

What should a young person do with $20,000? - neovive
http://finance.yahoo.com/tech-ticker/james-altucher-advises-young-people-to-invest-in-themselves-stay-away-from-the-stock-market-516605.html

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jmillikin
I disagree strongly with this article.

    
    
      > Even if the market roars, an investor can only make
      > so much with only $20,000. Even in a strong bull market,
      > they can make 20% to 30% a year, which is insignificant
      > to a young person.
    

Insignificant? I would be out-of-my-mind ecstatic at 20% returns. 20% of
$20000 is $4000, which is (for most young adults) equivalent to several months
of wages.

However, it's also dishonest to imply that 20% is at all realistic. 3-4% per
year is more likely over the long term, and most young adults will see better
returns from using the $20000 to pay off credit cards or student loans.
Remember: $100 to pay off a 15% credit card is _guaranteed_ 15% returns!

    
    
      > Putting money in the market means living with uncertainty.
      > Young people do not want to deal with that kind of stress.
    

What uncertainty? I don't care how much my stocks are worth today or tomorrow,
because I don't plan to sell them for years (or decades). Some prudence is
wise (such as not buying at the top of a bubble), but the only people I've
seen get stressed out about the market are usually 1) invested in some dodgy
get-rich-quick scheme or 2) planning to retire in a year or two.

    
    
      > Someone in their twenties should focus on their education
      > and other investments that will advance their career.
      > Altucher suggests taking classes, brainstorming ideas,
      > starting a website and attending networking events.
    

None of these require $20000, unless "taking classes" means "attending
Harvard" or "networking events" means "week-long drug-fueled orgies".

    
    
      > It is also not a bad idea to have $20,000 cash in the
      > bank. It can provide a safety net and peace of mind
      > during a time when many are losing their jobs.
    

$1000? Definitely. $2000? OK, if you live in an expensive area. $20000? Waste
of capital. Savings accounts have very low interest rates right now -- better
to have your money working for you than being slowly eroded via inflation.

The best time to buy into a market is when the crazies are out in force. With
all the goldbugs panting into their paper bags, and old white folks on
medicare demonstrating against "socialism", there's probably no better time to
buy high-quality stocks. Conversely, anything looking "bubbly" (gold, Apple,
salesforce) is not worth touching with a 10-foot pole.

~~~
ttol
I think Altucher was under the assumption that high-interest loans and other
debt were already taken care of, since he was talking about investing in the
market vs investing in yourself.

I don't think it's a bad idea to have an emergency fund of up to 6-8 months of
living expenses, especially in this economy. Once that's taken care of, I
don't agree that the capital left over should be put in the market vs in
yourself. $20,000 is not a lot of capital, and taking classes, building a web
site, marketing it, etc will quickly use that up, but the upside and benefits
are much higher.

Even you said it yourself, at 2-3% realistic (and 20-30% at the highest
level), investing in the market is not really worth it.

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jmillikin
$20000 is a _lot_ of capital; I could probably live for a year on that, and I
don't live in a cheap location. A young adult (low medical expenses, no
children, no mortgage) living in a less-populated area (north pacific,
midwest, south) could probably stretch that to two or even three years, if
they find a decent deal on an apartment.

Classes at the local community college run about $50 per quarter, plus books.
Building a website is free, and hosting it nearly so. Marketing doesn't have
to mean full-page ads in the New York Times -- a few humble links on popular
community sites can go a long way.

I think there's a certain group mentality on News.YC which builds up the idea
of startups as hugely capital-intensive operations, requiring hundreds of
thousands in capital and slick marketing campaigns across the web. This
mentality is harmful. Every startup I've ever heard of has either 1) started
small and built slowly or 2) flamed out in a hissing ball of comedy. There's
no doubt thousands I've not heard of, which quietly curled up in a corner and
died after spending all their investments on fancy chairs and television
commercials.

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ttol
If your objective is to stretch the $20K out over a long while through
reducing your living expenses, I don't doubt you could make it last if clever
enough.

However, if your objective is to turn that $20K into a much higher sum and
gain much higher % returns (which I think Altucher was referring to), given
the age range (20's), and the amount of capital, it makes sense to parlay that
into knowledge and experience.

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openfly
While it seems snide, snarky, or possibly juvenile to suggest it... "Two
chicks at the same time" or alternate versions of blow it all in a glorious
escapade is actually a valid suggestion.

Money means fuck all if it isn't spent. Liquid assets are liquid. They can
disappear to economic eddies and flows, or simply be squandered on poor
planning. If you are young you are in a pretty agile financial situation.

Honestly, I'd say screw off to the idea of the mutual fund. Every engineer I
went to school with ( as well as me ) got taken in by our differential
equations classes. We lost most of our early investments in our 401ks.

If you are young you have the option to invest that money in a fun amazing
experience. If that means a start up for you, do it. If it means moving out to
some other city and finding a life there, do that. If it means hookers and
blow... I suggest joining the republican party first you might be able to
parlay it into a career.

Seriously though, if you are young you have the option of throwing
responsibility to the wind, and you really don't get to have a second chance
at it. Memories, experiences, they live in you forever. They make you a better
person. And all the economic recession on earth won't effect the value of
that.

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cageface
If you're smart and motivated you're likely to find that your most precious
resource is time, particularly that portion of time in your life when you're
healthy and free of serious obligations.

Live a little. You can always make money.

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runT1ME
Ok, I'm going to actually suggest something _crazy_ instead of either the
stock market or blowing it all on a trip around the world, or hookers and
booze. The two latter suggestions may be more worthwhile individually, but for
the sake of argument, lets focus on investments.

Put it towards a HOUSE. Whats that, the housing market sucks? Time and time
again the US Government has been telling us they will do EVERYTHING in their
power to prevent further price erosion, even at the risk of inflation. They've
kept the rate incredible low and are willing to continue to do so.

Getting a house gives you a place to live, a hedge against inflation, an
income generating opportunity, and a tax write-off.

A two bedroom apartment in my neighborhood is around $2000-$2500 bucks a
month. My housing expenses are $2500 a month, but I rent one room out to a
friend ($650 a month), around $500 a month of my payments go to principle, and
I save about $700 a month on my taxes.

All in all, even if prices stay flat I'm much better off than renting (and my
place is bigger than the apartments with a yard).

~~~
anamax
> Put it towards a HOUSE. Whats that, the housing market sucks?

That's good advice iff the housing market sucks "enough" where you're buying.
You want enough rent to cover a significant fraction of the expenses. In some
places, housing prices still haven't dropped to that level.

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washingtondc
Take it from a 38 year old with a mortgage and two kids: take time off from
your current job/venture and see the world.

I travelled a bit, but not enough. My wife tried to convince me to backpack
with her, but I thought my job at "CyberCash" (ever heard of them?) was just
too important - turns out that it wasn't so important after all. I had the
freedom, but didn't fully appreciate it.

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johnswamps
Anyone here have suggestions on what to do with excess money at that age
besides starting a company? I'm 22 and use my excess money to max out my roth
ira every year and keep the rest in the bank, but if there's someway to
"invest in myself" I'd certainly be willing to consider it. I'm a PhD student
in CS if it matters, but general advice would be preferred.

~~~
ttol
If you're 22 and you have excess money (meaning your tax advantageous
retirement contributions are maxed, your bills are all paid for, and you have
6-8 months of emergency fund), and you don't want to start your own company
(and you don't want to donate the money), then you can become a small angel
and help others start their companies. The reason I'm not saying things like
"buy CDs", or "put it in a mutual fund", is because you're 22, this is Hacker
News, and you can afford to swing for the fences and play conservatively later
(eg. when you have a family that depends on you).

Also, by keeping the money in the bank, you're in effect saying that the rate
the bank is giving you is the best return you'll get for your money (voting
with your dollars). At present time, this is most definitely not the case, so
it may be beneficial to look into _anything_ that produces a higher return
than bank rates (currently maxed at ~1.5%/yr).

In my experience, starting a company early yields extreme results beyond just
money, and you're in a position to do so -- why, may I ask, do you say
"besides starting a company"?

EDIT: Not sure why I'm being downvoted. Parent poster was looking for advice
on how to invest in himself with excess cash. I'm posting from experience
since I've been there, and looking to hopefully get him on some track to put
his cash in a place that generates higher returns than in the bank. It's silly
to give the bank free use of his cash with the return they're giving him, when
he could be using the same one to generate higher returns elsewhere.

~~~
dotBen
_you can become a small angel and help others start their companies_

It's actually really HARD to become a small angel if you are not an accredited
investor (something like $300k/year income and/or $1m+ assets).

I have some money I am looking to play with but I'm not accredited status and
most startups (if properly advised) won't touch non-accredited investors.

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conover
This seems absolutely crazy to me. I was always taught put money into long
term, stable investments when you are young so that you have the longest
possible period for return.

The last paragraph I think is dangerous. Putting $5000 towards four ideas may
teach you something but it's certainly not going to guarantee "Something is
going to hit."

~~~
tcdent
_This seems absolutely crazy to me. I was always taught put money into long
term, stable investments when you are young so that you have the longest
possible period for return._

You're in the wrong place.

$20,000 is more than enough for a young person to support themselves, and
possibly a co-founder, while they bring their product to market. As the
article states, if it hits, you'll see returns in the thousands of percents,
not tens or hundreds.

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vgurgov
Was in the same situation some time ago with exactly $20k cash in bank
account. I invested in my new venture - developing prototype, incorporating,
renting room in Bay Area etc.

Not sure that it can be good for everyone but at least it was good decision
for me

Other crazy ideas: 1) Buy new chevy camaro for 25k - cmn you are in twenties
that will not last long! 2) Vacation in places like Thailand can be really
cheap and amazingly refreshing! 3) Taking time for self-education and trying
out some of your crazy ideas! 4) Getting some more money and buying entry home
around the place you always wanted to live in.

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lhorie
<http://en.wikipedia.org/wiki/James_Altucher>

According to the wiki page, the guy doesn't have any degrees in finances or
economy, so I don't exactly see how his advice is authoritative. (And , no,
the daily work for hudge funds managers is not very close to average-twenty-
year-olds financial situations)

He's basically saying "here's what I did". He went to CMU and says investing
in a good education is smart.

He also is the founder of a (successful) site, so it's no wonder that he
suggests to try out your luck in a start-up.

In the video, he talks about investing in yourself (he gives an example of a
friend who does video, and his suggestion is to invest in better equipment).
The advice is good, but it doesn't necessarily have anything to do with money.
Programmers invest in themselves for free all the time by learning new
languages, frameworks, etc.

Also, when considering investing, you have to take into account risk tolerance
on an individual basis. Some twenty-somethings still have student debt, some
already have a mortgage, some are carefree butterflies with money to burn.
Some can't sleep at night not knowing where they're making money the next
morning. There is no one-glove-fits-all.

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jackowayed
> _Putting money in the market means living with uncertainty. Young people do
> not want to deal with that kind of stress._

So you should start a company instead! Then you'll be totally devoid of
uncertainty and stress ...

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slantyyz
Paying off any consumer debt and/or student loans wouldn't be a bad idea.

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ttol
Yes, when young, investing in yourself will yield extremely better % than
stock market ever could (unless your company IPO's).

The only money I have in the market are from SEP-IRA contributions, and that's
only because it is tax advantageous. The gains I've gotten were nothing
compared to when I invested capital in myself and my ventures. I was able to
consistently turn $10-15K/mo investment into ~$150K-200K/mo return (normalized
over a year). I cannot see anything remotely close to this with pure stock
investments.

It may make sense when you're looking at a fund significant size, and the %
per year = significant money. One of my friends manages a fund of > billion
trading mortgages on wall street, and a half percent swing translates to
significant sums for him. But at a smaller scale (less than $1mil), starting
your own business yields tangible (money) as well as intangible results
(invaluable experience).

Invest in yourself.

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steveplace
If you don't watch the full video, Altucher suggests keeping it out of the
stock market and investing it in yourself. And he's looking for the SPX to run
to 1500.

I'm in the market all day--speculating in the stock market is a pain in the
ass right now. On the short term, HFT firms have changed the market structure,
and many that haven't adapted have closed up shop-- see Schonfeld:
<http://bit.ly/9aKwJu> .

By investing in yourself, if you're good at it, you'll guarantee smoother
returns with _much, much more_ under your control. You can directly affect
your CR on your site, but if the carry trade unwinds it doesn't matter how
good of an investor/stock picker you are.

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ct4ul4u
Treasuries.

