroy the vehicle, so then they might as well just cancel it).

For traditional and 401k, the government could say, you know what, it was a mistake for us to not collect tax on them, so we're going to correct that with a one-time collection of those taxes.

Similarly, people are calling for elimination of the concept of "capital gains" being different from "income".

 

[russ_watters]

Well, if your retirement plans involve "making a killing" I would say that you should rethink those plans.

Here's how it works - suppose you are in a 25% bracket and you have $1000 to invest. In a traditional IRA, you invest the $1000, it grows to $10,000, and then you pay $2500 of taxes on it, for a net gain of 6500. In a Roth, you pay taxes on the $1000, invest $750, it grows to $7500, and then you pay no taxes on it. Again, the net gain is $6500. It doesn't matter which kind of IRA you use.

The difference comes about when looking at the tax rate. If you are in a low bracket now but will be in a high bracket in the future, a traditional IRA works best. If it's the reverse, a Roth works best.

Right, so where it also gets squirrley is if you contribute up to the limit. Essentially it means you can contribute more *pre-tax* money into the Roth than the Traditional: $5,500 post-tax into the Roth is $7333 pre-tax.

Of course, if you contribute to the limit in a Traditional and have $1833 left, you can invest that in your 401K...unless you also already have that maxed-out as well. There is a real, but small benefit of about 6% in maxing out a Roth vs maxing-out a Traditional and investing the rest post-tax plus later capital gains (in a scenario I ran similar to yours).

 

[jim hardy]

Well, if your retirement plans involve "making a killing" I would say that you should rethink those plans.

It's all a gamble. I opened a little $2000 Roth for speculation, played with Redhat and turned it into $5000.
My traditional IRA was ultra conservative . Utility stock.

They said i should diversify - sure wish i hadn't !

 

[Vanadium 50]

hey said i should diversify - sure wish i hadn't !

Why? Because you picked one winning stock?

There is a real, but small benefit of about 6% in maxing out a Roth vs maxing-out a Traditional and investing the rest post-tax plus later capital gains

And that's where things get complicated. For example, my 403(B) is ultra conservative - so much so that I get periodic nastygrams from the company. It's 42% stock, 48% bonds and 9% real estate. That looks crazy - it's conservative even for people who are a few years into their retirement. But what they don't know is that I have other, non-403(b) retirement accounts, and those are stock-heavy. The reason for that is taxes - these don't grow tax-free, but they do grow at the capital gains rate.

 

[jim hardy]

Why? Because you picked one winning stock?

Yeah but look where i got out...

 

[russ_watters]

Yeah but look where i got out...

I bought AMD at 18 in around 1998 and sold around 2000 for 85. The problem is I also bought 3dfx around the same time. Doesn't matter what I paid; I lost 100%.

If we only knew which gambles not to take, we wouldn't need to work as scientists/engineers!

...am sitting pretty with my FB, bought right after the ipo tho...

 

[Greg Bernhardt]

...am sitting pretty with my FB, bought right after the ipo tho...

I remember when Google IPO'd at like $70 and most analysts said it was too expensive. 1800% later analysts are idiots and I should have known better!

 

[russ_watters]

I remember when Google IPO'd at like $70 and most analysts said it was too expensive. 1800% later analysts are idiots and I should have known better!

I don't think anyone knew at the time what Google was...maybe not even Google.

FB was a nice buy because they criminally botched the ipo and the stock dropped by half in short order. I bought around 20 and now it's around 175.

I do think there is a gamble for companies with a disconnect between users and customers though. People will need cars for the foreseeable future, so if you build a good car at a good price, people will buy it. But facebook is always going to be a wind shift away from becoming MySpace, unless they can exist more as a tech holding company, buying their own replacement (Which they are trying to do).

 

[Vanadium 50]

Yeah but look where i got out...

But why is that the fault of diversification?

I could have/did buy stock XXX at $Y, and it rose/fell to $Z"

Since this is a discussion about retirements, I would say single stocks are usually a worse choice than an inexpensive mutual fund. You are taking on a lot of risk, and it is difficult to generate enough yield to compensate you for that risk. Suppose I had a fund that consisted of N stocks. It's risk is 1/sqrt(N) that of a single stock, and you have to be a pretty good picker of stocks to ensure a yield large enough to make up for that. I believe that as an amateur, I am no better at picking stocks than a professional, and the data shows that few (likely zero) professionals do better than low-fee index funds.

 

[jim hardy]

But why is that the fault of diversification?

It's my fault, not the fault of diversification.

That was my ultra- conservative traditional 401 , 100% company stock. I'd been told for literally twenty years "all your eggs in one basket is bad."
I'd watched it 'blip' up and down while Disney and Walmart went up, split, went up over and over.
So when it finally doubled i figured "here's another blip" and got out.
What i thought 'just another blip' turned into a fifteen year runup.

I laugh at my so called luck. While above sounds like a 'cosmic whine' I'm quite happy with what i have. Just think , it could have been Enron !

I am no better at picking stocks than a professional, and the data shows that few (likely zero) professionals do better than low-fee index funds.

I believe that's very true. Certainly my record is not stellar .

I'm 90% cash which I'm told is an awful place to be. But it sure looked good in 2008. And at my age i shouldn't be in high risk stuff..

After the 2008 bailouts it was obvious there'd be lots of inflation to dilute that debt. So i put 10% into what i thought had intrinsic value - some mining and steel production. We'll see how it fares in the next crash.

old jim

 

[kyphysics]

Btw, guys, USA Today had this little article a few days ago:
https://www.usatoday.com/story/mone...debt-the-average-us-household-owes/107651700/

It's a snapshot of Americans' finances. I was surprised that 25% of Americans make less than $10.00 a hour! Also, I hope that's a short-term credit card balance vs. some long-term unpaid debt.

The average American household carries $137,063 in debt, according to the Federal Reserve's latest numbers.

Yet the U.S. Census Bureau reports that the median household income was just $59,039 last year, suggesting that many Americans are living beyond their means.

Here's how much debt the average U.S. household owes in credit cards, auto loans, student loans, and mortgages.

Those numbers are unlikely to shrink anytime soon, according to NerdWallet. That's because the cost of living in the U.S. rose 30% over the past 13 years, yet household incomes only grew 28%. As a result, more Americans are using credit cards to cover basic needs like food and clothing.

Medical expenses have grown 57% since 2003, while food and housing costs climbed 36% and 32%, respectively. Those surging basic expenses could widen the inequality gap in America, as a quarter of Americans make less than $10 per hour.

On the bright side, education costs rose 26% during that period, and growth in student loan balances has slowed, so the picture could be improving for financially disciplined Millennials.

No figures for people's assets, including investments. If anyone wants to Google some figures, that'd be neat to know.

 

[jtbell]

I wonder how they get the $137K average for total debt, when the average mortgage debt alone is more than $182K.

Perhaps the averages for individual categories are for people who actually have that kind of debt (i.e. they exclude people who don't have that kind of debt), and the average for total debt is for people who have any debt (i.e. excludes people who are debt-free).

 

[russ_watters]

It's a snapshot of Americans' finances. I was surprised that 25% of Americans make less than $10.00 a hour!

Well, bear in mind, that includes all workers, including kids, not just heads of households.

No figures for people's assets, including investments. If anyone wants to Google some figures, that'd be neat to know.

...and very relevant to the thread. Americans save shockingly little toward retirement. I've seen articles recently and will post one if I can find it.

I wonder how they get the $137K average for total debt, when the average mortgage debt alone is more than $182K.

Perhaps the averages for individual categories are for people who actually have that kind of debt (i.e. they exclude people who don't have that kind of debt), and the average for total debt is for people who have any debt (i.e. excludes people who are debt-free).

Could be. I found the article a little disorganized, doing things like mixing and matching individual and household stats.

 

[kyphysics]

Well, bear in mind, that includes all workers, including kids, not just heads of households.

...and very relevant to the thread. Americans save shockingly little toward retirement. I've seen articles recently and will post one if I can find it.

Could be. I found the article a little disorganized, doing things like mixing and matching individual and household stats.

Sure. Post it when you get a chance. It's kind of interesting to know. I try to avoid a "keeping up with the Jones'" mentality, as I think that's not healthy and even harmful. So, it's not so much that I want to know how much everyone else makes or has in investments to compare myself to others and try to compete or anything like that, but I just want to know as a point of curiosity and interest.

As for the 25% $10/hour figure, I agree that it's a bit more complicated than that, since there's no disaggregation of teens versus prime-aged and older/senior workers. Definitely, if you're 40-ish and your primary income is from a $10/hour or lower job, then that's pretty depressing. Not so much if you're a high school or college kid.

 

[kyphysics]

Also...a quick question:

Do you all know of people who've had to withdraw from their retirement funds early and gotten penalized? How common is this?

It makes me wonder about the 3-6 months of life expenses saved up "rule," because with the economy so fragile, I can see it being easy to lose one's job and having to take a year maybe to find another one. This happened to a family friend of ours who had a BS/MS/MBA. It took about a full year for her to get another job and that was with heavy, disciplined searching (not like she was lazy or anything). Very anecdotal, I know, but still...makes me wonder.

Would 12 months be more of a better idea? I know one of the biggest "killers" of growth is to destroy your investments' compounding capabilities by taking money out unexpectedly. You should invest and leave it there for decades without having to touch it.

3-months just seems way too little to have saved before I would feel comfortable...

 

[kyphysics]

Here's a hypothetical:

If you had a chance to save $200-300/month in rent, but live in a more "rundown" and higher crime area, would you do it?

I paid more for my last apartment, because it was a nicer neighborhood and I felt I had a better chance of having peaceful nights to do my school work. I liked my apartment complex. It wasn't dingy, it was well-maintained, it was safe, and the management was responsive and very professional. I lived in a peaceful area and never had any issues.

I had a friend who paid about $300 less and lived in a more sketchy area and it was like a party community. It was rundown (their bathroom was really gross...ehhhck), noisier/busier at nights, and visually just looked unsafe. There are days I wonder if I'm a housing snob, because I see the value in paying more. My friend's housing wasn't in the worst neighborhood or anything like that. But it was still quite run down. I obviously wouldn't stay in some drug war zone or anything like that if I could avoid it. But there are degrees of safety, peacefulness, and beauty after that when it comes to housing options.

It's going to be a choice I have to make next year post-graduation. ...I think I know what Dave Ramsey might say: "Suck it up! Stop being a whiney, spoiled brat and ask yourself if you'd be happier living temporarily in a dump and building greater long-term wealth or living it up now and possibly broke later."



I'm usually pretty good with avoiding unnecessary spending (thanks to Dave Ramsey's tough love lectures in this area - apologies to Russ and company who dislike Dave ). But I feel like housing in one thing that I can be "snobby" about. I remember having these "tough" decisions twice and going with the higher rent both times. But now that I'm more serious about money management, man, it's going to be a tough one.

And for those who think it may not matter, there are horror stories from poorly run apartment communities you can read online. Just really disgusting stuff...completely molded out or cockroach/bug infested places where management doesn't care or is very slow to do anything. Situations where people have leaks in the piping coming through their roofs and mold developing, etc. I've seen these sorts of really dingy places w/ shady management who try to cheat you - yet, they're not the worst of the worst places by a long-shot - that can be a few hundred dollars less a month.

Housing is the one thing I feel I've spent more on that I may not have had to. But it comes with trade-offs.

 

[Vanadium 50]

I found the article a little disorganized, doing things like mixing and matching individual and household stats.

Which makes me question the $10/hr number. It may be that the authors have "saved the reader some time and effort" and have converted "less than $20,000 per year" to "less than $10/hour". Given that only about 3% of jobs pay the minimum wage, the $10/hr number means a lot of effort - a lot- is crammed in between $7.25 and $10.

If you had a chance to save $200-300/month in rent, but live in a more "rundown" and higher crime area, would you do it?

Depends on how much higher the crime rate is. I've moved from an area where the crime rate was 10 per thousand to 11 per thousand, and didn't think much of it. But I wouldn't move to South Central LA or Altgeld Gardens, Chicago.

 

[russ_watters]

Which makes me question the $10/hr number. It may be that the authors have "saved the reader some time and effort" and have converted "less than $20,000 per year" to "less than $10/hour". Given that only about 3% of jobs pay the minimum wage, the $10/hr number means a lot of effort - a lot- is crammed in between $7.25 and $10.

Perhaps surprisingly, the naked stat appears to me to be true:
http://fortune.com/2015/04/13/who-makes-15-per-hour/

I think the "a lot of effort" between $7.25 and $10 reflects that the minimum wage is, in effect, a hyperbolic asymtote. And that isn't just a matter of worker effort, but supply and demand, and driven in part by cost of living. I live in southeastern PA and even in the early '90s when I was looking for my first job in high school (when the minimum wage was historically higher) there was just no such thing as a [federal] minimum wage job. Walmart greeters and burger flippers made quite a bit more than minimum wage.

That, to me, is the actual myth of the minmium wage: that it even really exists. It is actually really hard to make minimum wage. You have to live in the right area and work hard to be a not quite bad enough to fire. But if it serves as an asymptote, it has at least some relevance -- it's just that focusing on it as a common case when it is really an outlier is misleading.

------------------------------------

Something else I noticed about the article that came up in another discussion was that all debt is treated the same, when it isn't. Some debts are "sunk costs" that are totally not recoverable (a vacation charged to a credit card), but your car and house have value and are relatively easy to sell to recover it. You could pay the same amount a month to rent your home and as presented by the article, having less debt would look good, but in reality it is almost always a much better deal to buy.

 

[russ_watters]

If you had a chance to save $200-300/month in rent, but live in a more "rundown" and higher crime area, would you do it?

I paid more for my last apartment, because it was a nicer neighborhood and I felt I had a better chance of having peaceful nights to do my school work. I liked my apartment complex. It wasn't dingy, it was well-maintained, it was safe, and the management was responsive and very professional. I lived in a peaceful area and never had any issues.

I had a friend who paid about $300 less and lived in a more sketchy area and it was like a party community. It was rundown (their bathroom was really gross...ehhhck), noisier/busier at nights, and visually just looked unsafe. There are days I wonder if I'm a housing snob, because I see the value in paying more. My friend's housing wasn't in the worst neighborhood or anything like that. But it was still quite run down. I obviously wouldn't stay in some drug war zone or anything like that if I could avoid it. But there are degrees of safety, peacefulness, and beauty after that when it comes to housing options.

It's going to be a choice I have to make next year post-graduation. ...I think I know what Dave Ramsey might say: "Suck it up! Stop being a whiney, spoiled brat and ask yourself if you'd be happier living temporarily in a dump and building greater long-term wealth or living it up now and possibly broke later."



I'm usually pretty good with avoiding unnecessary spending (thanks to Dave Ramsey's tough love lectures in this area - apologies to Russ and company who dislike Dave ). But I feel like housing in one thing that I can be "snobby" about.

...But it comes with trade-offs.

No need to apologize about basic, sensible, bias-free advice.

You're learning the important lesson that everything you do - in everything, not just about money - carries trade-offs. Being able to delay gratification is valuable, but not if it gets you killed. So what do you do? Put thought into it and pick a trajectory that gives you the balance you want between current and future happiness.

And stop worrying about looking like a "snob". Being a snob isn't about what you have, it is about what you do. Having nice things doesn't make a person a snob; treating others like you are better than they are does. And I think if you look hard at those people who appear to have nice things because they like others to see them have nice things, you will often find problems not far below the surface. Like a couple with his-and-hers Jaguars who complain about not having enough money for vacation. On both sides of the coin, it is better to act well and do what makes you happy than attempt to present yourself in a way to shape others' judgement of you.

 

[Vanadium 50]

I'm looking at the cover of the CBO Reporthttp://www.cbo.gov/ftpdocs/120xx/doc12051/02-16-WageDispersion.pdf and it has the 10th percentile just under $10/hr. Granted, $15/hr is the 50th percentile, so it's not mathematically impossible that the 25% point is $10/hr. But the distribution needs to be weird - 3% at $7.50. 7% between $7.50 and $9.50. 15% between $9.50 or so and $10, and then 25% between $10 and $15. It could be, as you say, a "market minimum wage" around $10, but even so I would expect geographic variations would make this less spiky. Much less spiky.