Ask HN: I'm a Developer, I make good money, Where do I put it?
I'm a young developer in mid 20's and make decent money. I am no economic or market wiz and don't have any outstanding loans or credit owed. I have a nice liquid backup that I'm comfortable with. Now where should I be putting my money?!
More info: I contribute max to my company's 401k to maximize my matching, the startup I was a part of was bought by aforementioned company so I get payouts quarterly, and my investment strategies so far have been centralized around the stock market, mostly in index funds.
Advice appreciated!
Edit: My main goal is to have generalized advice, so it doesn't just pertain to me, but to a wider audience, especially young developers who have excess income each month and want to be smart about preserving and growing their net worth intelligently.
31 comments
[ 4.2 ms ] story [ 94.8 ms ] threadedit: Furthermore, how did you come to the decision to put money into index funds instead of something else?
I'd do 90% stocks, 10% bonds, assuming you don't need the money until retirement. You could go down to 80% or up to 100% (I actually do 100%, but I also do individual stocks plus index funds).
S&P 500, a broader-market fund (3000-5000 companies in the US market, to get smaller businesses too not covered in the S&P), and some kind of global fund. Depending on how your 401k is held, you want to take that into account when allocating the rest of your money, and be careful because a lot of 401k plans have horrible funds (high expense ratios).
You might want to look at Roth IRAs too --it's a post-tax contribution, but never taxed on the gain or withdrawal. There are income limits to contribute, but there's a backdoor by contributing to an IRA (not income limited) and then converting it to a Roth.
EDIT: And as for as I know, IRA's have a income ceiling of $110k/yr correct?
However, I always wait until the end of the tax year to contribute (due to laziness) or do it at the beginning of the year (because I have extra cash then).
You can do a 401k rollover to Roth without any income limit.
You can do a Traditional IRA without income limit, although deductibility DOES have an income limit (56k since you have a 401k). I'm not exactly sure how a non-deductible IRA rolls over into a Roth; I've only ever done 401k to Rollover IRA to Roth. I don't think you get taxed twice on the money.
Assuming Congress doesn't change the rules, that is.
Mostly equipment for the day I might venture out on my own.
I have an entire music studio (hardware and software), creative studio (cintiq, nice cameras [video and still], adobe creative suite), and the start of an electrical engineering lab in my apartment. I have built a pretty good home theater in my living room (projection system), and lots of DVDs for inspiration. Lots and lots of boooooks.
It's pretty expensive, but makes me feel more secure. I'm not worried about money; I am worried about boredom. Make sure to get good insurance.
I would spend some of it curating a taste in something as well.
The most important thing you have to spend is time. Whatever you can buy to save time (without losing control over things you need control over) is a good investment.
He is investing in stuff that will allow him to create. The only problem is if he can't create stuff faster than his competitors (not much of a problem if you have enough talent and skill) or if people suddenly become no longer interested in the stuff that he wants to make (which also seems unlikely).
Besides, I took his comment to mean that he's buying the equipment to develop new and marketable skills.
If you invest in ETF's which are traded like stocks then you have to contend with trading fees. The rule of thumb (I've garnered from reading blogs/ literature) is that if your portfolio is < $50,000, then set up automatic payments for all index funds.. however if you have a larger portfolio then it would be worth getting a discount brokerage account and using that to invest in ETFs. This is because having a larger portfolio means that your brokerage house will offer you a discounted trading fee. The advantage of ETFs is generally a lower management-expense ratio than index funds and more importantly you get access to things like REITs and other non-standard financial vehicles.
At this point, there are only two differences between the two: 1) You can't day trade index funds 2) You can't auto invest in ETFs
Auto investing was really important to me for dollar cost averaging, so I decided to go with index funds rather than ETFs in the end.
By the way, Vanguard does have index funds for REITs: https://personal.vanguard.com/us/funds/snapshot?FundId=0123&...
Stocks, bonds. 80% stocks, 20% bonds given your age and the fact you are already saving for retirement.
If you own a home, pay extra on your mortgage. Depending on how much extra, you could pay off your home in 5-10 years versus a standard 30.
Or you could use it for advancing freelance/etc. For instance, I pick up freelance web-dev jobs and do some advertising consulting with my background in the printing industry.
One last thing, still have fun with it. It gets easy to become so focused on investing that you are living for 10 years from now, and missing living-in-the-moment.
Unless your mortgage is like 8% or more, it would be wiser to put that money in stocks for the long term.
You're borrowing money at (say) 4% to own a home. That's a great rate, why be in a hurry to pay it back if you could earn 8% per year over the next 10yrs in the stock market?
Secondly, I believe we're on the cusp of significant double digit inflation. So your debt will inflate itself away. Put that cash you have now into something that will protect against inflation, that means something that will inflate itself. Stocks aren't a bad choice for that either.
If it turns out to be economic collapse type inflation, well then you might want to spend that money on actual hard things, like firearms, ammunition, food, fuel.
Obviously if you have any credit card debt in the range of 15%, pay that off first.
Ping me offline if you have any questions.
Here's an article on Mint.com which educated me on its existence:
http://www.mint.com/blog/investing/should-you-take-the-plung...
Too bad there isn't a similar service here in Uruguay, it would absolutely kill the competition - OTOH credit risk and regulations are both a lot harder here, that's why lenders can get away with 43% annnual interest rates, which after inflation and costs mean they're getting at least 20% return on their money (I used to work for Equifax Uruguay, and they were doing extremely well).
Lending Club offers 9% according to that article, but it's lower risk.
I would suggest investing in Uruguay, but investing abroad is not for everyone, and most likely not for someone in his mid-twenties.
Angel investment or venture capital or soft loans for startups in Uruguay / Argentina would be very welcome, though :) and I'm pretty sure there's a good opportunity there.
Invest in index funds. First max out your 401k match, then your Roth IRA, then the rest of your 401k, then open a taxable account.
I highly recommend Vanguard's LifeCycle funds. Asset allocation is one of the most important factors in determining your returns, and Vanguard will automatically adjust your asset allocation while charging very small fees.