But I have a really hard time giving this advice to a 22 year old. I certainly didn't heed it myself. Instead I used the cash and spent 100% of it on my own professional and personal development. So, naturally, since this is Stanford and Silicon Valley. I'd include a section on Risk. Taking it. Managing it. What are the rewards. As well as the costs. But with the emphasis the post-graduation 5-10 year window may represent a unique opportunity in your life to take it. And that there are programs such as StartX and YC available to assist should you decide to go all in.
And as far as I can tell, health insurance is allocated two words in the lecture series: "health" and "insurance". That's it! I will grant you that the ACA is under incredible threats at the moment, but employer based health insurance isn't going anywhere, and at the very least, HDHP / HSA plans vs. PPOs vs HMOs is a thing. Considering how expensive pregnancy, birth, maternity leave, child care can be, health insurance and savings is a crucial topic not even mentioned in the 'couples finances' section.
The other thing I should mention is student loan debt. 92 percent of those surveyed in the Stanford course say they have no student loans. This seems high -- even the net price of Stanford is $17k / year. Most undergraduates are going to be paying like 4.45 percent interest, which is way better than the 6.8 they used to charge. Despite required financial counseling, most people with loans don't really know how repayment works, and haven't looked at how much their payments will be post graduation.
My girlfriend is from an immigrant family and left undergrad + grad school with almost half a million in debt without having worked full time in her life, and is completely overwhelmed and underequipped to deal with this. Given how many great engineers and entrepreneurs are immigrants / from immigrant families, financial education programs for undergrads should focus a lot more on these issues
Never take a loan you can't afford to pay back? Immigrant or other wise.
Now I'm about to turn 40, and now in the timeframe where I have the network to exploit and experience to get into customers, I'm sitting on a nice nest egg. If I decide to roll the dice, I get to keep more pie than an impoverished college grad.
My 22 year old self would have been failing fast into the heart of the dot-bomb implosion and probably stuck in some less than optimal grind for a few years.
We've done this. And let me tell you, working 40 hours a week when your 8-month baby lets you sleep on average 2 hours per night is a lot fucking harder than the 70-hour tech-scene work week. So given the choice, I'll take the former when I'm young and fit for it, and the latter when I'm older and wiser.
Most people in their mid-20s are still growing up.
Of course, that's no guarantee - I belong to a religion where dating is a thing, and we believe marriage can be eternal, so there is a big emphasis on dating. And during my college years I was in an apartment of 6 and it seemed like every semester I'd have an engaged roommate - and I went on lots a dates, but didn't get married until I graduated.
So, yeah, go on lots of dates, and you might get married early. If not, don't sweat it. Just make sure you marry somebody who will work to have a good marriage.
note: I (and my culture) are definitely outliers - we tend to go through the courtship process relatively fast - I married my wife about 9 months after first meeting her.
In regards to dating, I was living in Provo, UT at the time, which over emphasized the dating aspect - I'm not sure how emphasized the dating aspect is outside of the U.S. / Angelo Saxon culture areas.
What I find rather interesting though is that despite placing more importance and weight on marriage, we tend to go through the courtship process faster (under a year is not uncommon).
I think it's really dependent on personal maturity. My wife-to-be and I both knew what we wanted families, so we looked at our financial situation, and decided we could responsibly get married while I was still in college. A couple generations ago, that was pretty normal. Not so much now, but that doesn't make it impossible.
Statistically, your divorce probability drops dramatically when you get married at 25, and doesn't change much afterward.
Once you're married at 25, the primary risk factors are: substance abuse (obvious), prior cohabitation (many people feel they "slide" into marriage when they do this), and unemployment.
Of course, maybe it's not quite that bad. Maybe you're just really miserable all the time. Things aren't quite terrible enough to leave your marriage, especially considering the consequences, so you suffer for a couple of decades. Instead of giving up half your money, you give up half your life and most of your freedom.
I have friends in this very situation. They tell me they wished they stayed single.
Yeah, I'd say finding the right partner is pretty germane.
This is... not exactly actionable advice for everyone ?
I think the parent's posting is more applicable than you might think - putting in the effort to go on dates and really get to know a person does a lot to cultivate romance.
Nothing kills romance like hanging-out, but my perception might be different than yours - my ideal romance leads to a life-long relationship, which takes the same kind of effort that the parent's suggestion called for (deliberate effort focus on a romantic relationship).
Alternatively saving a lot of money before you have kids and living frugally by working in a lower cost metro area or renting outside of SF/Palo Alto can work. It's obviously a risk so you and your family has to be on board.
Now I could literally walk out the door and make at least what I’m making in my own in 3-5 phone calls. Not because of any magical talent, but because I’ve been around and have a decent network.
A huge chunk of your monthly expenditure is now taken care of.
Pick any decade where this wasn't true. In the 90s it was buying web domains or investing in personal computer companies. In the 2000s it was investing in platforms and social networks or even just building a company in the mobile space. In the 10s it was cryptocurrencies and AI.
All of these things were obvious and even if you didn't get in at the very ground floor (buying sex.com or 50 bitcoins for a dollar) you still make hyper, hyper gains.
100000% returns? Totally possible. Now go on and take all that knowledge you hard fought for at MIT, Stanford, Harvard, or Waterloo (or even on your own!) and use it too... Invest in low fee ETFs.
Great plan guys.
IMO, do the boglehead thing for 80-90% and play with 10-20%. If you spend some time on it and educate yourself, that play portfolio will often beat the Vanguard strategy. If you lose, you're not dead.
I disagree with your mocking of this. Your emergency fund or retirement savings are not buckets where you throw every last dollar you have. They only cover your emergency fund (typically 3 - 6 months of expenses) and your retirement (10% - 20% of your annual income per year).
For people working a full-time tech job before starting their own venture, I think eschewing those to "invest in yourself" is probably a stupid idea. Not having an emergency fund is a stupid thing to do if you have the financial situation to fund it.
It's a little different for college dropout or straight-out-of-college entrepreneurship. But in that case, pushing off retirement savings until you have a stable job is reasonable, and try your hardest to build up your emergency fund.
Cover your bases. If you're in a high-risk high-reward lifestyle (like tech entrepreneurship), investing 10% - 20% of your income in standard low-fee ETF's is a GREAT point of diversification.
15% of your money in something technically promising but risky isn't really worth the time you'd have to put into the research for it. Put in 50% at the very least. You'll make money if you are right and if you're bad at investing it will be safe enough for you to survive retirement.
> 15% of your money in something technically promising but risky isn't really worth the time you'd have to put into the research for it. Put in 50% at the very least. You'll make money if you are right and if you're bad at investing it will be safe enough for you to survive retirement.
Are you talking about investing in one's own venture (where you're looking for high return), or investing for retirement (in a diversified portfolio w/ low-fee ETF's, where an 8%-per-year return is great)?
So what's your suggestion for the "obvious" investment today?
Next decade is going to be cyber security and a word that I doesn't exist yet that I think of as "personification" of the internet. Combination of webs of trust and machine learning to both shape tastes and politics and harden networks from their shaping. Also, I think there is a pretty good chance that biology takes off, starting with GATACA or something like it for dogs. People want old scratch to live forever and not get hip dysplasia, and once old doggo is doing fine with Gene Drive then we're not going to be far off. Also, people are much more comfortable thinking with graphs of data. Think about tying together graphs that we can use to make predictions and watch companies like meta.com (bought by Zuck, that guy is a genius) and researchgate.net.
Also get ready for mass protests and "eat the rich" politics. Especially in America where the poor are poorly educated and the political system is corrupt enough to be evil enough to not support the poor, but not corrupt enough to collapse the private sector.
Can you elaborate on this with an example of a future scenario? Thinking about this is throwing me for a loop. Are you talking about some deeper level of web curation not yet achieved? People ever more entrenched in their own AI curated "bubbles"? "Harden networks from their shaping" Qwut?
Right now adversaries attempt to warp what people believe by pushing them to make connections to more extreme elements, this would be less possible if the social network were built in such a way that would expose fake or low trust profiles.
The web of trust would resemble Page Rank, more than modern day Facebook. For example, Bill Kristol may be trusted by people like Ezra Klein to such a high degree as to not just bring him within your bubble, but to be part of a social network feed that would provide a blend of opinions.
I'm not saying this is easy to get right, but it's necessary if we want to have open platforms like Twitter to survive gamification by nation-states and brand marketers.
If I knew the next Bitcoin I'd definitely have typed it out. Sometimes the answer is to just wait and see and let your thoughts kinda work through things. What I know for sure is that there are a lot of powerful people that found out how important cyber security is in the past couple years. Snowden, Clinton, Paradise Papers. The market will do its best to try to meet this need.
The need for very seasoned professionals who have BOTH security and heavy development/business/architecture backgrounds will be a scarce thing.
Things like pharmaceuticals with ok pipelines, good companies in shitty sectors (say a company like Costco in retail), health insurers and companies like McDonald's that do well when the rest of the world does not. Think about smaller players who benefit from net neutrality going away.
You should have a running list of good companies and invest as you see corrections or downturns.
Knowing your shit and having liquid cash is key to those opportunities. My play portfolio made a 10x return after the financial crisis because of knowing key sectors and having cash.
Likewise, I had a nice bitcoin hit that could have been a 1000x play, but to be honest I got out to buy a car, which in retrospect was a very dumb decision!
I cashed out a bunch of bitcoin for what I thought was going to be a near peak price at the time, $800. Fortunately, I never agree with myself completely, so I saved a few for the long run. Thinking back, I can't really say I would do anything differently with the information I had at the time.
This isn't investment advice. I think the idea is that you'll have some investments that yield 1000x and some that yield 0x so you'll average out to something that's better than the market, but not 1000x.
I'll admit I'm surprised by Bitcoin, I actively avoided it thinking it would crash long before now. But I wouldn't treat the past five years as anything remotely "normal". We're in one of the longest bull markets the US has ever seen and there are a lot of macro forces that will eventually end it, e.g. boomer retirement, student loan debt overhang, pension obligations. I was just reading some of Dalio's daily observations on some of this, they're quite good.
I do think that there are some firms, who cater to mostly very wealthy clients, who can consistently beat the market, or at least have a good chance of finding some niche or anomaly every few years for a huge jackpot such that their overall average is higher than the indexes.
The problem is that most of us won't have access to these people.
Instead, our professional is going to be the typical financial planner who has far less of an understanding of math than even the typical CS / engineer grad, and is basically a commissioned sales person who will take 5% off the top, plus another 2% a year - all for basically investing it in the same index funds you can now buy yourself with a Schwab or Vanguard account.
I think this can work only if we as customer also learn to cross examine his reasoning and ask hard pointed questions.
Once an advisor is acting as your fiduciary, it's not lawful for them to advise you to do anything but what is in your best interest. Further, they may not have any conflicts of interest. This was supposed to be the case for all US retirement accounts, but the Financial Services Industry fought tooth and nail to defeat the Obama era rule.
Competence is a qualitatively different problem and has different solutions. Usually, one would look for past experience, performance, and educational credentials to gauge competence in those they hire.
I do agree that the more educated client, the better. But, personally, I can only have domain expertise in so many areas, and I only have so much time. Outsourcing is a logical strategy.
How much are these flat fees for an hour or two of their time?
In fact, it's something I just do not understand at all. The idea of giving my money to a complete stranger and entrusting them with years of my hard work is nuts to me. If people just read a bit about finance and managed their own money (in ETFs, your pick of Mutual Funds, REITs, Bonds etc) it would avoid so many headaches for people.
The main thing I've realized is that returns to pure capital just aren't that high. For a typically-sized retirement account (few hundred K), you're much better off going hard on your career if you're in a field where that's rewarded (law, finance, tech, med, etc.)
The one saving grace of your idea is that you'll have made all the mistakes by the time you have real money to manage, so you won't make silly dumb beginner mistakes like buying high and selling low. That's my post hoc justification, anyway ;)
I do both. I put the majority of my funds into low fee ETFs. I keep another 20% for higher risk investments.
I have decided that I don't want any single high risk investment to consist of more than 10% of my networth, so I sell some to compensate.
Is that the right number? I don't know...
The other criterion I'd use is that if one of my risky bets has returned enough money that I could likely retire from it (i.e. >25x annual expenses), I would sell enough to be capable of doing that. That's such a monumental quality of living change that it's not worth it to keep the same level of risk.
So my question to you is how will you know when it's time to sell cryptocurrencies? Is there a particular methodology that you're using?
I got out of the stock market in 2006 because I thought it was overpriced too. I'm the type of person that looks at fundamentals / physics and I get in and out early. Bitcoin might be going to $50k a coin, but I bought at $3 USD and I still have a small amount. I still think the governments are going to ban it, but having a bit of exposure is averaging the risk.
How are you measuring this? Are you equating being at an elite institution or have a (currently) rare and valuable skillset with intellect?
And/or are you reducing 'intellect' in this post to only mean logical/mathematical prowess?
Maybe it is because your advice only goes to 0.0X% of all people, as you state yourself?
Even in the Bay Area when I was getting paid $120k with a lot of stock and supporting a family I could still put away $2k/month. (Granted, that was after student loans and all other debt were gone).
Tangential question if you don't mind. I'm currently staring at an offer in the bay area, and the cost of living is mind boggling. Where did you live on that 120k, while still saving 2k a month and having a family? I'm not asking this sarcastically, I'm asking because I'm looking for a place with good schools, 3 bedrooms, and not $5K a month in rent in order to decide whether this is the right move. If that's possible without commuting 1.5-2 hrs each way, I'd really love to know!
If that CEO salary figure is even close to accurate (I have doubts a successful German tech CEO is taking home just $120k a year), that arguably speaks to how few enormous .com/tech success stories have emerged from Europe (we're not exactly overflowing with Googles, Apples, Facebooks and such), which is arguably a problem in itself in 2017.
I don't know when the OP was last working here, but I'd also point out that ~$120k is increasingly a pretty common level of remuneration this area for a reasonable entry-level engineering position, if you are good and make the most of opportunities significantly more than this can be made, worth remembering when looking at cost of living comparisons.
> it's not like the quality of life in the Bay Area is ten times greater than in the top cities of Europe either, not to my knowledge anyway.
This is clearly a hugely subjective, not to mention anecdotal measure, but having lived in several major European cities as well as the Bay Area for a number of years in each instance, I definitely do have the best quality of life I've had for my family in California, and for me anyway it's been absolutely worthwhile. There are very few cities anywhere that offer the incredible range of activities, nature, jobs and educational establishments etc all within driving distance that the Bay Area offers, which is a huge factor in why so many people are trying to move here.
The primary appeal of California is outdoor activities. If you're not interested in the great outdoors, it's pretty thin gruel, IMO. I far prefer Europe, for the sheer density of diversity in culture, food and way of life.
IMO companies on the continent, outside of places like Switzerland, pay peanuts for developers. And you know what they say: pay peanuts, get monkeys. It's a bit of a head-scratcher if people with talent didn't leave. Could have an impact on that innovation, too.
I make $70k in the midwest and save $3k/month. That's $3k after taxes, insurance benefits, rent, food, etc..
So I'm surprised the 120k guy isn't putting away more.
I guess from that savings rate and the fact you only make 70k that you are fairly young with no kids? How much do you pay for rent/mortgage?
Many in the Financial Independence community are upwards of 70%. Having a partner with the same goal can keep that savings rate as high even with kids. Otherwise it's not very likely.
What exactly are people spending on? I'd think it'd be really easy for people in tech companies to save upwards of 70% with high salaries and the performance of tech stocks.
At $120K, you're looking at a tax rate of close to 30%, which puts the usable figure at $80K or so. You want to maximize your 401(K), so your salary goes down to $65K, which is about $5K/mo. A decent 3BR with good schools (Cupertino) will run about $3500/mo (1), which leaves $1500/mo for everything else. Not doable, unfortunately.
The missing piece here is the salary inflation over a very short period of time.
As a Stanford engineer, one should use the leapfrog technique (stay at a job no more than 18mo) to increase your salary by 2x in 5 years. That would mean by 27-years-old, this person should be in the $250k range, 35% tax = $160k usable, $15k 401k = $12k/mo.
YMMV, but this is should be entirely doable by the median Stanford grad.
Also if you’re maxing out your 401(K) I’d call that “saving”
You might have luck on the other side of the bay (Alameda is where I'd live if I ever went back) or far enough south out of the city. But no matter what cost of living will be higher than it should be.
you should be able to save upto 3k a month with a 120k salary
I make $70k in the midwest and save $3k/month. That's $3k after taxes, insurance benefits, rent, food, etc..
I think $3k is totally doable, but “way more” involves very substantial loss of quality of life. Also some of that after-tax savings will be eaten by medium-term projects like travel and moving.
$70k in the Midwest and $120k in the Bay Area are pretty close on CoL calculators.
the big difference is that i don't have a family.
But i'm not super frugal.
I pay $700/month with utils + internet for my own 1Bedroom apartment. I could've gone much cheaper if I didn't live Downtown (120,000 city population) and could've gotten a roommate in a 2Bedroom aprt. Plus I also eat out at Chipotle/Jimmy Johns almost every other day, then I go drinking maybe once or twice a month. So I could easily save another $500 if I wanted to
so your total costs (rent/mortgage, food, kids, all in) is only 1.6 k? and you're saving ~65% of what you take home? you must live extremely frugally, this is not normal. so kudos, but don't try to make it sound like everyone should do what you're doing. most people do just fine saving 20-30%, even less.
But i'm not super frugal.
I pay $700/month with utils + internet for my own 1Bedroom apartment. I could've gone much cheaper if I didn't live Downtown (120,000 city population) and could've gotten a roommate in a 2Bedroom aprt. Plus I also eat out at Chipotle/Jimmy Johns almost every other day, then I go drinking maybe once or twice a month. So I could easily save another $500 if I wanted to.
i know its expensive out there in the Bay but its still my $70k/year vs his $120k/year
Disagree. In your 20's, your main competitive advantage is time and exponential growth.
Why is this some "special ability" of 20-somethings? I definitely prefer the approach of becoming financially independent and then having 50+ years to do what I want ... seems like having 50+ years to take risk after saving aggressively for 10-12 allows for even more risk/reward tradeoff by eliminating the worst consequences of failure without a safety net.
It's also true that most people tell themselves that very thing to justify buying dumb shit.
Further, I'd have no problems telling someone with a 6-figure income to max out their 401k and then invest more in index funds. Take it from a 50 year old, it's easy to come out if that 10 year window with nothing but painful experiences.
You could learn the ropes while starting your own company or at some huge conglomerate. The difference is that you're probably not able to put away much cash while doing your own thing.
Anyway, the $10K investment at 23 is kind of a red herring. The true question I've had to ask myself the last decade, is whether it's better to take more risky start-up jobs for equity or stick with safer enterprise jobs at a good salary, but with less chance to start something myself and possibly hit the jackpot.
So in my late 30s, I haven't had much start-up experience, and uncool Java and Spring are my bread and butter. But after a decade of making over six figures annually, investing most of it, living frugally, and letting exponential growth do its thing, by the time I'm 40, I'll be well placed financially to take the same risks as any 25 year old. But I'll have plenty of capital (via exponential growth) and experience. And probably better odds of creating something that at least breaks even and pays the bills.
I went straight into startups after school...and boy was it though! Even when we made money we would invest it straight back into the business...I lived mostly poor all my twenties...no car, vacations, apartment (I lived at the office most of those years), etc.
What I gained was invaluable expierence and network...way beyond what you can learn in a very well defined (and confined) role at a established company.
Now at age 37 I work as a lead at on of the big 3, responsible for billions of dollars. Pulling in a high 6 figures annual compensation and also well on my way to be able to retire at 40. And I just started saving money 2-3 years ago for the first time in my life.
I have a family, own a house, go surfing in summer and snowboarding in the winter...I picked all this up in the last 6 years...I guess you could say my life plan was more of a exponential one...where the first 10 years didn’t seem to lead anywhere worth going...I always believed that doing good work would eventually pay off...and eventually it did and the grind payed off and the exponential curve started.
I be honest, I needed it that way...the linear approach to life has never been my thing...but that’s just me...people should be true to themselves when it comes to life planning!
Hey not trying to rain on anybody's parade. :)
But, the fact that you work at one of the big 3, responsible for billions of dollars, means you probably graduated from a top school, live in the Bay area, are in the top 3-4% of intelligence and skills, had some luck, etc.
Most of us here, statistically, are not going to have these same traits.
Take a risk, but don't end up at 40 without something saved up for a rainy day. Start-ups fail more than they succeed, and we're both lucky - you in the right place at the right time (tech bubble, SV, etc) and me having invested during one of the largest bull markets in history.
So we're probably both preaching BS that may not apply going forward.
I am a Product Manager these days
You're better off taking the high salary at Facebook, Amazon, Microsoft, Google etc..
>And graduated Stanford. You've even managed to save around $10K in cash from various summer jobs and gifts from relatives. The consensus advice investment management professionals would offer is to sock it away in a well-diversified set of Vanguard Funds.
Your first $10k is your emergency fund. From what I've read, the consensus is: don't invest it, instead keep it in an FDIC insured savings account + cash. If you need it, it'll probably be because you've been unemployed for a while. You are most likely to be unemployed during an economic downturn. The cash choice insulates against natural disasters.
If you do invest it, try a target date fund that's matures in the near future. For today, 2020 would be a good choice.
The math on this is misleading. $10k invested for 30 years to become $1M implies an interest rate of 16.6%. Even as a nominal interest rate in the US, that would be an extremely lucky result to consistently achieve. My advice to you would be to start a hedge fund immediately with whatever secret knowledge you have, and then all money concerns will become irrelevant. :-)
A good choice for a real ('real' meaning non-nominal) interest rate in these types of projections is 7%, which would make $10k equal to $76k in 30 years. Because you used a real interest rate, the $76k is $76k in today's dollars, not in 2047 dollars. The conclusion is that you will need to invest a bit more than $10k today to retire in 30 years.
I like to use this type of calculation to frame my short-term purchase decisions. Would I like to spend $20 on this thing I don't need? Yes. Would I like to spend today's equivalent of $300 on it 40 years from now? No thank you.
I take my dad’s words: spend the money and time well, and enjoy your life.
So save enough every month and get a good meal either alone or treat your family to a good brunch/dinner. Plan a trip at least once a year. Go to movies or do something healthy you have never done before. Buy new clothes. Whatever
But have a budget. Spebd 100% is IMO a bad advice. When you need the money you have none.
I also do not recommend invest in stock market unless you are buying one of those low-price stocks that will go up crazy.
Instead I would save up enough money, buy a house. Owning a land or an apartment will do you far better in the long run. Buy some gold when you have spare. Also invest in your life insurance; Usually you pay about 20-30 years then you get money just like social security (and some you can cash all with a big bonus).
I have been through tough time. If it weren’t for the medical leave $$ my employer provides through insurance, I would be forced to sell my house at age 26 right now in NYC.
Think in the long term: professional developmebt is great but do not let career be the only thing be your long term prospect. Putting 100% without saving is a big risk you really want to avoid.
Sometimes I have the urge to tell people why I think they should stop coding after work. But hey, if that makes them happy (I get it might be a hobby) great. But please do not fall into “this is norm”. I went to a lot of conferences and hackathons; great but don’t really satisify me as much as enjoy an outdoor view. Going to a new city for a talk is good for as long as you really have the chance to experience that city. Otherwise I’d wait for video to come out (and I feel bad so nany conferences do not organize publish conference videos).
In the end, what is good for saving a million dollar when you are sick and tired all the time?
Fully agree with this and everything above. However, ...
> I also do not recommend invest in stock market
> Instead I would save up enough money, buy a house. Owning a land or an apartment will do you far better in the long run. Buy some gold when you have spare.
Isn't this advice contradictory?
The goal is to reduce risk, isn't it?
Then buying a house is very risky. If it is old, reparation costs are impossible to predict. If it is new, you have to watch over a building site which can easily blow its initial budget, both in time and money.
Same for buying gold. Nowadays the gold price is almost decoupled from its material value. This is mostly circle speculating with how other people will perceive the value of gold in the future.
Of course buying individual stocks is much more risky than either houses or gold, but that's what index funds are for, aren't they?
In areas close to the city (Somerville, Belmont, and Cambridge), every new house listing is a bidding war. All contingencies waived. Because the demand is so high, a lot of people don't sell houses as a whole anymore. But instead opt to sell multi-family houses as condos. And these condos still sell quickly.
The reason for the demand is that house buying is actually a very stable investment. Rent money covers the mortgage. Remodeling cost always repays itself (and in most cases actually give you a net gain). House itself appreciates year over year. Even the last recession did not slow down the appreciation much.
The risks you mentioned actually only apply to people who are new to all this.
The idea of an index fund is that you don't have to do anything for it to bring relatively reliable profits.
I was posting mostly to counter the argument that buying investment house is risky.
I also don't subscribe to the idea that remodeling pays for itself either (partly because it's also an act of consumption IMO), but I also don't believe that most remodeling results in a >60% return of investment, let along consistently at/over 100%.
PS: If context matters, I own and live in Cambridge, MA.
Remodeling houses in Cambridge has been very lucrative for some time. One of our family friends bought a small 2-family house in Cambridge (his 2nd property there) for just under 700K. This was a little over 2 years ago. He got a good deal for buying directly from a neighbor (market price was probably 800K to 900K). He spent the subsequent 2 years remodeling (while working at a full-time job). Now the estimate on the house is 1.7M to 1.8M.
And he spent a little over 200K on the remodeling cost. This includes building an extension to the house. The reason the cost is so low and it took so long was because instead of hiring a general contractor, he took his time finding different contractors for specific jobs and let them compete over price.
His example may sound a little extreme, but I don't think I've ever heard about someone renovating an investment house in Cambridge ended up with a net loss.
The problem with the mortage crisis in 2008 has to do with bad credit. If you save money and have a steady income, go head. Right now is still a good time as interest rate is still low (I went from variable to fixed after building enough credit). The risk is people buy a house when they can barely afford one or can’t even afford one at all. Ask family to help contribute for your first buy, and pay back. I never get the “buy alone, never bother family” thing.
Disclaimer: my parents did buy the house and I refinanced the house so I paid back. That being said I have a mortage (3k) monthly for 20 years at 4.25%. If I can’t pay back I still have to sell the house or the bank will take away, so doesn’t matter if my parents did buy the house in full initially. The risk is the same, but the money is well-spebt if you start saving now.
As far as gold, you can buy gold and save them. Perhaps this is a Chinese thing. We buy gold from stores and keep them in a safe, we don’t buy virtual golds at all knowing we don’t really own anything. The point is sell them when you can, either at high or when you really need thr cash. Remember physical is better than paper bills. Coin itself is worth more than a piece of paper. This is why I believe owning a car is far better in the long run. My dad bought one for $8000 SUV and it last about 10 years before he decided to get a new one. That old car about 15 years old was sold for $3000. Good deal!
There is a Chinese saying: we work to buy a brick. Because a brick can be reused, but a piece of contract can’t. This is so evident in NYC as Chinese immigrants own so many apartments/houses, and they rent them out to make $$. I also rent out my second floor to help pay back my mortage...
I know all the above can’t apply to everyone, espeically for those who live in expensive areas like SV (which is why I avoid working there). But look around, there must be a way for you to save money.... just review your monthly spend. Cancel a service you rarely or don’t use anymore... $100 save every month means $1200 a year.
You are basing many of those decisions based on your personal luck and other people's anecdotal experiences, but not what the data said.
Seriously, be open minded about subjective opinion. There is no right/wrong. If my method works for me, it works for me. My starting statement said there is no one definite way to live.
So let's respect that.
Risk tolerance is, but refusing to diversify outside of real estate and precious metals is objectively a risky strategy without a history of outperforming lower-risk ones.
Oh well, I think people will agree that following the advice in courses in reputable universities, perhaps, makes people wealthy more frequently than following advice that people disagree with on HN.
Some of your other points I agree with, others are debatable, but this here is just objectively incredibly bad advice. A life insurance is one of the worst investments you can possibly make: You'll pay huge fees (hidden, of course) and get very limited returns (far worse than an average stock) just for the peace of mind of not having to see the value of your investment go down (which should not matter over a 20-30 year timeframe).
Unlike some other kinds of insurance, you're not the one that will get the most benefit from it.
Start 2017, end 2037
0 portfolio to start, leave the rest of the defaults.
0 spending on the right hand side.
Scroll down and plug the annual premium (not the monthly) in as "other income" from 2017 through 2037.
Hit the big green "Run Simulation" button at the top.
I'm guessing you'll see a much higher number than $500,000. I ran the simulation with a $12,000 premium and got an average $500k payout, but the premiums are probably quite a bit higher than that if he has a $500k cash value.
Whole life and other investments-mixed-into-insurance frippery are designed to make the insurance companies and salespersons more money.
Buying term and investing the difference is almost surely a +EV play.
Imagine you get $3000 a month for a $60,000 plus $1000 to have someone manage your house on a regular basis. You get back your investment in 3 years. Let's be realistic too. How about in 8 years? Now you have a steady income $2000-$3000 a month. That's a nice bonus to your annual income.
Can you afford buying Apple stock and hope to make $500 a month with the stock is already so high? Every month you are paying more and more to cover more share. You will realize you are not making anything. Buy low-price stocks that will take off instead.
Finally, when you need $200,000 for whatever emergency, you can refinance from the bank. Can you do this from your stock investment which again has very low return? I know people who make several thousands a month but these are rare. Housing isn't. If buying property can't generate revenue, no one would be buying property and renting out. There is a reason why the property market is so expensive now, because owning a piece of land == sell high. We bought the house here for half a million, and if I actually sell it right now to build a condo I could get back my investment in 10 years or less (or sell it directly to someone).
Why do you bring up the straw man of buying individual stocks? Trying to get clever about picking stocks and when to buy/sell is directly contrary to the course's advice. Nobody but you seems to be recommending a non-diversified approach here, and you seem to hold some strange ideas as to the historic performance of various asset classes.
If my ideas are strange, no one lives in a house. We'd all be living on the street, because why would anyone bother to buy a house and rent to people? Look at New Zealand which recently bans foreigner investing in new properties, because they are rising property price, knowing people need a place to live. Why does university have campus housing? Because university can make income.
The point is, a land is worth more than a stock. Your mortgage market can fail, but the potential sell of a land is guarantee to be high after the crash. Don't buy a house if you cannot afford it yet.
Older generation knows how to make money, yet, new generations like so many here are clueless.
That $1M nest egg will need to be ~$3M in 38 years (when a 22yr old might be looking to retire at 60) in order to have the same purchasing power as $1M today (which isn't much in many markets).
Certainly not enough to provide a decent inheritance for the next generation.
I'm having a really hard time justifying saving above the bare minimum - despite my experience as a recruiter, I still can't convince myself that there will ever be a time I'm not hireable, unless all jobs have vanished (apocalypse, general AI), in which case my "nest egg" is useless anyway.
It's just a logical reach to justify my excessive spending I'm sure, but I've really got myself convinced here :P
I hear you though, I'm definitely trying to learn from my elders, regardless of anything I'll always at least be putting money into a savings account (that I refuse to touch but in the direst emergency). I just can't shake the feeling that this generation is the last one that will get to benefit from our 401ks, if we get to at all.
If I were to put, say as you mentioned, $10K in cash into something like a set of Vanguard Funds, what percentage of my monthly income should be added?
I have money socked away right now from working internships, and from the past year as a full time engineer, but haven't invested it in much other than partially into my 401k. I'd love to do something with it and I know it's doing nothing sitting in the bank in a regular account.
Put half of it in a Roth IRA with Vanguard. You can still do a lot of risk taking and self development on $5k, and the compounding from being in the Roth IRA that early really will make a big difference.
This makes it relatively less risky and more valuable.
When I was 18 and a freshman in college I saw some crazy decisions including using student loans to put a down payment on a car or taking out private loans for spending money.
In general, I chafe at the types of educational arguments that go “we should teach kids more useful skills, like how to file a tax return!”. I think such arguments would benefit from the knowledge that some students are already being taught this, and need to relearn it when they get out into the work force anyway.
A lot of the "teach skills early!" advocacy seems to come from people who have little contact with teaching or teachers. Teaching someone a skill they won't practice for 5+ years is a basically hopeless project; there's no incentive to learn it and little chance of retention if it is learned.
I remember learning to balance a checkbook in 7th grade. Why? What on earth did that teach me? Certainly not how to balance a checkbook as an adult; the seven year gap between learning and having a checkbook meant I learned it from scratch as an adult, and frankly it's not a hard skill to gain without formal training.
If we're going to push 'practical skills in the classroom', it ought to be done with an eye towards what's age-appropriate and likely to be retained. The same year I learned to balance a checkbook, I learned to use Microsoft Office competently, work a simplified email account, and handle basic cooking and laundry. All of those things got steady real-world practice and I retained them nicely. Instead of teaching tax returns and budgeting in middle school, I'd love to see high school students get trained in things like public speaking, studying skills, or critical reading of the news.
Absolutely. This is why, as a parent, I'm going to teach my kids about money early, letting them make consequential mistakes as early as possible, probably starting around 2nd or 3rd grade. We'll fund the roof over their heads, the food in the fridge, very basic clothes (shoes, socks and underwear, basic shirts and pants, basic outerwear) but anything else they'll have to spend their own money on. They'll get a fixed allowance plus they'll get extra money for doing things around the house. Initially this will be in "the bank of mom and dad" with a super high interest rate (like 5-10% per month) which will hopefully help make the concept of compounding interest stick earlier. Over time we'll transition to joint bank accounts with separate debit cards.
My mom never tied allowance to chores, we were just expected to do chores. The problem with tying them together is that at some point the kid will just opt out and you have no leverage. I had a bank account but we were never diligent about deposits so saving was harder for me as a young adult.
What leverage do you have in making children do chores in case if you do not motivate them by earnings?
I'd also like tax returns to be due 2-6 weeks before elections, so the figures are fresh in voters' minds. (That's not to say I'm anti-tax necessarily, just that a tighter the linkage between "what I pay" and "what I expect" would be beneficial.)
Taxes are also hidden in various ways.
The ACA is more or less a redistributive tax charged to your health care premiums.
More than 10 percent of your salary is deducted as employer FICA contributions, but they are essentially paid by the employee in terms of salary potential.
Property taxes and municipality costs are hidden in mortgage payments and rent.
With the exception of more education, I think the only true way to get people to understand where their taxes are going would be to not auto-deduct it from their pay checks or as employer paid or bundle them in with other payments (like mortgages), but instead send them several distinct bills to be paid in-person to some representative of the beneficiary.
For example, I think defense spending would be less popular if each worker had to write a check for a few thousand dollars every six months and go deliver it in person to the local army base.
Same thing for Social Security and Medicare if young people were required to deliver a check to individual retired persons (who, would, statistically be in far better financial shape than the millennial).
Obviously, this is too absurd to be implemented.
It's a pretty crazy notion that our employers are the unpaid tax collectors of the government. This is precisely why the government fought all the movement toward 1099 contract work since then there were effectively more employers to juggle and more likely to not be able to collect as effortlessly as with few large employers.
Instead - the withholding system not only keeps the riots at bay but also makes “tax day” a happy day as money rains from the sky onto almost every US household . Horray, it’s TAX DAY! Honey, we’re going to dinner and takin’ the kids to Walmart to pick out a prize!
Or are you suggestion that Amazon pays a tax for every truck mile they use or pay for the cost of their employees education.
and from my experience a self employment true 1099 contractors are ripped off by employers.
But in the UK we do get a yearly break down of where our taxes go - just not directly before an election
And there are different pieces of information that could be released.
But it's also a false balance, just because two sides have different positions doesn't mean they are equal. Process abuse and dirty tricks are not okay.
That's all well and good, but it won't really help if the students have no real income to practice with. Sure you can warn them of going into debt, but on the other side of the coin "This is what you should do if you theoretically had a salary" is less effective than "So you have a salary. Here's what you can do with it"
I wish this had been a staple class throughout my entire stay in school. A lot of the stuff will be repetitive, but that's what it means running a home and a life – a lot of chores that you keep doing over and over, some maybe you'll optimize like hiring a cleaner (after working out it fits your budget!) or investing in technology that just makes things easier.
As you grow older, the classes would obviously need to become more advanced, but I think this would go a long way to make kids much more capable to deal with real world problems, and there's a lot of cross over with other subjects as well. I don't know if schools still do this, but when I went to elementary school we had wood working and/or sewing class. I enjoyed those, but we had those for way longer than we had home skills class, and it seems to me these three could be successfully combined.
I don’t think the college prep courses really tell you what impacts student loans have. It’s more listed as an option you have if you need it but they glaze over the lifelong impacts.
we had 'home economics' in middle school, but only for one year, IIRC. We learned a bit of cooking, kitchen safety, and some sewing. But, AFAICR, no personal/home finance stuff (but it's been > 30 years - perhaps it was there and I missed the 8 minute lecture?)
School suggested that as a dyslexic I should do the typing course I didn't as that was for girls - in hindsight learning to type properly might have been a good idea
Btw Ground working is the PC term for Navvies
Most adults despite seeing their parents struggle through their retirements, cannot get themselves to make right decisions.
Courses and subjects only help those who wish to help themselves.
Wealthy parents? Incredible student aid from Stanford's endowment? Both? Either way, I have a feeling this is one of the biggest advantages they will have in achieving a secure financial future.
I would be surprised if the difference in the average for a midwest state university versus Stanford varied significantly after controlling for labour market (i.e. people taking jobs in St Louis or Minneapolis are probably getting paid a lot less than people taking jobs in the Bay Area or Seattle).
Of course, UIUC is a "midwest state university" and it is on (or very close to) the same level as Stanford.
Saving $5.5k in an IRA every year for 40 years earning 7% ARR is a retirement nest egg of $1.1M dollars.
Median family income is $60k, making this 9% of the budget. Even if you earned say... $25k/yr ($12 per hour) for your entire life, you can afford to save $5.5k per year.
There is zero excuse for most people not emerging a millionaire at retirement.
According to , 25k/year is about 21k take home wages per year, or ~$1755 per month. $5.5k/year is ~$460/month, so you budget is essentially $1300/month for everything: living expenses, food, transportation, everything else. In other words, you’re living on what is pretty close to minimum wage.
I’ll leave it up to you to make your own decisions about that, but I question the practical utility of having a million dollar retirement fund when you’ve spent your life living a minimum wage lifestyle, even if you have the fortitude to save that much at those wages.
The important point is that even under the most pessimistic assumptions people can get by AND build a secure retirement.
The "it can't be done" mentality is not justified in 2017 America.
You take FICA out, some federal/state taxes, you've got less than $2k a month. That doesn't stretch too far in some places.
Also, since you're lower working class, you're not going to be buying in bulk. You're not going to be avoiding late fees. You're not going to have economies of scale available to you on a $100k annual income.
So, the ability to save $5.5k is much different for someone earning $25k vs $100k. I'm not saying it's outright impossible, but it will have measurable impact on lifestyle for the lower income worker, whereas not so much for the higher income worker, since each marginal dollar you earn provides less and less utility. But the first $25k you earn really is your lifeline to meet basic necessities in life.
As in, I could make $25k (at a level where the tax rate is effectively near-0) and still save > $5k per year.
Well it sure does for the kind of people who go to Stanford and emerge with no debt. For everyone else circumstance is a heavy weight.
>Even if you earned say... $25k/yr ($12 per hour) for your entire life, you can afford to save $5.5k per year.
...How many people over the age of 30 do you actually know making $12/hr? If you have kids on that kind of wage there is absolutely no room for any saving.
40 years is a long time, and I'm talking about a notably bad start and end date (though remember how it looked between 2000-2010, almost a lost decade from the perspective of investment growth for retirement planning).
But while I still support saving and investing, a lot of people are reasonably starting to wonder, at what point should we stop assuming these kinds of returns in our planning?
Man, I'd love to live in a world where that would be possible.
My point is that even if you do make that for your entire life, you can still get by and build a secure retirement.
Not where I'm from or from what I've seen.
And my point is that you can't save that amount of money on that sort of salary.