| 23 year old starting a Vanguard |
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Sdubz
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| 23 year old starting a Vanguard |
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Hi Guys,
I currently have 7k in a savings account and was thinking about opening a vanguard VTSMX for 3k.
I make 3k a month currently and net 1900 after taxes, 15% to 401k, ss, etc.
I have 17k in student loans at around 6.8% interest and I am getting 7k at the end of htis month as a bonus and planning to use it all on my loan.
That would leave me with 10k in loans.
I currently pay 300 a month to the loan as is but get quarterly commission at around 7-10k each quarter.
Does this sound like a good idea?
Please advise on what i should do. I want to start investing . I have a 1k i-bond started in may 2010 as well(graduation gift).
I plan on looking for a new job soon to make more money.
Best,
Young Man
Last edited by Sdubz on Tue Jul 26, 2011 4:15 am; edited 1 time in total |
Tue Jul 26, 2011 2:24 am |
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oldguy
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I agree, VTSMX is a good choice.
What field is your degree? Sounds like sales (commission)?
Is your income $36,000 plus about $30,000 in commission? Or is the commission a part of the $36,000? (If you are in San Fran, it is going to be tough to get ahead on $36k/yr).
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Tue Jul 26, 2011 3:26 am |
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Sdubz
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Cool. I am in Sales and make about 65k base + commissions..first job out of college.
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Tue Jul 26, 2011 3:40 am |
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Sdubz
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Do you think I should get a Roth IRA now?
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Tue Jul 26, 2011 5:05 am |
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littleroc02us
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If it were me and I was 23 I would wait to open the Roth IRA, because you are young and should eliminate your debt first. It's not like you'll be broke at retirement if you pay off your debt first and then invest. If you were to pay off your debt and start maxing out your Roth IRA's at age 25 you'd have 2.9 million at age 65 making 10% returns and if you were married and your spouse did the same you would have around 6 million and no debt. A lot of people will tell you to not pay off the low interest debt because it's inexpensive borrowed money and you will miss out on compounding. I say hogwash to that because I would rather have no debt a 6 million in the bank wouldn't you? It's much lower risk IMO. Most leveraged investors have to calculate for risk or use Beta calculations and you can lose your pants on the deal.
As for VTSMX, I love the mutual fund, I've had mine for years and last year I had returns of 29.5% as of this june.
Good luck!
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Tue Jul 26, 2011 1:16 pm |
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oldguy
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quote:
A lot of people will tell you to not pay off the low interest debt because it's inexpensive borrowed money and you will miss out on compounding.
LOL That's what I would say. I'll take the compounding and have $9 million (the leverage factor is about 1.5) in the bank - you underestimate the power of compounding.
quote:
I say hogwash to that because I would rather have no debt a 6 million in the bank wouldn't you?
The "rather have" part is emotion, not mathematics - and there is nothing wrong with that, many people don't see debt as a tool.
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Tue Jul 26, 2011 2:36 pm |
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littleroc02us
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[quote="oldguy"] quote:
A lot of people will tell you to not pay off the low interest debt because it's inexpensive borrowed money and you will miss out on compounding.
LOL That's what I would say. I'll take the compounding and have $9 million (the leverage factor is about 1.5) in the bank - you underestimate the power of compounding.
[quote]
It may have worked in your case, but what people need to realize is that they are taking a huge risk in their lives and I for one won't lead someone down that path. yes you may come out ahead, but at what expense. Your only looking at Mathematics, I look at emotion, christian views of finances and comfort level if emergencies should stike. (Remember "The borrower is slave to the lender") If the only thing you look at is mathematics then you will the type of person that only makes decisons based on the probability that interest rates are the only thing that matter and you tend to take large risks on borrowing money to hopefully pay it back someday providing you don't lose your job or something awful happens to you.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Tue Jul 26, 2011 5:03 pm |
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kate032
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quote:
Originally posted by oldguy
LOL That's what I would say. I'll take the compounding and have $9 million (the leverage factor is about 1.5) in the bank - you underestimate the power of compounding.
Me, too. Compound interest is extremely undervalued. The earlier you begin, the greater for potential growth.
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Fri Jul 29, 2011 2:57 am |
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Sdubz
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To oldguy, littleroc02us and kate932: Thank you for the thoughtful response.
I am going to start my Vanguard VTSMX at the end of the month.
What would be a good goal for this fund?
-Car, House, etc?? How long should i plan to keep it?
Also, should I add $100 a month to it? more? less?
Also, what should I set my sights on next in terms of investing, etc
Thanks!
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Fri Jul 29, 2011 4:31 am |
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kate032
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VTSMX is an index fund, which means that its performance should replicate the whole of the stock market. For instance, about two-and-a-half years ago, the market as a whole plummeted.
Index funds, since they are not actively managed, have much lower expense ratios. VTSMX has .18%, which is excellent. However, that low expense ratio cannot be maintained if people continually move in and out of it. You should really only put in money that you will not need immediately. It's fine to withdraw some in a few years for a large purchase, but the fund should not act as an emergency fund.
This is just my opinion, but I'd really make sure you have that savings account stocked with at least 3 months (at a minimum) of your wages.
After that, then you have to decide whether you'd like to pay off the loans (is there a penalty to paying them off early?) or continue to pay interest and invest elsewhere.
One more thing you can do now is not develop expensive tastes. A professional wardrobe does not have to cost a fortune. You don't need every new toy and expensive furniture and cars. If you can live under your means, you can end up potentially quite wealthy. You can make occasional splurges, but if they become habit, then you'll never really gain financial security.
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Fri Jul 29, 2011 4:56 am |
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littleroc02us
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quote:
Originally posted by swpga88
To oldguy, littleroc02us and kate932: Thank you for the thoughtful response.
I am going to start my Vanguard VTSMX at the end of the month.
What would be a good goal for this fund?
-Car, House, etc?? How long should i plan to keep it?
Also, should I add $100 a month to it? more? less?
Also, what should I set my sights on next in terms of investing, etc
Thanks!
I don't get what were talking about here, I guess I'm lost. I thought the whole argument was to invest in your future and how you can have 9 million in 40 years? Why are we talking about using the fund to pay off house or car, etc?
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Fri Jul 29, 2011 2:08 pm |
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oldguy
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quote:
I thought the whole argument was to invest in your future and how you can have 9 million in 40 years? Why are we talking about using the fund to pay off house or car, etc?
I had that same thought - I thought we were talking about longterm wealth building.
When you start talking about buying new cars, kiss that $6M or $9M good bye. Notice that millionaires usually drive old cars. Several 'how to' finance books point that out. In our town we have an auto dealer that has grown to about 11 dealership all over the Valley in the last 50 yrs - to this day, he drives only 10-yr-old cars.
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Fri Jul 29, 2011 3:15 pm |
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kate032
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quote:
Originally posted by littleroc02us
Why are we talking about using the fund to pay off house or car, etc?
I think what the op means is to use some of the non-retirement savings to either use as a down payment on a house or to buy a car. When people save, they have different goals for different funds: retirement, down payment on a house, a new car, a vacation, a child's education, and so forth.
For instance, after my husband's and my first car loan in the 1980s at (I kid you not) 13%, we decided we never wanted to pay those kinds of interest rates again. So, after our car was fully paid, we kept on making car payments -- to ourselves! So, 14 years later, when we bought a new car, we paid with cash. A lot depends on the interest rate, both of the potential loan and your rate of return on the investment. The best answer is not the same for all situations.
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Fri Jul 29, 2011 3:21 pm |
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Sdubz
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Cash: $ 10.00
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Joined: 24 Dec 2009
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Hi Guys,
Yes..i know i should keep it for the long term but wasn't sure if i should use it for retirment or what? just wanted your opinions..
if i open the VTSMX ..should i add 100 monthly or more to it, while continuing to aggressively pay off my loans and put a hold on saving?
any opinions would be greatly appreciated.
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Mon Aug 01, 2011 1:55 am |
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