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Ask HN: How to invest savings?

74 points by hansaw ↗ HN
After having sold my small business and having landed a well paying job, I find myself with some money to start saving for the first time in my adult life.

I'm in my late 20s, in a long term relationship, no kids, no money I can count on from my parents, and have ~70K sitting idle in my bank account. My goal is to preserve it, defend against inflation, and in general being responsible with it.

I could open a savings account and let the bank take care of it, but it looks to me that managing savings is not rocket science: ETF / index fund should do the trick. And I could save in fees. Also, I'd like to learn.

Am I right? How can I learn how to manage my finances? What tools to use, what simple strategies to pursue, and whatnot. Tried to Google it / find YT videos but it's all a huge content marketing mess. Everyone pitching "how to retire early" or "how to make money in the stock market". I'm not interested: I just want to be proactive and prepared with my personal finances, so that in 10 years from now I can buy a house (not interested in taking a mortgage now: I value flexibility more) and take care of my potential future family.

Would love to hear your strategies and your advice on how I can learn.

63 comments

[ 3.1 ms ] story [ 115 ms ] thread
fnordpiglet
Not crypto.

There’s tons of robo investors that do fine. Indexes do fine. Find tax advantages and save a lot more than you spend. It’s controversial but I also suggest buying a house and paying off a mortgage, then buy a more expensive house and pay it off again. A mortgage gives you leverage but paying the mortgage gives you guaranteed returns. You live in your house which has intrinsic value. And being relatively illiquid you won’t be tempted to pull it in a risky direction or spend it. Do it 20 years and you’ll be in a beautiful home that’s fully paid off. If you do it right you can keep the houses along the way and rent them out to build a steady cashflow for eventual retirement.

These are the things I did. But by far investing myself into my career earned me the most, most reliably.

BLO716
Eh, see I don't agree with this in particular. Moving from savings to a house, can be a slow growth equation that COULD or COULD NOT be compounding (given our current market, in reflection of my own home up 200% from 2008 in our cost) depending on your expectations of that.

Paying off a home may have 2-3% yield, where as normal index is like 4-6% and the rest of the world can operate from 6%-?? in more traditional (but fee laden) vehicles. As far as I can see, a home is SAFE investment by not a progressive one, in choice.

If you are risk averse, then fine. However, we want 6-10% with compounded / low-fee returns over the course of 30+ years if starting around age 30 - which is I bet the average saving age start (thinking first kid, first house, marriage etc) when you get out of that 20's fun-house zone.

I'd say, 401K/IRA (to keep the tax burden off you), then hit up local start-ups in the industry you know the most about, then start working towards passive income. If you are the start-up TYPE, then start like Adam Houghton and do the 6-Starups in 6-Months adventure. (https://medium.com/@adam_c_houghton/6-startups-in-6-months-8...).

I honestly think its investing in yourself until you can be yourself - aka. fake it till you make it in investing by traditional path until you can eject from it .

Investing is a game of self-confidence and getting on with it. Me -> following that 6-mo/6-starups plan as of 6/1. Wish me luck!!!

fnordpiglet
Given that 2-3% (and improving given interest rates) is risk free, on a risk adjusted basis you’re doing better than almost any other investment. Debt payment is almost always the most advantaged move - on a risk adjusted basis.

I’m not suggesting only using mortgage payment as an investment vehicle but one in addition to robo or index investment, and always max out your tax advantaged options first.

muldoc
Does that 2-3% not refer to percentage of the property worth i.e. mortgage, while 4-6% refers to the amount invested? So a 1:1 comparison would only make sense if you invest your loan into funds while keep living with your parents?
mtmail
https://old.reddit.com/r/personalfinance/ and as a start point their wiki https://old.reddit.com/r/personalfinance/wiki/index
jmcgough
Highly recommend r/personalfinance, there's tons of good information there and the wiki will explain a lot of the basics to you.

General advice:

- don't keep money in a savings account, you're losing money because inflation is always higher than savings account returns (even under normal circumstances)

- first, pay off any debt

- keep an emergency fund of 3-6 months of expenses (can keep it in cash in a money market account)

- buy 10k of ibonds (guaranteed inflation protection)

- simplest thing to do with the rest is to open a vanguard account, put it into a target retirement account (e.g. a 2055 account if you think you'll retire in 30 years). These accounts start aggressively in stocks and slowly shift to bonds as you get older, and have much lower fees than actively managing them. Don't try to outsmart the market, just let it sit there and don't touch it unless you decide to buy a house later.

- make annual, max contributions to tax-advantaged retirement funds (401k or IRA) if you have access to them / are within income limits. There's more you can do to optimize here, but I won't overload with details.

dangle1
I think you're on the right track with your thinking.

If your job is pretty secure, then I think it makes sense to put much or all of your long term savings into an index ETF such as (or exactly as) VTI. Make sure you guys are maxing out any tax advantaged retirement plans available to both of you before putting money into your taxable long term savings.

Savings for short term purchases/emergencies that exceed what a couple of paychecks will pay for can go in things like CD ladders or Series I bonds.

You're right, lots of people, many of whom mainly want to make money from your money, will recommend more complex strategies and products. I started saving before ETFs became a mainstream thing I felt comfortable with, and ended up with a palette of mutual funds before I switched to only buying more VTI, and some of them have done better than VTI over time, and some worse, and each costs more than VTI.

However, I've just coached my son to pile everything into VTI while he debates adding home ownership to his mix.

muttantt
$TSLA call options
leobg
For play money, yes. But know that if your timing is off, you’ll lose it all. With the stock, you at least have the option of sitting it out if things go south.
chewz
https://www.youtube.com/c/Wealthion

https://www.youtube.com/c/cambridgehouseintl1

https://www.youtube.com/user/StansberryMedia

A mix of gold, energy companies and t-bonds should do well during stagflation...

But with 10-year horizon it would be best to stay in cash and patient and informed. There would be a couple of unique opportunities - both macro and event driven. In other words don't be invested in all the time.

nickff
Timing the market is basically impossible for a retail investor, and I think it's an especially bad idea for someone who has no idea what they're doing.
more_corn
But over the long term the market trends upwards. There’s currently a buying opportunity. Might as well get into the market in a dip.
auxym
https://rationalreminder.ca/podcast/150

The data shows that gold actually isn't that great of an inflation hedge. It does keep a relatively stable real value, but only on a timescale of centuries. For any investment horizon on the scale of a human life, it's too volatile.

Highly recommend this podcast in general, though it does go pretty deep into technical stuff sometimes. They recently had an hour long interview with Nobel prize winner Eugene Fama (of efficient market hypothesis fame) for their 200th episode. On the topic of investing for retirement, I do recommend their interview with Wade Pfau among others. They also had an arc of a few episodes on the topic of the psychology of money and the relation with happiness, which I thought was super interesting.

yuppie_scum
Set aside 3 months salary in savings for emergencies

Max out 401k

Max out Roth and Trad IRA as applicable

Then Vanguard, Vanguard, Vanguard

throwaway019254
Put everything in SPY and and let it compound over long period of time.
manca
My advice is to read "The Bogleheads' Guide to Investing". It's an amazing read written by people who strongly believe in Jack Bogle's (founder of Vanguard) vision to democratize the investment world and make average investors reap the benefits of slow, compounding effects of the regular investments over long periods of time.
rschachte
I second this advice. Best book and netted me a lot of money since. It’s a lifelong process, but bogle is a great start. Also it’s a fairly passive strategy that ignores media hype.
[deleted]
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Polycryptus
This is a good way to go; also the affiliated wikis, forums, and subreddit can be a useful resource.
djohnston
I'll echo other comments and say Boglehead strategy. I use a mix of VTSAX, VPADX, VEMAX, to get global exposure to pretty much everything.
ipaddr
Great time to buy into the stockmarket and hold.
ro212
buy $10k of i-savings-bonds (the max per yr). currently at 9.62% rate fixed for 6 months.

then buy another 10k next year.

after a year, you can withdraw and if you are making rolling buys then it basically becomes an inflation-protected savings account.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds...

tamaharbor
I agree, I-Bonds are great just as long as inflation continues. Should interest rates fall [ie: recession], the I-Bonds could theoretically return 0% inerest. (Although you can never lose your principal.)
everybodyknows
Also, over-withold by $5000. When you file for your refund, take the option for $5000 in I-bonds.
vanillax
What is the fidelity equivalent for vangaurd index funds? Im deep in fidelity so if there’s a vanguard vti/vstmx equivalent to avoid fees im curious
djchen
FSKAX is Fidelity’s mutual fund equivalent.
octodog
What are your saving goals? Retirement? Housing? For when aee you saving? The answers to these questions will shape your strategy.

As an example, if you are looking to buy a house within 2 years then I would not recommend investing in ETFs, as short term market volatility may cause you to initially lose value and delay your goal of buying a house.

If your goal is retirement or buying a house in 5+ years then ETFs are a good idea, as the longer the time horizon the less short term volatility impacts you.

thenerdhead
Read highly rated books. Do not listen to people just regurgitating the material.

Read a book about retirement. (Many to choose from here)

Read a book about index funds. (Bogle)

Read a book about bear & bull markets. (Weinstein/Minervini)

Read a book about the mindset of money/finance. (Housel)

Although people can teach you these things and there's plenty of them online trying to do so. You are better suited to developing your own philosophy by reading plenty of books on the topics!

hattmall
Roth IRA is the most important thing. Max that contribution as much as possible and go with mutual funds based on your risk profile. I bonds are hot right now. If you do stocks, go for some stable dividend paying companies.
xupybd
Dave Ramsey has studied how common millionaires got their wealth.

https://www.ramseysolutions.com/retirement/the-national-stud...

"But they didn’t risk their money on single-stock investments or “an opportunity they couldn’t pass up.” In fact, no millionaire in the study said single-stock investing was a big factor in their financial success. Single stocks didn’t even make the top three list of factors for reaching their net worth.

Three out of four millionaires (75%) said that regular, consistent investing over a long period of time is the reason for their success. So, the story about the young computer genius who developed an app that earned millions overnight is the exception, not the rule."

AnimalMuppet
From the Bible, in the book of Proverbs: "Divide your portion into seven, or even to eight, for many are the mischances of the world." Don't put it all on one stock. Index funds are a different story.
al_borland
Index funds are good to diversify across many different stocks, but it is also wise to diversify across asset classes. For example, stocks (with something like the S&P 500), bonds, an international fund, real estate, etc. Allocate a percentage to each and rebalance if/when things diverge too much from your percentages. Each personal allocation would be slightly different based on their goals, risk tolerance, and age.

The idea here is that when one asset class is weak, another may be strong. For example, during "the lost decade" in the US, international stocks did fairly well. By rebalancing on a scheduled basis you effectively end up buying relatively low and selling relatively high without having to time the market.

SMAAART
A few pointers:

1. Educate yourself in Personal Finances in general

2. As part of #1 above, you will learnt that Personal Finances and Saving and Investing are not one and the same, but 3 different concepts. Hint: Investing is a subset of Saving, and Saving is a subset of Personal Finances.

3. Personal Finances has a lot more to do with your own personality, psychology, behaviors, and priorities than anything else you can learn anywhere.

4. Start by reading Suze Orman's early books, before she became ultra famous. That's for Personal Finances. Savings is nothing more than the delta differential between cash in minus cash out. IMO the more you save, the better. As far as investing is concerned, pick up a few online college-level courses on investing, pay attention to asset allocation/portfolio management. Some would say it's an overkill, I don't. How important is your money and retirement and everything relating to that?

YMMV

blockchainsaw
Put it in crypto. That way it will be recorded on blockchain and there will be permanent proof that you did invest your savings. Big banks wont be able to deny that you didnt invest your savings. And if some day your government introduces oppressive measures, you wont have to rely on traditional currency controlled by them.
xupybd
Crypto is very volatile. I would not recommend this as a long term investment.
pcdoodle
I would not recommend it as a short term investment. Anyone that has been patient with bitcoin since its inception has done generally well. It's the people who try and gamble / time it that lose out.
vanillax
bitcoin only. All other coins including ethereum are ponzi schemes.
thiht
And Bitcoin is not, because?
RedBeetDeadpool
Network protection, network adoption, stability, and decentralization. Not only that, with lightning, its has unparalleled speeds of transactional finality compared to a legacy system that relies on centralized databases and is still slow af.

Its innovations are the only ones that actually matter in the entire crypto space. All other cryptos are basically sticking spoilers and rims on a car and calling it an "innovation".

No, that's not an "innovation", that's just changing a few letters on a lower quality, more fragile, more defective product, making it spin faster and shinier, sprinkling it with technical gibberish and buzzwords, then marketing that as the next bitcoin. No.

Bitcoin was the innovation. Your cousin's off brand crypto? Thats just a scam.

aaaaaaaaata
Noticed the absence of the words "security" or "zero-knowledge", here...have you seen the numbers ETH is doing?
vanillax
All coins, minus bitcoin, can be printed out of thin air, including ETH. Bitcoin cannot because it has a hard limit of 20 million coins. This is a protection against inflation and so called "soft money". No one can just print 1000000 trillion coins of bitcoin like other shitcoins do.
Rebelgecko
As a rough flowchart

1. Get a reasonable emergency fund (reasonable varies from person to person, but at least 3 months of living expenses is good)

2. Max out tax advantaged investment accounts. Rough priorities, specific ranking again depends on your situation: HSA, matched 401k, Roth IRA, unmatched 401k, anything else (mega backdoor Roth, 529, etc). The Boglehead approach, aka VTSAX & Chill, is pretty good. You can throw everything in a target date retirement account, or manually balance yourself between a US stock fund, international stock fund, and bonds (don't worry too much about bonds when you're in yours 20s)

3. Taxable investment account

4. If you plan on using some of the money in 1-5 years, check out I-bonds as a way to keep up with inflation with no risk... Well OK not no risk, but as long as the US Government doesn't default on its debts the risk is infinitesimally low.

FastMonkey
Invest in very boring things, like S&P500 and AGG ETFs. If you feel tempted, try investing a couple of percent in something more exiting. You'll find its easy to invest with hindsight but very hard to do it in reality. With your fingers safely burned you'll be happy to return to your boring ETFs.

Pay attention to transaction fees and taxes.

whoisjohnkid
1. 6-12 month emergency fund

2. Learn to Budget if you don’t already

3. Max out retirement accounts

4. Place remainder in index funds; S&P is a great one to start with

5. Invest some time into learning more about finance

  - I highly recommend the 2008 MIT open course by Andrew Lo [0] to learn some fundamentals; options, futures, portfolio theory
6. Learn some tax basics such as:

  - Cost basis

  - Capital gains/loss

  - Capital Loss write off

  - Capital loss carry forward

  - Tax Loss harvesting
7. Consider looking into bitcoin

  - Read The bitcoin standard and the Fiat Standard
8. Use your learnings to further optimize your investments

[0] - https://youtube.com/playlist?list=PLUl4u3cNGP63B2lDhyKOsImI7...

brudgers
Investing is not saving.

If tomorrow a distant relative handed you $70k they’d stuck in a mattress in 1986, you wouldn’t think about inflation or its lack of work over the years.

Saving is being your own distant relative.

Investing is a bet on being smarter than people with enough money to move markets.

It is a bet on beating people whose full time job considers making your $70k theirs a legitimate business practice.

Anyone who has never been skunked by the economy has either been lucky or hasn’t been in very long.

Or to put it another way, looking at returns on each “safe strategy” you list during the Great Recession might be a useful research exercise.

creatornator
No, it's day trading and picking stocks which is betting against wall street firms, obviously that's not the way to go. But that's not all of investing. If you are diversified and tune a portfolio for risk, it's more like a bet that the long term trend will be for the global economy to become more productive as time goes on. And this is usually true, besides the transitory periods of recession.