11 ms·

A good resource for financial advice to share with people in their twenties?

125 points by dsr12 9y ago

aaronbrethorst 9y ago
Spend less than you make. Max out your 401k and IRA. Invest in index funds.
- mcshicks 9y ago
  Pretty much. I would say low fee index funds. This is a pretty good short book with some more details and recommend reading but says basically the same thing. https ://www.etf.com/docs/IfYouCan.pdf
- deleted 9y ago
  [deleted]
- charlesdm 9y ago
  What will be interesting to see is whether this actually stays good advice. Massive amounts of money (trillions) has been flowing into these passive ETFs and index funds -- I would assume this creates some distortions in the financial system.
  - throwaway0255 9y ago
    Definitely interesting to think about. My current take is that even if the tiniest minority of activity exists outside of low-turnover ETFs, continued advancements in automated algorithmic trading (whether it's ML or regression or something that hasn't been invented yet) will get us closer to the perfectly efficient market and the only impact to low-turnover ETFs will be reduced volatility. Another possibility is that so much money gets parked in passive ETFs that the valuation of the indexed stocks becomes more tied to the influx of money than to the underlying enterprise value, then once the influx of money slows down the stocks revert to enterprise value and start to consistently depreciate, triggering a massive sell-off. If that happened it'd probably be bigger than the subprime mortgage crisis, right? What's your take?
- lhl 9y ago
  I'd add to pick a reasonable asset allocation that you will stick to and rebalance regularly (once a year is fine although tax efficiency isn't a concern in tax advantaged investments). This can be done automatically for you via any of the new generations of robo-advisors (although you can get most of the benefits and lower fees with Vanguard LifeStrategy or Target Retirement funds). Tax advantaged account pro-tips: put your least tax efficient instruments (eg income generating assets etc) in the retirement accounts. Use a Roth IRA to be able to maximize amount of tax-advantaged investment per year). Asset allocation wise, there was an interesting article (and followup) entitled "The Benefits of Low Correlation" a few years back I thought was particularly interesting. Link to both: http://www.etf.com/publications/journalofindexes/joi-articles/4684-the-benefits-of-low-correlation-round-ii.html?nopaging=1 http://www.etf.com/publications/journalofindexes/joi-article...
hkmurakami 9y ago
"The Richest Man in Babylon", which was recommended by a HNer (amongst other more advanced books) several years ago.
- WA 9y ago
  God please no. This book must be the most overrated piece of junk in the financial advice genre. There are literally only two things in the book that get repeated 50 times over 100 pages: - invest 10% of your income - invest only in things you understand or when you happen to know someone who understands them There is zero more insightful content in this book. And even these two insights are totally lacking, because they won’t tell you what investment makes sense these days.
  - SkyMarshal 9y ago
    There was one other interesting bit of advice I recall from that book, which is to invest in things that have fallback value (forgot the exact term) in case the investment doesn't pan out. He gave the example that when the king of Babylon decreed that a new wall of iron (iirc) be built around the city, the "richest man" in Babylon recommended buying up lots of iron. If the wall got built, it would need iron, driving up the price. And if the king changed his mind and it didn't get built, other things would still need iron, so you wouldn't lose all the value in your investment. Basic hedging strategy.
    - Al-Khwarizmi 9y ago
      I haven't read the book, but from your description it doesn't look like especially useful advice to me. If it's obvious that a given investment has good fallback value, then the market has probably factored that in already by the time you are investing. If it's not obvious, then the tip could be superseded by the more general one: "if you have information that most people don't and it makes you think that an investment will work, then go for it". But that is rather obvious, and the problem is to acquire that kind of information.
  - espitia 9y ago
hkon 9y ago
bitcoins!!
- NicoJuicy 9y ago
  Although the ROI is great now, I wouldn't ever suggest it to others. I had a ROI OF 16% in stocks. I still believe it's safer than BTC
krat0sprakhar 9y ago
I'm surprised that no one has mentioned this: http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/ http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-...
- Simon_says 9y ago
  Good advice, but MMM is not even close to mainstream.
- mattmanser 9y ago
  Cause he's a very divisive figure who claims to be retired but in fact is a handyman and blogger?
  - dejv 9y ago
    He did achieved financial independence years before he was blogging. This what I think is important and his advice note worthy. I don't really care what he did after this point. The fact that he multiplied his net worth many times thanks to blogging doesn't mean he is financial independent thanks to it.
    - tryingagainbro 9y ago
      >>He did achieved financial independence years before he was blogging. He is selling shovels and jeans to gold rush miners. "Financial independence" when supplemented by the $$ he makes while telling people how he got rich surely makes a huge difference.
      - throwaway0255 9y ago
        That isn't an argument for why his advice is bad or why he's a bad person, though. That's just an explanation of why people are jealous of him and an argument that people can't reliably repeat the success he's had with financial blogging. He's not saying people can, though. He's giving financial advice based on something he achieved following a plan when he was making $67k/year, years before he ever even had the blog. Also, shovels and jeans to gold rush miners?? Pretty sure people can still make $67k/year. Pretty sure people can also still make simple investments, live frugally, pay off their mortgage and retire early. It's simple math. Comparing that to taking advantage of gold rush miners is quite a stretch.
f_allwein 9y ago
‪"The Automatic Millionaire" by David Bach, https://m.barnesandnoble.com/w/automatic-millionaire-david-bach/1100304420‬ https://m.barnesandnoble.com/w/automatic-millionaire-david-b... Recommends automatically paying a share of your income each month into index funds, and gives recommendations on how to distribute this across risk categories according to your life situation.
- kingkool68 9y ago
  This book really opened my eyes to the importance of savings. Really glad I picked it up when I was 18.
elwaz 9y ago
Can I add, for AU, the Barefoot Investor: https://barefootinvestor.com https://barefootinvestor.com
NicoJuicy 9y ago
Saving or investing is the only way to get rich. I do both, since I'm a develop, investing is also trying out projects. I don't want to calculate my ROI om that part just yet. But the rest is fine, 16% on stocks last halve year, 200% on crypto currency ( wouldn't recommend though) and my own online shop which is a nice monthly extra on top of my full time wage. PS. I never had to spend anything of my full time wage :)
- NicoJuicy 9y ago
  I would like to add that I only invest 10% of my assets now. 2 weeks ago it was only 3%, then I realized the halve year test of investing was succeeded.
IanCal 9y ago
The personal finance subreddit for the US is very good https://www.reddit.com/r/personalfinance/wiki/young_adult https://www.reddit.com/r/personalfinance/wiki/young_adult https://www.reddit.com/r/personalfinance/wiki/early_career https://www.reddit.com/r/personalfinance/wiki/early_career And the rest of the links https://www.reddit.com/r/personalfinance/about https://www.reddit.com/r/personalfinance/about Also the UK one https://www.reddit.com/r/ukpersonalfinance/wiki/lumpsuminvestment https://www.reddit.com/r/ukpersonalfinance/wiki/lumpsuminves...
- throwaway0255 9y ago
  That subreddit (at least the US one) is pretty terrible. I think there's some active shilling for credit card companies going on there. They also give a lot of objectively terrible advice when it comes to transportation, mortgages, and student loans. The number of participants, and the source of those participants (reddit main), pretty much guarantees that the advice there can't/won't be high-quality, and will only get worse over time.
  - froindt 9y ago
    When people ask what they should do with their money, I direct them to the /r/personalfinance flowchart. [1] It does a great job of getting people on the right track. Beyond that, I suggest lurking on /r/financialindependence. That community had grown very fast in recent years, but is far from as mainstream as /r/personalfinance. [1] https://m.imgur.com/CcEVQAV https://m.imgur.com/CcEVQAV (image seems to be compressed to hell and back on mobile)
  - Veelox 9y ago
    Im curious, what objectively terrible advice have you seen? I want to make sure I didn't pick some up without knowing it.
    - twblalock 9y ago
      I think the bottom line is that most of the contributors to that subreddit are young and don't have much life experience, so they parrot the same one-size-fits-all financial advice. An example is telling everyone, no matter their circumstances, to always buy used cars and learn how to fix them themselves. They give this advice to rich doctors as well as poor single mothers. It also seems that many of the contributors have had bad experiences with debt, and now treat it as something to be avoided like a cancer. Debt is a useful tool for people who understand money. I remember a thread characterized by total incomprehension in most of the comments when someone said he would rather take a low-interest loan to buy a car than sell some of his stock and pay cash, because selling the stock would have triggered capital gains taxes far greater than the interest he would have paid on the car loan. It's also very common in that subreddit to recommend that people who are in debt should basically live like monks for years, when living in a modest amount of comfort would only prolong repayment by a few months. Giving up your $14.99 monthly Netflix account is not going to make a big dent in your student loans over time -- over a 10-year repayment, that savings will add up to less than $2k. But the commenters there will pile on you if you point that out. The thing that annoys me the most is the way people who have succeeded in tackling their debts are criticized for having high incomes, as though having a high income was something that just happened to them because of luck, rather than being a result of hard work and skill development.
amelius 9y ago
Just write a simple financial simulation in e.g. Python. You can view saving as zero-risk investment, and then find the optimal distribution of income over a number of investments with different risks/returns.
- speeq 9y ago
  > You can view saving as zero-risk investment I wish I had bought index funds instead of keeping most of my savings in GBP before the Brexit referendum...
roenxi 9y ago
There is a real problem with asking 'to be given financial advice'. Before any meaningful talk can be had about setting common financial levers to get a result, what people really need is someone to sit down with and have an in-depth conversation about what life goals. You can't really receive meaningful financial advice without taking position on the following: 1) Are you comfortable committing to a lifetime of working? 2) Is there reasonable scope for a high risk high reward venture? Eg, entrepreneurship, acting. 3) Do you determine your personal comfort in terms of how other people perceive it (expensive & common option), or do you use your own metrics? 4) What is your personal understanding of retirement? Without that orientation, there isn't really a generic position to take on debt (it might be good or bad). There isn't a generic position on investments (might be good or bad). If someone is really being taken to the cleaners maybe there is a quick change to be made, but really "personal finance" is more about expectations and habits than knowledge ad howto guides. The fundamentals of personal finance intuitively easy to grasp, to the point of absurdity - if you consistently spend more than you earn, you will run out of money. End of the story. If you spend a lot less (10-20% of your earnings go into savings), you will weather surprises easily. If you earn a stupid amount less (40%+ pre-tax earnings saved) you will have a very easy later life. That all only scratches the surface of orienting a strategy, let alone the details of how the myriad investment options and retirement mechanisms work.
- siddharthdeswal 9y ago
  Most people in their twenties haven't thought of answers to your questions, and don't have the kind of plans that financial advice presupposes.
  - osrec 9y ago
    I agree. Financial advice for someone in their twenties should probably start with getting them to think about the above questions in some detail. Once you have answers to the above, your financial choices become significantly more obvious.
    - AJ007 9y ago
Fargren 9y ago
I've seen the "invest in index funds" repeated over and over, but almost always coming from people in the US. I don't understand enough about investing to understand when the advice is useful globally, or only locally. I also don't really know where to get that knowledge, because most explanations don't say whether they apply outside of the US. What are some good source for someone based in Europe (Spain specifically, if it make any difference)?
- ISL 9y ago
  "invest in index funds" is a heuristic for "own a tiny share of everything, at market price". The mantra is "try to be average, at very low management fees", that way, your performance will always be average, and never worse than average.
  - danblick 9y ago
    If you get average gains/losses with below average costs your performance would be above average.
- hyperpape 9y ago
  The big difference seems like it will be tax law and availability of public/corporate pensions. Otherwise the rate of return shouldn’t be fundamentally different depending on the country you’re in. That said, tax implications matter a ton.
- sebcat 9y ago
  Caveat: I have no idea what I'm doing, but it has worked out well so far. I have some of my savings in index funds. The low fees, the risk profile (if that's a proper term for it in English) and historical performance (which is not a guarantee for future performance) of certain indices is what I like about them. If I create an index consisting of Company A, B, C, with 40% A, 30% B, 30% C and call that index "the sebcat index" others may sell sebcat index funds consisting of company A, B, and C stocks at those proportions. Of course, that's a bit too arbitrary. Normally you would have an index based on e.g., the N largest companies on a specific market/region. The index may be adjusted over time depending on market cap or something else, funds may not follow the index exactly, but that's the gist of it, to the best of my knowledge (see caveat). It's not in itself bound to geographical regions, though if you buy funds tracking foreign companies you should be aware of currency effects, politics &c (though local companies could be affected by that as well of course). Look up a couple of indices (e.g., MSCI indices), then find what index funds on your exchange tracks these indices. Look up what the funds consist of exactly. If you compare two different funds tracking the same index, they should have similar performance over time. Buy one or two per index. The fees should be relatively small, 0-0.4%. If you expect a crash to happen, or you see a crash happening that is not likely to end soon, sell any index funds affected and maybe put the money in interest funds, or gold, or something that you believe will not be as affected by, or benefit from the current situation on the market. Then buy back when (or if) the market goes up again (depending on your time frame).
ksec 9y ago
Saving and Investing. Doing really good with both should bring you to a very decent standard of living. Going being that to become wealthy? You need Luck. Both million times easier said then done. Learn about survivors bias. Basically all the things these successful people told you are only guide lines, not rules. This is sounding rather a lot like Zen's thinking.
hiram112 9y ago
The one advantage folks in their 20s have is time. I actually don't think software engineering is the best career (in financial / lifestyle terms) for someone who might also excel in business, finance, law, or medicine. But there is one hack to our industry: You can make a good salary starting in your early to mid 20s, with only a bachelor's degree or less, while most of your peers will still be in school for years, then paying off loans, and finally beginning at the bottom of the corporate ladder. Now unfortunately, by 35 or so, most of your smart friends will have caught up - paid off their loans, and now be earning similar high incomes. And software engineers tend to hit a glass ceiling, run into ageism, etc. But having lived frugally while making over six figures for over a decade, you can have accumulated $500K - $1M, and if you forget about that money, can coast into early retirement by 50 or earlier, or take career risks that others can't afford. A million in net worth at 40 opens up a lot options.
lambdadmitry 9y ago
IMO most "personal finance advisors" miss the career progression thing. - on one hand, it's ridiculous to seriously recommend young professionals (in their 20s) to long-term save 20+% pretax income if they don't have substantial assets (e.g. their parents' house) or if they are not in the top 5% of their age group (think finance in London). I bet most millennials don't have the kind of income that allows that _and_ having a life quality comparable to their peers. In London and I suspect in SF it's very common to have 30% of your pre-tax income to go to rent; taxes will eat another 30%, groceries and eating out is another 10-20%. What's left is measly 20-30% of income that must be divided between shopping (clothing, hobbies, car, gadgets, whatever) and long-term saving. If we throw in absolute income numbers and property prices, it all comes to "question any expense, live in misery and MAYBE you'll be able to afford a downpayment in a decade". - on the other hand, a lot of people can expect to double, triple or quadruple their income in a decade of their career. If not, on the scale of a decade it's possible to change the career. So maybe there is a point where one should focus on earning more instead of saving. Maybe it's more important to have that expensive hobby that reduces your stress levels and allows to work harder. Maybe the only right kind of advice is "raise your income and don't get into debt".
stevenj 9y ago
When it comes to financial advice, I tell people the following: 1. Live within your means. Spend less than you earn. But it's okay to take a vacation and splurge a little, too. Or if you need to buy something like a suit that stretches you a bit think of it as an investment for your career. 2. Use credit cards responsibly. They can be great for their rewards programs, but you can easily get into trouble with them. Be very careful. 3. From a financial perspective, it's never too early to think about retirement. Take advantange of your employer's 401k program if it's offered. Additionally, setup and contribute to a Roth IRA retirement fund through Vanguard or Fidelity. 4. Buying a house makes sense as a long-term investment. Location will primarily determine how good of an investment it will be (which sometimes is hard to predict into the future). 5. In terms of what to invest in, buy a low-cost index fund from Vanguard or Fidelity (e.g. S&P 500) and make monthly or quarterly contributions to it. And don't touch it (i.e. sell), especially in a downturn.
alexnewman 9y ago
The financial industry is actually designed to fleece from those without much financial knowledge. I should know, I used to be one of those shaving the sheep. I’ve worked with many brokers at Morgan and Merrill and they are generally ignorant sales people. Often they are actually deceitful. Basically everything taught about finance and economics is a half lie and the half that isn’t true is very difficult to understand. In economics ,Consider that private debt has no role in economics but is critical for understanding bank flows. So why do we teach that private debt has no effect under islm? Or consider in finance traditional options strategies of selling covered calls, on etfs. In the past few days you’d notice you lost a ton of money due to the way tracking error is manipulated vs options on the etfs. I was just talking to a billionaire who actually understood black scholes and didn’t understand why he lost so much money on a hedge. Or consider how much growth has gone solely into a few tech stocks while people are still advising you to buy s&p. Realistically smart exposure to the underlying is Generally so much better. Finally on tax advice, especially on crypto, which I believe should be somewhere between 2-5 % of any young persons portfolio, no one suggested a charitable remainder trust and it ended up saving me huge amounts of cash and avoiding long term capital gains while allowing me to do well. The financial industry is a business dominated by sales people. The people you will talk to with less then a half million In savings hardly know shit about Shit. It’s like anything else, if you took the time to understand these financial products you’d realize they are powerful cool abstractions worth learning about
- uiri 9y ago
  I'm not sure why you're getting down voted. Your point about finance professionals being sales people looking to fleece their customers is spot on. Maybe because you're suggesting that people"invest" in the crypto bubble but the overall advice ("take time to learn about your investments") is sound. Plenty of young people on HN understand the underlying mechanisms of crypto-tokens.
pdog 9y ago
Here is the only advice a person in their twenties needs to follow: 1. Never pay interest on your credit cards. Pay off your credit card balance every month. 2. Save at least 20 cents of every dollar you earn. 3. Buy an S&P 500 index fund. 4. Contribute as much as possible to your 401(k), if you have one, and at least enough to get the full employer match.
- rm999 9y ago
  This is good advice for someone with financial security and a good salary. Which is sadly a fairly small % of people in their 20s. I'd add two higher priorities for people who don't have financial security: 1. Take stock of your finances. Track all your expenses and income for a month or two. If you find your debt is growing make changes to bring your costs down. 2. Pay off high interest debts like credit cards. Once this is complete, build up a rainy day fund of at least 3 months of expenses in a savings account. Consider this money hands-off except in emergencies. After all this is implemented the person's finances are "stable" and they have a budget, and I think your advice is solid (but should be modified depending on salary). I'd also blend in some safer investments with the s&p 500 - perhaps using a robo advisor to manage the risk for you.
fullshark 9y ago
This: http://www.mymoneyblog.com/dilberts-one-page-guide-to-everything-financial.html http://www.mymoneyblog.com/dilberts-one-page-guide-to-everyt...
IkmoIkmo 9y ago
There's one realisation I came to myself in my early twenties, which I think most people will when they're introduced to the time value of money, compound interest and savings over time. And you'll find a whole bunch of people talking about it in one form or another, e.g. buffett. And it's quite silly, because the examples take things to the extreme, but there's also a lot of truth to it. It goes a little bit like this: If you do a bit of toothpaste research, you'll find the active ingredients (i.e., the stuff that matters to your teeth) in a tube of $1 toothpaste and $6 toothpaste are pretty much similar. In fact, you can find toothpaste at $0.2 per oz and $2 per oz. Given you brush twice a day using 0.2 oz, that's an annual expenditure of $30 to $300, depending on the type you use. Let's be conservative and say you can save $200 if you buy cheap toothpaste in a little bit of bulk, instead of expensive toothpaste. Average life expectancy is about 80 right now. If you're 20, that means you'll potentially save $200 for 60 years. That's 12 thousand dollars in toothpaste saved, simply by making a conscious decision at age 20 to spend 15 minutes looking up whether cheap toothpaste is effective, and which one to buy. Related to this is the time value of money. i.e., if you look at the past 60 years of S&P500's return, include dividends (reinvested), and adjust for inflation, you'll find 6.5% returns. Let's be conservative and low-ball that at 4%, assuming taxes, other crap and potentially lower future returns. $1 invested today at 4% for 60 years would compound to 1.04^60 = $10.50. As that's inflation adjusted, it ought to mean your purchasing power has tenfolded. If you combine the savings of toothpaste with long-term investments, you'll find your toothpaste purchasing behavior can easily be worth tens of thousands of dollars. Now note, I chose toothpaste because there's no effort or quality-of-life choice to be made there. Buffett enjoys using coffee as an example as saving a $3 morning and evening cup is much more profound than saving 10 cents on toothpaste each day. But it does require you to skip coffee, or make it yourself. However trivial that may be to some, that requires respectively discipline and mental effort to others. But things like toothpaste should be a no-brainer. It's up to anyone in their twenties to consider what actually matters to them, there's tons of such decisions to be made. The brand of toothpaste? Likely not. Brewing your own coffee? Probably not a big deal either. Skipping lunch with friends because it saves money? Probably not a great idea. But even there, being cognisant of the cost of such eating-out behaviour may spark you to invite a friend over for a self-made lunch. The point isn't to save as much money, the point is to allocate your money to where it's actually valuable. That's not toothpaste. It may be working less and spending more time on a hobby, with friends or family.
danblick 9y ago
When I was younger I enjoyed reading about finance and investing. The investment strategy I settled on was the three fund portfolio from: https://www.bogleheads.org/wiki/Three-fund_portfolio https://www.bogleheads.org/wiki/Three-fund_portfolio and I haven't seen any reason to change this in ~10 years. I'd recommend poking around that site to learn about the philosophy of index investing. (You might still want to actively invest after reading that, but you should probably first understand some of the reasons not to.)
- JBlue42 9y ago
  Just a note for OP or others reading that "Bogleheads" are those that follow a certain value investing philosophy from Vanguard founder John Bogle. For some basic investment literacy, it would not hurt to read "The Bogleheads' Guide to Investing" (https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365 https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Lar...). I've also heard good things about John Bogle's "Little Book of Common Sense Investing" but haven't read it.
supercanuck 9y ago
/r/personalfinance's Prime Directive: https://i.imgur.com/lSoUQr2.png https://i.imgur.com/lSoUQr2.png
tomohawk 9y ago
Learning about finances in your twenties is a bit late, but better late than never. What's worked for me and others I know is to get out of debt and stay out of debt. This guy has a reasonable program to do that: https://www.daveramsey.com/get-started/debt https://www.daveramsey.com/get-started/debt
- PoachedSausage 9y ago
  I agree, staying out of debt should be a priority, but how do you reconcile that with buying a house, which around here cost on average around £226k? I would love to not need a mortgage and have to work more to pay the interest but what other choice is there?
  - dlp211 9y ago
    Not all debt is bad.
  - tomohawk 9y ago
    Econ 101 says never borrow money on a depreciating investment. A house may appreciate, so it may make sense to buy one. A house can be a blessing or a curse. You should first decide if you want to own one, regardless of the economic pros/cons. Owning a house means you always have a job to do. If that doesn't appeal to you, maybe get a condo? In the US, the best approach is usually to get what's called a conventional mortgage. That means putting 20% down. There are some good reasons for going this route. First, it makes you prove to yourself you have the discipline to put money aside for a house, without actually having the responsibility of a house hanging over you. Secondly, its better financially as you can usually get a better rate and don't have to pay private mortgage insurance. In addition to the 20%, you really need 6 months of money set aside in case something happens. The last thing you want is to default on a loan because something unexpected happened and you have no income for a few months. One of the worst things that happens is someone goes and gets a house with 0% down and without the real financial wherewithal to weather a financial storm. The house quickly becomes a curse when the unexpected happens.
- JBlue42 9y ago
defen 9y ago
Anecdotal, but some of the 20-somethings I work with exhibit a kind of helplessness or fatalism about finances. These are smart, well-educated people who still haven't signed up for the company's 401k program, and don't invest in the stock market because they "don't know how to buy stocks", even though I tell them they should be doing this at least once a month. These aren't people who are living paycheck to paycheck or spending profligately as far as I can tell.
gcheong 9y ago
Fool.com , https://www.fool.com/retirement/2016/12/19/the-perfect-retirement-strategy-for-20-somethings.aspx https://www.fool.com/retirement/2016/12/19/the-perfect-retir...
sn9 9y ago
Ramit Sethi's I Will Teach You to be Rich is literally this book.
turingbook 9y ago
Searching "financial advice" on HN itself, you will get this item: This 4×6 index card has all the financial advice you’ll ever need (washingtonpost.com) 155 points by bcn 1532 days ago| 249 comments https://news.ycombinator.com/item?id=6396352 https://news.ycombinator.com/item?id=6396352

125 points by dsr12 9y ago

aaronbrethorst 9y ago

Spend less than you make. Max out your 401k and IRA. Invest in index funds.

mcshicks 9y ago
Pretty much. I would say low fee index funds. This is a pretty good short book with some more details and recommend reading but says basically the same thing. https ://www.etf.com/docs/IfYouCan.pdf
deleted 9y ago
[deleted]
charlesdm 9y ago
What will be interesting to see is whether this actually stays good advice. Massive amounts of money (trillions) has been flowing into these passive ETFs and index funds -- I would assume this creates some distortions in the financial system.
- throwaway0255 9y ago
  Definitely interesting to think about. My current take is that even if the tiniest minority of activity exists outside of low-turnover ETFs, continued advancements in automated algorithmic trading (whether it's ML or regression or something that hasn't been invented yet) will get us closer to the perfectly efficient market and the only impact to low-turnover ETFs will be reduced volatility. Another possibility is that so much money gets parked in passive ETFs that the valuation of the indexed stocks becomes more tied to the influx of money than to the underlying enterprise value, then once the influx of money slows down the stocks revert to enterprise value and start to consistently depreciate, triggering a massive sell-off. If that happened it'd probably be bigger than the subprime mortgage crisis, right? What's your take?
lhl 9y ago
I'd add to pick a reasonable asset allocation that you will stick to and rebalance regularly (once a year is fine although tax efficiency isn't a concern in tax advantaged investments). This can be done automatically for you via any of the new generations of robo-advisors (although you can get most of the benefits and lower fees with Vanguard LifeStrategy or Target Retirement funds). Tax advantaged account pro-tips: put your least tax efficient instruments (eg income generating assets etc) in the retirement accounts. Use a Roth IRA to be able to maximize amount of tax-advantaged investment per year). Asset allocation wise, there was an interesting article (and followup) entitled "The Benefits of Low Correlation" a few years back I thought was particularly interesting. Link to both: http://www.etf.com/publications/journalofindexes/joi-articles/4684-the-benefits-of-low-correlation-round-ii.html?nopaging=1 http://www.etf.com/publications/journalofindexes/joi-article...

hkmurakami 9y ago

"The Richest Man in Babylon", which was recommended by a HNer (amongst other more advanced books) several years ago.

WA 9y ago
God please no. This book must be the most overrated piece of junk in the financial advice genre. There are literally only two things in the book that get repeated 50 times over 100 pages: - invest 10% of your income - invest only in things you understand or when you happen to know someone who understands them There is zero more insightful content in this book. And even these two insights are totally lacking, because they won’t tell you what investment makes sense these days.
- SkyMarshal 9y ago
  There was one other interesting bit of advice I recall from that book, which is to invest in things that have fallback value (forgot the exact term) in case the investment doesn't pan out. He gave the example that when the king of Babylon decreed that a new wall of iron (iirc) be built around the city, the "richest man" in Babylon recommended buying up lots of iron. If the wall got built, it would need iron, driving up the price. And if the king changed his mind and it didn't get built, other things would still need iron, so you wouldn't lose all the value in your investment. Basic hedging strategy.
  - Al-Khwarizmi 9y ago
    I haven't read the book, but from your description it doesn't look like especially useful advice to me. If it's obvious that a given investment has good fallback value, then the market has probably factored that in already by the time you are investing. If it's not obvious, then the tip could be superseded by the more general one: "if you have information that most people don't and it makes you think that an investment will work, then go for it". But that is rather obvious, and the problem is to acquire that kind of information.
- espitia 9y ago

hkon 9y ago

bitcoins!!

NicoJuicy 9y ago
Although the ROI is great now, I wouldn't ever suggest it to others. I had a ROI OF 16% in stocks. I still believe it's safer than BTC

krat0sprakhar 9y ago

I'm surprised that no one has mentioned this: http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/ http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-...

Simon_says 9y ago
Good advice, but MMM is not even close to mainstream.
mattmanser 9y ago
Cause he's a very divisive figure who claims to be retired but in fact is a handyman and blogger?
- dejv 9y ago
  He did achieved financial independence years before he was blogging. This what I think is important and his advice note worthy. I don't really care what he did after this point. The fact that he multiplied his net worth many times thanks to blogging doesn't mean he is financial independent thanks to it.
  - tryingagainbro 9y ago
    >>He did achieved financial independence years before he was blogging. He is selling shovels and jeans to gold rush miners. "Financial independence" when supplemented by the $$ he makes while telling people how he got rich surely makes a huge difference.
    - throwaway0255 9y ago
      That isn't an argument for why his advice is bad or why he's a bad person, though. That's just an explanation of why people are jealous of him and an argument that people can't reliably repeat the success he's had with financial blogging. He's not saying people can, though. He's giving financial advice based on something he achieved following a plan when he was making $67k/year, years before he ever even had the blog. Also, shovels and jeans to gold rush miners?? Pretty sure people can still make $67k/year. Pretty sure people can also still make simple investments, live frugally, pay off their mortgage and retire early. It's simple math. Comparing that to taking advantage of gold rush miners is quite a stretch.

f_allwein 9y ago

‪"The Automatic Millionaire" by David Bach, https://m.barnesandnoble.com/w/automatic-millionaire-david-bach/1100304420‬ https://m.barnesandnoble.com/w/automatic-millionaire-david-b... Recommends automatically paying a share of your income each month into index funds, and gives recommendations on how to distribute this across risk categories according to your life situation.

kingkool68 9y ago
This book really opened my eyes to the importance of savings. Really glad I picked it up when I was 18.

elwaz 9y ago

Can I add, for AU, the Barefoot Investor: https://barefootinvestor.com https://barefootinvestor.com

NicoJuicy 9y ago

Saving or investing is the only way to get rich. I do both, since I'm a develop, investing is also trying out projects. I don't want to calculate my ROI om that part just yet. But the rest is fine, 16% on stocks last halve year, 200% on crypto currency ( wouldn't recommend though) and my own online shop which is a nice monthly extra on top of my full time wage. PS. I never had to spend anything of my full time wage :)

NicoJuicy 9y ago
I would like to add that I only invest 10% of my assets now. 2 weeks ago it was only 3%, then I realized the halve year test of investing was succeeded.

IanCal 9y ago

The personal finance subreddit for the US is very good https://www.reddit.com/r/personalfinance/wiki/young_adult https://www.reddit.com/r/personalfinance/wiki/young_adult https://www.reddit.com/r/personalfinance/wiki/early_career https://www.reddit.com/r/personalfinance/wiki/early_career And the rest of the links https://www.reddit.com/r/personalfinance/about https://www.reddit.com/r/personalfinance/about Also the UK one https://www.reddit.com/r/ukpersonalfinance/wiki/lumpsuminvestment https://www.reddit.com/r/ukpersonalfinance/wiki/lumpsuminves...

throwaway0255 9y ago
That subreddit (at least the US one) is pretty terrible. I think there's some active shilling for credit card companies going on there. They also give a lot of objectively terrible advice when it comes to transportation, mortgages, and student loans. The number of participants, and the source of those participants (reddit main), pretty much guarantees that the advice there can't/won't be high-quality, and will only get worse over time.
- froindt 9y ago
  When people ask what they should do with their money, I direct them to the /r/personalfinance flowchart. [1] It does a great job of getting people on the right track. Beyond that, I suggest lurking on /r/financialindependence. That community had grown very fast in recent years, but is far from as mainstream as /r/personalfinance. [1] https://m.imgur.com/CcEVQAV https://m.imgur.com/CcEVQAV (image seems to be compressed to hell and back on mobile)
- Veelox 9y ago
  Im curious, what objectively terrible advice have you seen? I want to make sure I didn't pick some up without knowing it.
  - twblalock 9y ago
    I think the bottom line is that most of the contributors to that subreddit are young and don't have much life experience, so they parrot the same one-size-fits-all financial advice. An example is telling everyone, no matter their circumstances, to always buy used cars and learn how to fix them themselves. They give this advice to rich doctors as well as poor single mothers. It also seems that many of the contributors have had bad experiences with debt, and now treat it as something to be avoided like a cancer. Debt is a useful tool for people who understand money. I remember a thread characterized by total incomprehension in most of the comments when someone said he would rather take a low-interest loan to buy a car than sell some of his stock and pay cash, because selling the stock would have triggered capital gains taxes far greater than the interest he would have paid on the car loan. It's also very common in that subreddit to recommend that people who are in debt should basically live like monks for years, when living in a modest amount of comfort would only prolong repayment by a few months. Giving up your $14.99 monthly Netflix account is not going to make a big dent in your student loans over time -- over a 10-year repayment, that savings will add up to less than $2k. But the commenters there will pile on you if you point that out. The thing that annoys me the most is the way people who have succeeded in tackling their debts are criticized for having high incomes, as though having a high income was something that just happened to them because of luck, rather than being a result of hard work and skill development.

amelius 9y ago

Just write a simple financial simulation in e.g. Python. You can view saving as zero-risk investment, and then find the optimal distribution of income over a number of investments with different risks/returns.

speeq 9y ago
> You can view saving as zero-risk investment I wish I had bought index funds instead of keeping most of my savings in GBP before the Brexit referendum...

roenxi 9y ago

There is a real problem with asking 'to be given financial advice'. Before any meaningful talk can be had about setting common financial levers to get a result, what people really need is someone to sit down with and have an in-depth conversation about what life goals. You can't really receive meaningful financial advice without taking position on the following: 1) Are you comfortable committing to a lifetime of working? 2) Is there reasonable scope for a high risk high reward venture? Eg, entrepreneurship, acting. 3) Do you determine your personal comfort in terms of how other people perceive it (expensive & common option), or do you use your own metrics? 4) What is your personal understanding of retirement? Without that orientation, there isn't really a generic position to take on debt (it might be good or bad). There isn't a generic position on investments (might be good or bad). If someone is really being taken to the cleaners maybe there is a quick change to be made, but really "personal finance" is more about expectations and habits than knowledge ad howto guides. The fundamentals of personal finance intuitively easy to grasp, to the point of absurdity - if you consistently spend more than you earn, you will run out of money. End of the story. If you spend a lot less (10-20% of your earnings go into savings), you will weather surprises easily. If you earn a stupid amount less (40%+ pre-tax earnings saved) you will have a very easy later life. That all only scratches the surface of orienting a strategy, let alone the details of how the myriad investment options and retirement mechanisms work.

siddharthdeswal 9y ago
Most people in their twenties haven't thought of answers to your questions, and don't have the kind of plans that financial advice presupposes.
- osrec 9y ago
  I agree. Financial advice for someone in their twenties should probably start with getting them to think about the above questions in some detail. Once you have answers to the above, your financial choices become significantly more obvious.
  - AJ007 9y ago

Fargren 9y ago

I've seen the "invest in index funds" repeated over and over, but almost always coming from people in the US. I don't understand enough about investing to understand when the advice is useful globally, or only locally. I also don't really know where to get that knowledge, because most explanations don't say whether they apply outside of the US. What are some good source for someone based in Europe (Spain specifically, if it make any difference)?

ISL 9y ago
"invest in index funds" is a heuristic for "own a tiny share of everything, at market price". The mantra is "try to be average, at very low management fees", that way, your performance will always be average, and never worse than average.
- danblick 9y ago
  If you get average gains/losses with below average costs your performance would be above average.
hyperpape 9y ago
The big difference seems like it will be tax law and availability of public/corporate pensions. Otherwise the rate of return shouldn’t be fundamentally different depending on the country you’re in. That said, tax implications matter a ton.
sebcat 9y ago
Caveat: I have no idea what I'm doing, but it has worked out well so far. I have some of my savings in index funds. The low fees, the risk profile (if that's a proper term for it in English) and historical performance (which is not a guarantee for future performance) of certain indices is what I like about them. If I create an index consisting of Company A, B, C, with 40% A, 30% B, 30% C and call that index "the sebcat index" others may sell sebcat index funds consisting of company A, B, and C stocks at those proportions. Of course, that's a bit too arbitrary. Normally you would have an index based on e.g., the N largest companies on a specific market/region. The index may be adjusted over time depending on market cap or something else, funds may not follow the index exactly, but that's the gist of it, to the best of my knowledge (see caveat). It's not in itself bound to geographical regions, though if you buy funds tracking foreign companies you should be aware of currency effects, politics &c (though local companies could be affected by that as well of course). Look up a couple of indices (e.g., MSCI indices), then find what index funds on your exchange tracks these indices. Look up what the funds consist of exactly. If you compare two different funds tracking the same index, they should have similar performance over time. Buy one or two per index. The fees should be relatively small, 0-0.4%. If you expect a crash to happen, or you see a crash happening that is not likely to end soon, sell any index funds affected and maybe put the money in interest funds, or gold, or something that you believe will not be as affected by, or benefit from the current situation on the market. Then buy back when (or if) the market goes up again (depending on your time frame).

ksec 9y ago

Saving and Investing. Doing really good with both should bring you to a very decent standard of living. Going being that to become wealthy? You need Luck. Both million times easier said then done. Learn about survivors bias. Basically all the things these successful people told you are only guide lines, not rules. This is sounding rather a lot like Zen's thinking.

hiram112 9y ago

The one advantage folks in their 20s have is time. I actually don't think software engineering is the best career (in financial / lifestyle terms) for someone who might also excel in business, finance, law, or medicine. But there is one hack to our industry: You can make a good salary starting in your early to mid 20s, with only a bachelor's degree or less, while most of your peers will still be in school for years, then paying off loans, and finally beginning at the bottom of the corporate ladder. Now unfortunately, by 35 or so, most of your smart friends will have caught up - paid off their loans, and now be earning similar high incomes. And software engineers tend to hit a glass ceiling, run into ageism, etc. But having lived frugally while making over six figures for over a decade, you can have accumulated $500K - $1M, and if you forget about that money, can coast into early retirement by 50 or earlier, or take career risks that others can't afford. A million in net worth at 40 opens up a lot options.

lambdadmitry 9y ago

IMO most "personal finance advisors" miss the career progression thing. - on one hand, it's ridiculous to seriously recommend young professionals (in their 20s) to long-term save 20+% pretax income if they don't have substantial assets (e.g. their parents' house) or if they are not in the top 5% of their age group (think finance in London). I bet most millennials don't have the kind of income that allows that _and_ having a life quality comparable to their peers. In London and I suspect in SF it's very common to have 30% of your pre-tax income to go to rent; taxes will eat another 30%, groceries and eating out is another 10-20%. What's left is measly 20-30% of income that must be divided between shopping (clothing, hobbies, car, gadgets, whatever) and long-term saving. If we throw in absolute income numbers and property prices, it all comes to "question any expense, live in misery and MAYBE you'll be able to afford a downpayment in a decade". - on the other hand, a lot of people can expect to double, triple or quadruple their income in a decade of their career. If not, on the scale of a decade it's possible to change the career. So maybe there is a point where one should focus on earning more instead of saving. Maybe it's more important to have that expensive hobby that reduces your stress levels and allows to work harder. Maybe the only right kind of advice is "raise your income and don't get into debt".

stevenj 9y ago

When it comes to financial advice, I tell people the following: 1. Live within your means. Spend less than you earn. But it's okay to take a vacation and splurge a little, too. Or if you need to buy something like a suit that stretches you a bit think of it as an investment for your career. 2. Use credit cards responsibly. They can be great for their rewards programs, but you can easily get into trouble with them. Be very careful. 3. From a financial perspective, it's never too early to think about retirement. Take advantange of your employer's 401k program if it's offered. Additionally, setup and contribute to a Roth IRA retirement fund through Vanguard or Fidelity. 4. Buying a house makes sense as a long-term investment. Location will primarily determine how good of an investment it will be (which sometimes is hard to predict into the future). 5. In terms of what to invest in, buy a low-cost index fund from Vanguard or Fidelity (e.g. S&P 500) and make monthly or quarterly contributions to it. And don't touch it (i.e. sell), especially in a downturn.

alexnewman 9y ago

The financial industry is actually designed to fleece from those without much financial knowledge. I should know, I used to be one of those shaving the sheep. I’ve worked with many brokers at Morgan and Merrill and they are generally ignorant sales people. Often they are actually deceitful. Basically everything taught about finance and economics is a half lie and the half that isn’t true is very difficult to understand. In economics ,Consider that private debt has no role in economics but is critical for understanding bank flows. So why do we teach that private debt has no effect under islm? Or consider in finance traditional options strategies of selling covered calls, on etfs. In the past few days you’d notice you lost a ton of money due to the way tracking error is manipulated vs options on the etfs. I was just talking to a billionaire who actually understood black scholes and didn’t understand why he lost so much money on a hedge. Or consider how much growth has gone solely into a few tech stocks while people are still advising you to buy s&p. Realistically smart exposure to the underlying is Generally so much better. Finally on tax advice, especially on crypto, which I believe should be somewhere between 2-5 % of any young persons portfolio, no one suggested a charitable remainder trust and it ended up saving me huge amounts of cash and avoiding long term capital gains while allowing me to do well. The financial industry is a business dominated by sales people. The people you will talk to with less then a half million In savings hardly know shit about Shit. It’s like anything else, if you took the time to understand these financial products you’d realize they are powerful cool abstractions worth learning about

uiri 9y ago
I'm not sure why you're getting down voted. Your point about finance professionals being sales people looking to fleece their customers is spot on. Maybe because you're suggesting that people"invest" in the crypto bubble but the overall advice ("take time to learn about your investments") is sound. Plenty of young people on HN understand the underlying mechanisms of crypto-tokens.

pdog 9y ago

Here is the only advice a person in their twenties needs to follow: 1. Never pay interest on your credit cards. Pay off your credit card balance every month. 2. Save at least 20 cents of every dollar you earn. 3. Buy an S&P 500 index fund. 4. Contribute as much as possible to your 401(k), if you have one, and at least enough to get the full employer match.

rm999 9y ago
This is good advice for someone with financial security and a good salary. Which is sadly a fairly small % of people in their 20s. I'd add two higher priorities for people who don't have financial security: 1. Take stock of your finances. Track all your expenses and income for a month or two. If you find your debt is growing make changes to bring your costs down. 2. Pay off high interest debts like credit cards. Once this is complete, build up a rainy day fund of at least 3 months of expenses in a savings account. Consider this money hands-off except in emergencies. After all this is implemented the person's finances are "stable" and they have a budget, and I think your advice is solid (but should be modified depending on salary). I'd also blend in some safer investments with the s&p 500 - perhaps using a robo advisor to manage the risk for you.

fullshark 9y ago

This: http://www.mymoneyblog.com/dilberts-one-page-guide-to-everything-financial.html http://www.mymoneyblog.com/dilberts-one-page-guide-to-everyt...

IkmoIkmo 9y ago

There's one realisation I came to myself in my early twenties, which I think most people will when they're introduced to the time value of money, compound interest and savings over time. And you'll find a whole bunch of people talking about it in one form or another, e.g. buffett. And it's quite silly, because the examples take things to the extreme, but there's also a lot of truth to it. It goes a little bit like this: If you do a bit of toothpaste research, you'll find the active ingredients (i.e., the stuff that matters to your teeth) in a tube of $1 toothpaste and $6 toothpaste are pretty much similar. In fact, you can find toothpaste at $0.2 per oz and $2 per oz. Given you brush twice a day using 0.2 oz, that's an annual expenditure of $30 to $300, depending on the type you use. Let's be conservative and say you can save $200 if you buy cheap toothpaste in a little bit of bulk, instead of expensive toothpaste. Average life expectancy is about 80 right now. If you're 20, that means you'll potentially save $200 for 60 years. That's 12 thousand dollars in toothpaste saved, simply by making a conscious decision at age 20 to spend 15 minutes looking up whether cheap toothpaste is effective, and which one to buy. Related to this is the time value of money. i.e., if you look at the past 60 years of S&P500's return, include dividends (reinvested), and adjust for inflation, you'll find 6.5% returns. Let's be conservative and low-ball that at 4%, assuming taxes, other crap and potentially lower future returns. $1 invested today at 4% for 60 years would compound to 1.04^60 = $10.50. As that's inflation adjusted, it ought to mean your purchasing power has tenfolded. If you combine the savings of toothpaste with long-term investments, you'll find your toothpaste purchasing behavior can easily be worth tens of thousands of dollars. Now note, I chose toothpaste because there's no effort or quality-of-life choice to be made there. Buffett enjoys using coffee as an example as saving a $3 morning and evening cup is much more profound than saving 10 cents on toothpaste each day. But it does require you to skip coffee, or make it yourself. However trivial that may be to some, that requires respectively discipline and mental effort to others. But things like toothpaste should be a no-brainer. It's up to anyone in their twenties to consider what actually matters to them, there's tons of such decisions to be made. The brand of toothpaste? Likely not. Brewing your own coffee? Probably not a big deal either. Skipping lunch with friends because it saves money? Probably not a great idea. But even there, being cognisant of the cost of such eating-out behaviour may spark you to invite a friend over for a self-made lunch. The point isn't to save as much money, the point is to allocate your money to where it's actually valuable. That's not toothpaste. It may be working less and spending more time on a hobby, with friends or family.

danblick 9y ago

When I was younger I enjoyed reading about finance and investing. The investment strategy I settled on was the three fund portfolio from: https://www.bogleheads.org/wiki/Three-fund_portfolio https://www.bogleheads.org/wiki/Three-fund_portfolio and I haven't seen any reason to change this in ~10 years. I'd recommend poking around that site to learn about the philosophy of index investing. (You might still want to actively invest after reading that, but you should probably first understand some of the reasons not to.)

JBlue42 9y ago
Just a note for OP or others reading that "Bogleheads" are those that follow a certain value investing philosophy from Vanguard founder John Bogle. For some basic investment literacy, it would not hurt to read "The Bogleheads' Guide to Investing" (https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365 https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Lar...). I've also heard good things about John Bogle's "Little Book of Common Sense Investing" but haven't read it.

supercanuck 9y ago

/r/personalfinance's Prime Directive: https://i.imgur.com/lSoUQr2.png https://i.imgur.com/lSoUQr2.png

tomohawk 9y ago

Learning about finances in your twenties is a bit late, but better late than never. What's worked for me and others I know is to get out of debt and stay out of debt. This guy has a reasonable program to do that: https://www.daveramsey.com/get-started/debt https://www.daveramsey.com/get-started/debt

PoachedSausage 9y ago
I agree, staying out of debt should be a priority, but how do you reconcile that with buying a house, which around here cost on average around £226k? I would love to not need a mortgage and have to work more to pay the interest but what other choice is there?
- dlp211 9y ago
  Not all debt is bad.
- tomohawk 9y ago
  Econ 101 says never borrow money on a depreciating investment. A house may appreciate, so it may make sense to buy one. A house can be a blessing or a curse. You should first decide if you want to own one, regardless of the economic pros/cons. Owning a house means you always have a job to do. If that doesn't appeal to you, maybe get a condo? In the US, the best approach is usually to get what's called a conventional mortgage. That means putting 20% down. There are some good reasons for going this route. First, it makes you prove to yourself you have the discipline to put money aside for a house, without actually having the responsibility of a house hanging over you. Secondly, its better financially as you can usually get a better rate and don't have to pay private mortgage insurance. In addition to the 20%, you really need 6 months of money set aside in case something happens. The last thing you want is to default on a loan because something unexpected happened and you have no income for a few months. One of the worst things that happens is someone goes and gets a house with 0% down and without the real financial wherewithal to weather a financial storm. The house quickly becomes a curse when the unexpected happens.
JBlue42 9y ago

defen 9y ago

Anecdotal, but some of the 20-somethings I work with exhibit a kind of helplessness or fatalism about finances. These are smart, well-educated people who still haven't signed up for the company's 401k program, and don't invest in the stock market because they "don't know how to buy stocks", even though I tell them they should be doing this at least once a month. These aren't people who are living paycheck to paycheck or spending profligately as far as I can tell.

gcheong 9y ago

Fool.com , https://www.fool.com/retirement/2016/12/19/the-perfect-retirement-strategy-for-20-somethings.aspx https://www.fool.com/retirement/2016/12/19/the-perfect-retir...

sn9 9y ago

Ramit Sethi's I Will Teach You to be Rich is literally this book.

turingbook 9y ago

Searching "financial advice" on HN itself, you will get this item: This 4×6 index card has all the financial advice you’ll ever need (washingtonpost.com) 155 points by bcn 1532 days ago| 249 comments https://news.ycombinator.com/item?id=6396352 https://news.ycombinator.com/item?id=6396352