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Step 0: Forget trading on the stock market. You will lose. Step 1: Pay off your high interest debts. School loans, credit cards. Step 2a: If your company matc

Step 0: Forget trading on the stock market. You will lose. Step 1: Pay off your high interest debts. School loans, credit cards. Step 2a: If your company matches a 401k, take advantage of free money. Max out their contribution. Step 2b: Go to vanguard.com, open a Roth IRA, choose a Vanguard Retirement that matches your retirement date, dump $5500/year in until you're 50, then $6500 after that. Step 3: After emergency money is handled, take excess invest in the following index funds at Vanguard. Admiral shares require minimum $10,000 in each. However you can start with the standard share version, and then move them to admiral once your balance reaches $10k. 56% Total Stock Market Index Admiral Shares – VTSAX 24% Total International Stock Index Admiral Shares - VTIAX 20% Total Bond Market Index Admiral Shares – VBTLX Enjoy your millionaire retirement status.

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zitterbewegung 9y ago
So, if you don't have a job where you can put away $6500 a year into an IRA and max out your match with a 401K are you screwed?
- overcast 9y ago
  I mean, it takes money to make money. It's also not required to max anything out. If you can only put $10 a week into retirement, put $10 a week into retirement, until you can put $15 a week.
  - dabber 9y ago
    I'm honestly not sure why your getting downvoted. Maybe the "takes money to make money" line? Otherwise that seems like reasonable advice. If you can't max out your IRA every year then that's just how it is but it's certainly a good idea to contribute what you can. Right? Could someone shed some light if I'm missing something?
    - loeg 9y ago
      Not missing anything. It's better to save the dollar you can now, even if it doesn't seem like much.
- jldugger 9y ago
  The 'good' news here is that Social Security isn't a terrible ROI at low incomes.
  - evv 9y ago
    Right, if Social Security hasn't collapsed by the time you need it.
    - xyzzyz 9y ago
      Social Security existence is based on the state ability to extract taxes, and voters rejecting candidates who want to dismantle it. 401k depends on stock market being up in the critical time you need it. If I were to bet what is more likely to collapse, it’s rather stock market.
      - closeparen 9y ago
        Collecting a growing pot of tax revenue from a shrinking pool of workers will not be without challenges. Emigration seems likely, although I suppose the elderly majority can then vote in an exit visa scheme.
      - enraged_camel 9y ago
        >>401k depends on stock market being up in the critical time you need it. If your portfolio allocation is incorrect, sure. But by the time people get close to retirement, most of their investments should be in bonds, which are quite insulated from the ups and downs of the stock market.
        xyzzyz 9y ago
        What do you do when the stock market collapses as you start moving into bonds?
        closeparen 9y ago
        That’s something you do by degrees over years. A couple years’ blip isn’t going to hurt that much.
- thaumaturgy 9y ago
  Realistically: yes. It's uncomfortable and nobody ever wants to hear it, and it's quick to get shouted down (especially in forums like HN where everyone is either wealthy or only "temporarily" poor), but if you can't afford to put $5500 into an IRA each year while also keeping your emergency fund topped up for 12 months' expenses while also still having enough extra for at least one little vacation that year -- then you're poor. Not middle class, but poor. And, statistically speaking, if you're poor now, then you're likely to be poor for the rest of your life. America continues to run on the idea that that's not true, but that's a clever bit of marketing intended to keep people from realizing just how truly screwed they are. This isn't to say that you're destitute or that it's impossible to live well at more modest means. Many people do.
  - taurath 9y ago
    Lol, by that measure 80%+ of the US is poor. The reality is much of that 80% of people are doing okay, and can survive a hiccup or two either by having enough money to expense themselves through it, unemployment or disability. If you’re in a high COL area I’d say that’s where you need to have a lot more money stashed. 12 months expenses isn’t reasonable for most people under 40.
    - thaumaturgy 9y ago
      > Lol, by that measure 80%+ of the US is poor. Yep. Not really a laughing matter. > Only 39% of Americans have enough savings to cover a $1,000 emergency https://www.cnbc.com/2018/01/18/few-americans-have-enough-savings-to-cover-a-1000-emergency.html https://www.cnbc.com/2018/01/18/few-americans-have-enough-sa... Relying on unemployment, disability, or having enough money (or, in most cases, credit) to "expense a hiccup or two" is not middle class. And people under 40 should have an easier time developing an emergency fund, because their expenses should be lower. People over 40 should have an easier time maintaining the emergency fund because it should be an investment account that they started before they were 30. Your reply is a pretty good example of the amazing impact that political marketing has had on popular views towards wealth and poverty in this country. People have become entirely convinced that they aren't poor so long as they "can survive", that poverty is something that happens to the other people they hear about on the television. $5500 a year, plus one vacation, plus building or maintaining an emergency fund, should amount to saving about $10,000 a year. The second-to-bottom, 15% tax bracket tops out at $37,950 for single people, and IRA contributions are 100% tax deductible, so you can safely gross up to $43,450 in that bracket. (edit: math.) If it sounds difficult to squirrel away 25% gross annually in that bracket, that's because that's not the middle class bracket. It's the "poor" bracket.
deelowe 9y ago
With so many people doing this these days, I wonder if this will continue to hold true.
- overcast 9y ago
  What exactly is the alternative? Not investing your money? The entire world runs on it. It's not going to change.
  - ianai 9y ago
    Pensions (dne), social security (ha), somehow make your own business capable of supporting you into old age, work until you die.
    - lotsofpulp 9y ago
      Pensions are going to the same place...
  - rectang 9y ago
    Want to be rich? Are you rich already? No? Then too bad. Because "equality of opportunity" in the US is only available to those who are more equal than others.
    - Erik816 9y ago
      That's demonstrably false. You could make an argument that on average it has become harder to change your social class, but plenty of people start life poor or middle class and end life rich.
      - rectang 9y ago
        It's true to a first order approximation. If there were no exceptions, then how could those born into wealth persuade themselves of their own moral superiority?
    - 9y ago
intopieces 9y ago
Good advice. Worth noting that IRAs have income caps for contributions. https://www.rothira.com/roth-ira-limits https://www.rothira.com/roth-ira-limits
- grjscott 9y ago
  It's possible to get around that limitation with a backdoor Roth [0]. I've been doing this for my wife's account the last few years and it's fairly straightforward. [0]https://www.bogleheads.org/wiki/Backdoor_Roth_IRA https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
oculusthrift 9y ago
step 0: stop your 401k step 1: stop your espp step 3: put it all into crypto step 4: ???? step 5: retire at 30
- ascorbic 9y ago
  step 6: move back in with your parents at 31
- whataretensors 9y ago
  I'm over 30 but I think this is a great strategy if you have risk tolerance. It's not for the faint of heart however. Another interesting strategy would be investing the risky part of your retirement into startups or tech you believe in. But you can't do that by law unless you are already rich(accredited investor).
  - whataretensors 9y ago
    Not sure why the parent comment was flagged, but for context op was suggesting investing in cryptocurrencies instead of 401k. My suggestion is to have a 'risky' part of your portfolio to play with.
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- deleted 9y ago
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andrewjl 9y ago
This is a great plan! One change I'd make is to reduce VBTLX to below 5% when you're under 40 and gradually increase the bond holdings by 2/3% a year after that. More stock exposure means more returns. Another thing to do if you want to get fancy is to shift some bond holdings to riskier or junk bond funds when you're younger, such as Vanguard's VWEHX, that will generate FAR higher returns than a typical basket of bond holdings. This is all assuming the target retirement age is 65 or later.
- ianai 9y ago
  You’re both assuming this year is a stable point or low point for valuations for people under 40. I don’t see it. There are clear high values on stocks across the board. There are international pressures just coming into play that will have large, probably negative effects.
  - andrewjl 9y ago
    Definitely agree there, although 15+ years is enough to time for us to get through the cycle of highs and lows. Also market timing is hard and subject to many factors (such as those you pointed out) that one doesn't have knowledge and awareness of. It's better to just buy, and hold. When the market goes down, buy some more, but don't expect to access that money for many years.
- jnordwick 9y ago
  > if you want to get fancy is to shift some bond holdings to riskier or junk bond funds Don't worry. The federal government is working on doing that for you.
  - andrewjl 9y ago
    If you're referring to US federal government debt, it's basically got a zero risk of default. You'll always get your principal and interest back in full. Why? The debt is denominated in USD and who can print any amount of USD at will? The Fed. Edit: I think I get your larger point though, runaway deficit spending of the kind we've had in recent years does destabilize the riskiness of holding US assets / currency.
shrimpx 9y ago
This is the poor conservative person's guide to not being totally broke when they're old, it's not a guide to wealth.
- Erik816 9y ago
  You have a very skewed perception of "poor." Following this will net you a very substantial retirement account, especially if you are married and your spouse does the same.
- tejohnso 9y ago
  Doesn't seem like a guide for poor people at all to me. A poor person is not going to be able to get past step one, let alone step two which requires a decent job and thousands of dollars of discretionary income to save each year.
- oligopoly 9y ago
  Indeed, you also want to enjoy your life when you a virile. What's the point of working until your retirement when you are at a point you hardly can take advantage of it. Start a business. You probably won't hit the unicorn lottery but making enough to retire in your early X shouldn't be out of reach. Find a solution to a problem and learn some sales and marketing.
- loeg 9y ago
  I'm at something like 1st percentile age-group wealth on 4th or 5th percentile age-group income following this simple strategy. On track to retire before 40. It works.
- loco5niner 9y ago
  Really, how much wealth do you need? I don't need a yacht or a mansion. I also don't feel the need to take on a lot of risk in the hopes of a yacht and mansion.
executive 9y ago
Congratulations, you have achieved beta.
ronnier 9y ago
Even though people say not to, I’ve paid off my first house and now rent it out. The second house will be paid within 5 months. If you can, i really recommend it for the freedom of mind, even if it’s not the best financial decision.
- overcast 9y ago
  Yep, if you want to put up with renters, it's a great way to rack up cash.
  - hanoz 9y ago
    What does putting up with renters involve?
    - klipt 9y ago
      Tail risk. Some renters are terrible and will trash your house. The repair costs can easily wipe out years worth of rent.
    - richardknop 9y ago
      Depends on renters. You can be lucky and get some nice couple or young professionals who will take care of the property and when they leave the property will be in fine condition and will only need small repairs. On the other hand, you could get some party animals that will trash the property and when they leave you will have to spend lot of money to repair the damage. They might also cause other problems like annoying neighbours etc.
- bananaboy 9y ago
  Curious: why (and where) do people say not to pay off your house?
  - ronnier 9y ago
    Random conversations, Reddit personal finance, podcasts. Reason is, the interest is low and by investing the money elsewhere you can get a higher rate of return.
dsacco 9y ago
> Step 0: Forget trading on the stock market. You will lose. This does not have to be the case. I don’t mean to encourage people not to invest in index funds (passive indexing is generally the best idea!), but if they’re going to try it anyway, it’s not helpful to simply declare it to be unprofitable from the outset. Your guide is well tailored for people who want to pursue consistent, modest gains on their capital beyond what inflation will gradually eat away. If someone with the right technical skills wants to generate a profit that consistently beats the market, they can do so with two caveats: 1) they will have significantly less capital than institutional funds, and 2) they will have to engage in the research and deployment of trading strategies on their own (as opposed to with the support of a full infrastructure and team). But profiting in the market is, at its core, a game of identifying price inefficiencies. Prices become more efficient through greater information diffusion and greater liquidity. If you have data that is not available in the broader market, you can make forecasts with an edge over what e.g. the aggregate analyst consensus suggests. In essence, programmers can take advantage of their smaller capital capacities to utilize strategies that might not be given as much attention by larger funds, because they’ll become capacity constrained much sooner (i.e. won’t scale). A software engineer who finds, collects and curates a source of data entirely on their own that maps directly to the revenue of particular companies (or more abstractly, to the future price of particular securities) can do well reliably. It’s not easy (or everyone would do it), but if you’re determined and understand what’s required, you can do it. I outlined how this can be done in several steps in an HN comment just yesterday: https://news.ycombinator.com/item?id=16349011 https://news.ycombinator.com/item?id=16349011 This is not to say that you should abandon index funds and try to beat the market. But if you’re already inclined to try, you might as well hear this advice and a gentle caution that it’s very difficult instead of hearing “don’t do it, you’ll lose” over and over. Some people will want to actively trade to be contrarian, or because they enjoy the intellectual challenges (there are plenty!), or simply because they think they can profit. They might as well go into it clear-eyed.
- solipsism 9y ago
  An honest take on the idea of a personal active trading should always mention the opportunity cost. Doing the necessary research is a job. One that takes significant time to learn, and one that will continue to take significant time once you've mastered it. So, like any job, you better either like it better then the other things you'd be doing instead, or you'd better be confident you can make it pay more than the other things you'd be doing instead.
nly 9y ago
Always blows my mind that US citizens can only contribute a meager $5,500/yr to a pension for tax relief purposes. In the UK you can contribute 100% of your gross annual income every year, and get full tax relief up to the lifetime contribution limit of £1M ($1.38M). We also have tax free savings & investment wrappers, called ISAs, in which you can deposit $28,000/yr, and within which all growth is free of any kind of tax.
- harryh 9y ago
  You can contribute more if you have access to a 401k. The current limit there is $18,500. The argument against unlimited tax free contributions is that above a certain point it becomes a tax break only for the rich.
  - nly 9y ago
    > The argument against unlimited tax free contributions is that above a certain point it becomes a tax break only for the rich. That's where the lifetime cap comes in I guess. £1M isn't that crazy over a ~40 year timeframe for someone on a high income who isn't necessarily 'rich' and, at current annuity rates, won't buy you absolute luxury in retirement.
  - mancerayder 9y ago
    Right, and oftentimes (but not always, anymore) companies contribute to your 401k as well. Also, as a self-employed person you can contribute up to $55,000 in the year depending on your income, in what's called a SEP IRA.
    - nly 9y ago
      The SEP IRA sounds like the equivalent to a SIPP in the UK, basically a DIY pension, although there's no requirement on you having to be self-employed to get one.
    - loeg 9y ago
      Self-employed persons can also contribute to a Solo (or "Individual") 401(k), which has slightly more generous contribution limits as a percentage of self-employed income. And some W-2 employees can contribute up to $55,000 in their employer 401(k) as well via "after-tax" contributions.
mancerayder 9y ago
I had to downvote this because of how smug it is. Your approach has validity, but it's valid for people who a) have no time or b) inclination to learn the market. It's just ONE approach. You've presented it as "the" approach, full stop. It stems presumably from the idea that you can't "beat" the market. But that depends what you invest in. And as a human with a brain, and a human with 24/7 Internet, you can do a little research and invest in conservative, dividend-yielding mammoth blue-chip-type companies, or you can seek value. What I do is: Step 1. Move all my 401k holdings from previous employers into a Vanguard IRA brokerage account (there are brokerage and non-brokerage variants of the IRA, the latter allowing you to purchase individual domestic stocks and ETF's online). Step 1b. Create a Seeking Alpha account and add stocks, ETF's, etc. that I'm interested in to my portfolio. I'll watch these stocks for weeks/months as well as read some of the material / URL news links that appear (including analyses). Step 2. Allocate a certain percentage of the entire portfolio "Boglehead" type funds/companies of the exact type you've just described. Baby boomer nervous-can't-be-bothered investor mindsets. Step 3. Allocate a certain percentage to companies I know either because I may have worked there, I use their products, or as I work in technology I like the idea of the product or company. AAPL is an example. Step 4. Allocate a certain percentage to a 'gambling' value stocks. I find these by looking at the NYSE "Biggest losers" and "Biggest winners" lists. If I see something interesting, perhaps I feel I'll either ride a pump and dump trade cycle or simply I feel that the company was unfairly oversold, I'll add that to my Seeking Alpha portfolio, follow it for a few weeks/months, and purchase on a low. There are a lot of different trading strategies. If you were railing against day trading only, I perhaps would agree with you. But here you're suggesting that the only valid form of stock market investment is to follow a mediocre approach (which is high risk: what if it's time to retire and the market corrects right before?!)
- twtw 9y ago
  So I have considered taking a more active approach to investing, but every time I think about I am dissuaded by the findings that actively managed funds get beat over the long run by index funds. For example, the Buffet bet of S&P500 beating mutual funds, the lack of correlation between fund performance from year to year, the darts thrown at NYTimes fund, etc. All these things suggest to me that actively managing can beat the indices in some years, but will be balanced out in others. I would be interested to hear more of your thoughts about this.
madengr 9y ago
Sounds like what Dave Ramsey preaches. Though $1M does not cut it these days. I already have that at mid career, and sure as hell don’t feel rich, not with 2x kids college to save for.
- jessaustin 9y ago
  If you live in a high-cost location, you might consider moving at some point?
zaptheimpaler 9y ago
Step -1: Read too much /r/personalfinance, come to believe the dogma that all investment is completely unpredictable, diversification is the ONLY possible way to make money and that past results are a sure-fire indicator of the future. Preach your dogma as the one true answer to anyone who will listen.
- FridgeSeal 9y ago
  Alternative Step-1: Read /r/WallStreetBets, lose all your money in poorly planned, gung-ho margin trading adventures. :P
- Meekro 9y ago
  Top investor Warren Buffet agrees with this "dogma." He just won a bet that index funds would outperform hedge funds during 2007-2017. [1] Trust him, not /r/personalfinance. [1] https://www.cnbc.com/2018/01/03/why-warren-buffett-says-index-funds-are-the-best-investment.html https://www.cnbc.com/2018/01/03/why-warren-buffett-says-inde...
  - hedora 9y ago
    I noticed that the stocks that ETFs and stock screening algorithms like moved had much higher correlation with the indexes during last week’s correction. This is just based on a quick spot check, but I’m worried the passive investment craze has weakened the link between business fundamentals and pricing for the stocks in the most popular indexes. If so, that increases correlations in the pricing of assets that were explicitly chosen because their prices have no or negative correlation with each other.
    - arcbyte 9y ago
      Check out https://heisenbergreport.com/ https://heisenbergreport.com/. Hes was talking about this last year a lot.
  - dsacco 9y ago
    The advice to use index funds is sound and most people should follow it. But that “bet” is a very weak argument for it. Buffett bet against a particular hedge fund manager who as far as I can tell was only in it for the publicity. There are plenty of hedge funds which beat the market so significantly and so consistently over long timespans (even decades) that choosing any single one of them would have handily won the bet. But the bet was for a “fund of funds” approximately tracking the aggregate hedge fund industry, not any particular one. Buffett wouldn’t have taken a bet involving any of the single superlative funds because he understands this point already. The core thesis vindicated by that bet is simply this: most participants in the market don’t do well. You didn’t really need a public bet with a famous investor to prove this - the stats have been available for quite a while. Buffett obviously believes people can beat the market, or he wouldn’t be in the business he’s in. Therefore, the point stands. It’s dogmatic to act as though beating the market is impossible. It’s not necessarily advisable to try it because it’s quite difficult, but throwing around citations of Buffett’s bet don’t really improve honest education. Most people aren’t going to become pro athletes either, so you shouldn’t bank your future on it. But that doesn’t mean it’s impossible or that you can’t (responsibly) pursue it.
kelukelugames 9y ago
I bet most of us don't qualify for IRA tax benefits.
- plandis 9y ago
  Which is where a backdoor Roth comes into view (I'm assuming you're speaking about workers at American companies making over the tax limits)
WalterBright 9y ago
> Forget trading on the stock market. You will lose. Cognitive biases have a large effect on minimizing one's returns. I recommend reading "Thinking Fast and Slow" by Daniel Kahneman for an analysis of how those biases sabotage one's returns. Those biases are hard to overcome even when you're aware of them, but at least one can try :-)
cm2187 9y ago
Unless you are over 50, Between now and your retirement age, the long running story of the greatest accumulation of debt in peace time will likely have come to its conclusion which will invariably be either high inflation or financial collapse. Past performance is not indicative of future results. Some people's savings will get wiped out.
- yetanotheruser 9y ago
  I have also read and heard from different financial articles and podcasts that there is no known upper bound to amount of sovereign debt a country can have before keeling over - it is more important that creditors and investors have faith that the government can pay it off, or that the country is good for the money. However, I tend to agree with your comment. There may be no upper bound to sovereign debt, but economic good times can't last forever, what goes up must come down. And should creditors ever need to collect that debt there must either be high inflation or high taxes, or not pay back loans and risk sanctions.
  - Consultant32452 9y ago
    You might find this interesting. TLDR is that the Fed now owns 40% of T-bills > 5 yrs. In other words, during the big rounds of quantitative easing our government bought a ton of our own debt. It's going to be really nasty unwinding this. https://www.forbes.com/sites/robertlenzner/2013/11/25/the-fed-has-been-cornering-the-treasury-market-for-the-past-four-years/#6c53cded7eab https://www.forbes.com/sites/robertlenzner/2013/11/25/the-fe...
- loeg 9y ago
  So what is your counter-proposal? Save nothing, spend it all now, and plan on having no retirement?
hedora 9y ago
Instead of messing with the etf’s directly, take a look at the robo advisors. They auto rebalance, and can be much more tax efficient than ETFs as your portfolio grows. The startups behave more reputably in this space than the incumbent players that added robos as an afterthought. For instance, one big bank advertises zero management fees, but then keeps a pile of your invested money in cash (to invest for its own uses, I guess), and then lets a third party exercise the robo trades. The third party pays to do this because they can make money from arbitrage by sneaking their own trades in before your trades. (I have no affiliation with anyone in this space—just a happy customer. I’m going to great pains to avoid naming names, since you should do your own research.)
- anonu 9y ago
  Those tickers mentioned are mutual funds. I wouldnt put too much trust in robo advisors as they are very new. Unless, we're talking Schwab's robo advisor which benefits from the scale of being in an already bigger place.
- songshu 9y ago
  Two things I don’t get about the robovisers: first isn’t there an ETF which does equivalent for any given risk profile? If not why not? And secondly whenever I look at a roboviser I check all of the risk happy YOLO boxes and they still recommend a very hedged portfolio, ie don’t get near the risk of a basic sp500 etf.
  - anonu 9y ago
    What you're asking for are "target date" ETFs. Similar (non-ETF) products exist in some shape at the big money managers like Vanguard and Schwab... Why don't they exist as ETFs? This is a good question. It's probably only a matter of time before we see such products. Especially that given the current pace of things, there is a new ETF everyday in the US. I've personally looked into building target date ETFs through my work as well.
- loeg 9y ago
  Robo advisors are just a way to nickel and dime investors for a very minimal service. Go to an ordinary discount brokerage like Vanguard, Schwab, or Fidelity, and buy 2-4 mutual funds or ETFs (total US stock, total international stock, total bond).
anonu 9y ago
I feel slightly uncomfortable with a blanket allocation such as this one. Being 80% equities usually works for someone just starting out their careers in life. Typically as you get closer to retirement you would want to move the balance of your money to lower volatility fixed income products.
- overcast 9y ago
  Which is exactly what Vanguard Retirement funds do, automatically. I really don't understand why some of you take this "advice" so to heart. As if this is just cut into stone, and you follow it to the letter. This is a good general guideline to follow for someone that is completely clueless about what to do with investing. You've got guys further down the thread proposing you write your own day trading software, because THAT will surely work out in your favor. Do your research. Geez.
  - mancerayder 9y ago
    The people here seem to be presenting extreme positions. On the one side, you can't beat the market unless you're a hedge fund or big player with special knowledge and equipment, so buy index funds or you're a naughty gambler. On the other side, we degenerate into self-creating automated trading software. There's absolutely a middle ground here, folks. One can have a portfolio of conservative picks (index funds), self-selected individual picks, cash, bonds, so on and so forth. This should hopefully be picked up by n-gate to make a mockery of us. Joking aside, I'm curious what some of you who are actually paid to write front office software by Wall St. think of all of these threads.
- giarc 9y ago
  Rule of thumb: 100 - your age = % of your portfolio you should have in stocks.
  - kasey_junk 9y ago
    I take no position on this particular rule of thumb but to note it is much less aggressive than more broadly held advice on the subject.
Abekkus 9y ago
step n: somehow magically survive each year after military and police are automated, and weep as stocks & currencies no longer matter(not even bitcoin). (remindme: 10 years)
perseusprime11 9y ago
Great advice. I have Fidelity. What are the equivalent low-cost funds would you recommend on Fidelity?
ryan-allen 9y ago
I thought it was: Step 0: Spend all your money on toys Step 1: Run out of money Step 2: Look under couch cushions and car seats for coins so you can buy dinner Step 3: Spend $19 on beer and $4 on food Step 4: Do this regularly despite being on a high income I am excellent at this adult thing.
ythn 9y ago
Does 2a include maxing IRS limit?
- overcast 9y ago
  I think it really depends on the fees being charged by the firm handling your 401k. It could potentially cost you hundred of thousands of dollars over a lifetime, that won't be recouped by employer matching.
cat199 9y ago
> Vanguard Retirement that matches your retirement date Had my money in one of these accounts for 3-4 years (not sure if vanguard but another major investment firm if not) - it lost money every single year despite the market going up across asset types and geography. Years. not months. Needless to say this makes me highly suspicious of these 'magic' accounts..
a13n 9y ago
This is the best way to invest if your don't want to put any effort or time learning/researching. Set it and forget it.

deleted 9y ago

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zitterbewegung 9y ago

So, if you don't have a job where you can put away $6500 a year into an IRA and max out your match with a 401K are you screwed?

overcast 9y ago
I mean, it takes money to make money. It's also not required to max anything out. If you can only put $10 a week into retirement, put $10 a week into retirement, until you can put $15 a week.
- dabber 9y ago
  I'm honestly not sure why your getting downvoted. Maybe the "takes money to make money" line? Otherwise that seems like reasonable advice. If you can't max out your IRA every year then that's just how it is but it's certainly a good idea to contribute what you can. Right? Could someone shed some light if I'm missing something?
  - loeg 9y ago
    Not missing anything. It's better to save the dollar you can now, even if it doesn't seem like much.
jldugger 9y ago
The 'good' news here is that Social Security isn't a terrible ROI at low incomes.
- evv 9y ago
  Right, if Social Security hasn't collapsed by the time you need it.
  - xyzzyz 9y ago
    Social Security existence is based on the state ability to extract taxes, and voters rejecting candidates who want to dismantle it. 401k depends on stock market being up in the critical time you need it. If I were to bet what is more likely to collapse, it’s rather stock market.
    - closeparen 9y ago
      Collecting a growing pot of tax revenue from a shrinking pool of workers will not be without challenges. Emigration seems likely, although I suppose the elderly majority can then vote in an exit visa scheme.
    - enraged_camel 9y ago
      >>401k depends on stock market being up in the critical time you need it. If your portfolio allocation is incorrect, sure. But by the time people get close to retirement, most of their investments should be in bonds, which are quite insulated from the ups and downs of the stock market.
      - xyzzyz 9y ago
        What do you do when the stock market collapses as you start moving into bonds?
        closeparen 9y ago
        That’s something you do by degrees over years. A couple years’ blip isn’t going to hurt that much.
thaumaturgy 9y ago
Realistically: yes. It's uncomfortable and nobody ever wants to hear it, and it's quick to get shouted down (especially in forums like HN where everyone is either wealthy or only "temporarily" poor), but if you can't afford to put $5500 into an IRA each year while also keeping your emergency fund topped up for 12 months' expenses while also still having enough extra for at least one little vacation that year -- then you're poor. Not middle class, but poor. And, statistically speaking, if you're poor now, then you're likely to be poor for the rest of your life. America continues to run on the idea that that's not true, but that's a clever bit of marketing intended to keep people from realizing just how truly screwed they are. This isn't to say that you're destitute or that it's impossible to live well at more modest means. Many people do.
- taurath 9y ago
  Lol, by that measure 80%+ of the US is poor. The reality is much of that 80% of people are doing okay, and can survive a hiccup or two either by having enough money to expense themselves through it, unemployment or disability. If you’re in a high COL area I’d say that’s where you need to have a lot more money stashed. 12 months expenses isn’t reasonable for most people under 40.
  - thaumaturgy 9y ago
    > Lol, by that measure 80%+ of the US is poor. Yep. Not really a laughing matter. > Only 39% of Americans have enough savings to cover a $1,000 emergency https://www.cnbc.com/2018/01/18/few-americans-have-enough-savings-to-cover-a-1000-emergency.html https://www.cnbc.com/2018/01/18/few-americans-have-enough-sa... Relying on unemployment, disability, or having enough money (or, in most cases, credit) to "expense a hiccup or two" is not middle class. And people under 40 should have an easier time developing an emergency fund, because their expenses should be lower. People over 40 should have an easier time maintaining the emergency fund because it should be an investment account that they started before they were 30. Your reply is a pretty good example of the amazing impact that political marketing has had on popular views towards wealth and poverty in this country. People have become entirely convinced that they aren't poor so long as they "can survive", that poverty is something that happens to the other people they hear about on the television. $5500 a year, plus one vacation, plus building or maintaining an emergency fund, should amount to saving about $10,000 a year. The second-to-bottom, 15% tax bracket tops out at $37,950 for single people, and IRA contributions are 100% tax deductible, so you can safely gross up to $43,450 in that bracket. (edit: math.) If it sounds difficult to squirrel away 25% gross annually in that bracket, that's because that's not the middle class bracket. It's the "poor" bracket.

deelowe 9y ago

With so many people doing this these days, I wonder if this will continue to hold true.

overcast 9y ago
What exactly is the alternative? Not investing your money? The entire world runs on it. It's not going to change.
- ianai 9y ago
  Pensions (dne), social security (ha), somehow make your own business capable of supporting you into old age, work until you die.
  - lotsofpulp 9y ago
    Pensions are going to the same place...
- rectang 9y ago
  Want to be rich? Are you rich already? No? Then too bad. Because "equality of opportunity" in the US is only available to those who are more equal than others.
  - Erik816 9y ago
    That's demonstrably false. You could make an argument that on average it has become harder to change your social class, but plenty of people start life poor or middle class and end life rich.
    - rectang 9y ago
      It's true to a first order approximation. If there were no exceptions, then how could those born into wealth persuade themselves of their own moral superiority?
  - 9y ago

intopieces 9y ago

Good advice. Worth noting that IRAs have income caps for contributions. https://www.rothira.com/roth-ira-limits https://www.rothira.com/roth-ira-limits

grjscott 9y ago
It's possible to get around that limitation with a backdoor Roth [0]. I've been doing this for my wife's account the last few years and it's fairly straightforward. [0]https://www.bogleheads.org/wiki/Backdoor_Roth_IRA https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

oculusthrift 9y ago

step 0: stop your 401k step 1: stop your espp step 3: put it all into crypto step 4: ???? step 5: retire at 30

ascorbic 9y ago
step 6: move back in with your parents at 31
whataretensors 9y ago
I'm over 30 but I think this is a great strategy if you have risk tolerance. It's not for the faint of heart however. Another interesting strategy would be investing the risky part of your retirement into startups or tech you believe in. But you can't do that by law unless you are already rich(accredited investor).
- whataretensors 9y ago
  Not sure why the parent comment was flagged, but for context op was suggesting investing in cryptocurrencies instead of 401k. My suggestion is to have a 'risky' part of your portfolio to play with.

deleted 9y ago

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deleted 9y ago
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andrewjl 9y ago

This is a great plan! One change I'd make is to reduce VBTLX to below 5% when you're under 40 and gradually increase the bond holdings by 2/3% a year after that. More stock exposure means more returns. Another thing to do if you want to get fancy is to shift some bond holdings to riskier or junk bond funds when you're younger, such as Vanguard's VWEHX, that will generate FAR higher returns than a typical basket of bond holdings. This is all assuming the target retirement age is 65 or later.

ianai 9y ago
You’re both assuming this year is a stable point or low point for valuations for people under 40. I don’t see it. There are clear high values on stocks across the board. There are international pressures just coming into play that will have large, probably negative effects.
- andrewjl 9y ago
  Definitely agree there, although 15+ years is enough to time for us to get through the cycle of highs and lows. Also market timing is hard and subject to many factors (such as those you pointed out) that one doesn't have knowledge and awareness of. It's better to just buy, and hold. When the market goes down, buy some more, but don't expect to access that money for many years.
jnordwick 9y ago
> if you want to get fancy is to shift some bond holdings to riskier or junk bond funds Don't worry. The federal government is working on doing that for you.
- andrewjl 9y ago
  If you're referring to US federal government debt, it's basically got a zero risk of default. You'll always get your principal and interest back in full. Why? The debt is denominated in USD and who can print any amount of USD at will? The Fed. Edit: I think I get your larger point though, runaway deficit spending of the kind we've had in recent years does destabilize the riskiness of holding US assets / currency.

shrimpx 9y ago

This is the poor conservative person's guide to not being totally broke when they're old, it's not a guide to wealth.

Erik816 9y ago
You have a very skewed perception of "poor." Following this will net you a very substantial retirement account, especially if you are married and your spouse does the same.
tejohnso 9y ago
Doesn't seem like a guide for poor people at all to me. A poor person is not going to be able to get past step one, let alone step two which requires a decent job and thousands of dollars of discretionary income to save each year.
oligopoly 9y ago
Indeed, you also want to enjoy your life when you a virile. What's the point of working until your retirement when you are at a point you hardly can take advantage of it. Start a business. You probably won't hit the unicorn lottery but making enough to retire in your early X shouldn't be out of reach. Find a solution to a problem and learn some sales and marketing.
loeg 9y ago
I'm at something like 1st percentile age-group wealth on 4th or 5th percentile age-group income following this simple strategy. On track to retire before 40. It works.
loco5niner 9y ago
Really, how much wealth do you need? I don't need a yacht or a mansion. I also don't feel the need to take on a lot of risk in the hopes of a yacht and mansion.

executive 9y ago

Congratulations, you have achieved beta.

ronnier 9y ago

Even though people say not to, I’ve paid off my first house and now rent it out. The second house will be paid within 5 months. If you can, i really recommend it for the freedom of mind, even if it’s not the best financial decision.

overcast 9y ago
Yep, if you want to put up with renters, it's a great way to rack up cash.
- hanoz 9y ago
  What does putting up with renters involve?
  - klipt 9y ago
    Tail risk. Some renters are terrible and will trash your house. The repair costs can easily wipe out years worth of rent.
  - richardknop 9y ago
    Depends on renters. You can be lucky and get some nice couple or young professionals who will take care of the property and when they leave the property will be in fine condition and will only need small repairs. On the other hand, you could get some party animals that will trash the property and when they leave you will have to spend lot of money to repair the damage. They might also cause other problems like annoying neighbours etc.
bananaboy 9y ago
Curious: why (and where) do people say not to pay off your house?
- ronnier 9y ago
  Random conversations, Reddit personal finance, podcasts. Reason is, the interest is low and by investing the money elsewhere you can get a higher rate of return.

dsacco 9y ago

> Step 0: Forget trading on the stock market. You will lose. This does not have to be the case. I don’t mean to encourage people not to invest in index funds (passive indexing is generally the best idea!), but if they’re going to try it anyway, it’s not helpful to simply declare it to be unprofitable from the outset. Your guide is well tailored for people who want to pursue consistent, modest gains on their capital beyond what inflation will gradually eat away. If someone with the right technical skills wants to generate a profit that consistently beats the market, they can do so with two caveats: 1) they will have significantly less capital than institutional funds, and 2) they will have to engage in the research and deployment of trading strategies on their own (as opposed to with the support of a full infrastructure and team). But profiting in the market is, at its core, a game of identifying price inefficiencies. Prices become more efficient through greater information diffusion and greater liquidity. If you have data that is not available in the broader market, you can make forecasts with an edge over what e.g. the aggregate analyst consensus suggests. In essence, programmers can take advantage of their smaller capital capacities to utilize strategies that might not be given as much attention by larger funds, because they’ll become capacity constrained much sooner (i.e. won’t scale). A software engineer who finds, collects and curates a source of data entirely on their own that maps directly to the revenue of particular companies (or more abstractly, to the future price of particular securities) can do well reliably. It’s not easy (or everyone would do it), but if you’re determined and understand what’s required, you can do it. I outlined how this can be done in several steps in an HN comment just yesterday: https://news.ycombinator.com/item?id=16349011 https://news.ycombinator.com/item?id=16349011 This is not to say that you should abandon index funds and try to beat the market. But if you’re already inclined to try, you might as well hear this advice and a gentle caution that it’s very difficult instead of hearing “don’t do it, you’ll lose” over and over. Some people will want to actively trade to be contrarian, or because they enjoy the intellectual challenges (there are plenty!), or simply because they think they can profit. They might as well go into it clear-eyed.

solipsism 9y ago
An honest take on the idea of a personal active trading should always mention the opportunity cost. Doing the necessary research is a job. One that takes significant time to learn, and one that will continue to take significant time once you've mastered it. So, like any job, you better either like it better then the other things you'd be doing instead, or you'd better be confident you can make it pay more than the other things you'd be doing instead.

nly 9y ago

Always blows my mind that US citizens can only contribute a meager $5,500/yr to a pension for tax relief purposes. In the UK you can contribute 100% of your gross annual income every year, and get full tax relief up to the lifetime contribution limit of £1M ($1.38M). We also have tax free savings & investment wrappers, called ISAs, in which you can deposit $28,000/yr, and within which all growth is free of any kind of tax.

harryh 9y ago
You can contribute more if you have access to a 401k. The current limit there is $18,500. The argument against unlimited tax free contributions is that above a certain point it becomes a tax break only for the rich.
- nly 9y ago
  > The argument against unlimited tax free contributions is that above a certain point it becomes a tax break only for the rich. That's where the lifetime cap comes in I guess. £1M isn't that crazy over a ~40 year timeframe for someone on a high income who isn't necessarily 'rich' and, at current annuity rates, won't buy you absolute luxury in retirement.
- mancerayder 9y ago
  Right, and oftentimes (but not always, anymore) companies contribute to your 401k as well. Also, as a self-employed person you can contribute up to $55,000 in the year depending on your income, in what's called a SEP IRA.
  - nly 9y ago
    The SEP IRA sounds like the equivalent to a SIPP in the UK, basically a DIY pension, although there's no requirement on you having to be self-employed to get one.
  - loeg 9y ago
    Self-employed persons can also contribute to a Solo (or "Individual") 401(k), which has slightly more generous contribution limits as a percentage of self-employed income. And some W-2 employees can contribute up to $55,000 in their employer 401(k) as well via "after-tax" contributions.

mancerayder 9y ago

I had to downvote this because of how smug it is. Your approach has validity, but it's valid for people who a) have no time or b) inclination to learn the market. It's just ONE approach. You've presented it as "the" approach, full stop. It stems presumably from the idea that you can't "beat" the market. But that depends what you invest in. And as a human with a brain, and a human with 24/7 Internet, you can do a little research and invest in conservative, dividend-yielding mammoth blue-chip-type companies, or you can seek value. What I do is: Step 1. Move all my 401k holdings from previous employers into a Vanguard IRA brokerage account (there are brokerage and non-brokerage variants of the IRA, the latter allowing you to purchase individual domestic stocks and ETF's online). Step 1b. Create a Seeking Alpha account and add stocks, ETF's, etc. that I'm interested in to my portfolio. I'll watch these stocks for weeks/months as well as read some of the material / URL news links that appear (including analyses). Step 2. Allocate a certain percentage of the entire portfolio "Boglehead" type funds/companies of the exact type you've just described. Baby boomer nervous-can't-be-bothered investor mindsets. Step 3. Allocate a certain percentage to companies I know either because I may have worked there, I use their products, or as I work in technology I like the idea of the product or company. AAPL is an example. Step 4. Allocate a certain percentage to a 'gambling' value stocks. I find these by looking at the NYSE "Biggest losers" and "Biggest winners" lists. If I see something interesting, perhaps I feel I'll either ride a pump and dump trade cycle or simply I feel that the company was unfairly oversold, I'll add that to my Seeking Alpha portfolio, follow it for a few weeks/months, and purchase on a low. There are a lot of different trading strategies. If you were railing against day trading only, I perhaps would agree with you. But here you're suggesting that the only valid form of stock market investment is to follow a mediocre approach (which is high risk: what if it's time to retire and the market corrects right before?!)

twtw 9y ago
So I have considered taking a more active approach to investing, but every time I think about I am dissuaded by the findings that actively managed funds get beat over the long run by index funds. For example, the Buffet bet of S&P500 beating mutual funds, the lack of correlation between fund performance from year to year, the darts thrown at NYTimes fund, etc. All these things suggest to me that actively managing can beat the indices in some years, but will be balanced out in others. I would be interested to hear more of your thoughts about this.

madengr 9y ago

Sounds like what Dave Ramsey preaches. Though $1M does not cut it these days. I already have that at mid career, and sure as hell don’t feel rich, not with 2x kids college to save for.

jessaustin 9y ago
If you live in a high-cost location, you might consider moving at some point?

zaptheimpaler 9y ago

Step -1: Read too much /r/personalfinance, come to believe the dogma that all investment is completely unpredictable, diversification is the ONLY possible way to make money and that past results are a sure-fire indicator of the future. Preach your dogma as the one true answer to anyone who will listen.

FridgeSeal 9y ago
Alternative Step-1: Read /r/WallStreetBets, lose all your money in poorly planned, gung-ho margin trading adventures. :P
Meekro 9y ago
Top investor Warren Buffet agrees with this "dogma." He just won a bet that index funds would outperform hedge funds during 2007-2017. [1] Trust him, not /r/personalfinance. [1] https://www.cnbc.com/2018/01/03/why-warren-buffett-says-index-funds-are-the-best-investment.html https://www.cnbc.com/2018/01/03/why-warren-buffett-says-inde...
- hedora 9y ago
  I noticed that the stocks that ETFs and stock screening algorithms like moved had much higher correlation with the indexes during last week’s correction. This is just based on a quick spot check, but I’m worried the passive investment craze has weakened the link between business fundamentals and pricing for the stocks in the most popular indexes. If so, that increases correlations in the pricing of assets that were explicitly chosen because their prices have no or negative correlation with each other.
  - arcbyte 9y ago
    Check out https://heisenbergreport.com/ https://heisenbergreport.com/. Hes was talking about this last year a lot.
- dsacco 9y ago
  The advice to use index funds is sound and most people should follow it. But that “bet” is a very weak argument for it. Buffett bet against a particular hedge fund manager who as far as I can tell was only in it for the publicity. There are plenty of hedge funds which beat the market so significantly and so consistently over long timespans (even decades) that choosing any single one of them would have handily won the bet. But the bet was for a “fund of funds” approximately tracking the aggregate hedge fund industry, not any particular one. Buffett wouldn’t have taken a bet involving any of the single superlative funds because he understands this point already. The core thesis vindicated by that bet is simply this: most participants in the market don’t do well. You didn’t really need a public bet with a famous investor to prove this - the stats have been available for quite a while. Buffett obviously believes people can beat the market, or he wouldn’t be in the business he’s in. Therefore, the point stands. It’s dogmatic to act as though beating the market is impossible. It’s not necessarily advisable to try it because it’s quite difficult, but throwing around citations of Buffett’s bet don’t really improve honest education. Most people aren’t going to become pro athletes either, so you shouldn’t bank your future on it. But that doesn’t mean it’s impossible or that you can’t (responsibly) pursue it.

kelukelugames 9y ago

I bet most of us don't qualify for IRA tax benefits.

plandis 9y ago
Which is where a backdoor Roth comes into view (I'm assuming you're speaking about workers at American companies making over the tax limits)

WalterBright 9y ago

> Forget trading on the stock market. You will lose. Cognitive biases have a large effect on minimizing one's returns. I recommend reading "Thinking Fast and Slow" by Daniel Kahneman for an analysis of how those biases sabotage one's returns. Those biases are hard to overcome even when you're aware of them, but at least one can try :-)

cm2187 9y ago

Unless you are over 50, Between now and your retirement age, the long running story of the greatest accumulation of debt in peace time will likely have come to its conclusion which will invariably be either high inflation or financial collapse. Past performance is not indicative of future results. Some people's savings will get wiped out.

yetanotheruser 9y ago
I have also read and heard from different financial articles and podcasts that there is no known upper bound to amount of sovereign debt a country can have before keeling over - it is more important that creditors and investors have faith that the government can pay it off, or that the country is good for the money. However, I tend to agree with your comment. There may be no upper bound to sovereign debt, but economic good times can't last forever, what goes up must come down. And should creditors ever need to collect that debt there must either be high inflation or high taxes, or not pay back loans and risk sanctions.
- Consultant32452 9y ago
  You might find this interesting. TLDR is that the Fed now owns 40% of T-bills > 5 yrs. In other words, during the big rounds of quantitative easing our government bought a ton of our own debt. It's going to be really nasty unwinding this. https://www.forbes.com/sites/robertlenzner/2013/11/25/the-fed-has-been-cornering-the-treasury-market-for-the-past-four-years/#6c53cded7eab https://www.forbes.com/sites/robertlenzner/2013/11/25/the-fe...
loeg 9y ago
So what is your counter-proposal? Save nothing, spend it all now, and plan on having no retirement?

hedora 9y ago

Instead of messing with the etf’s directly, take a look at the robo advisors. They auto rebalance, and can be much more tax efficient than ETFs as your portfolio grows. The startups behave more reputably in this space than the incumbent players that added robos as an afterthought. For instance, one big bank advertises zero management fees, but then keeps a pile of your invested money in cash (to invest for its own uses, I guess), and then lets a third party exercise the robo trades. The third party pays to do this because they can make money from arbitrage by sneaking their own trades in before your trades. (I have no affiliation with anyone in this space—just a happy customer. I’m going to great pains to avoid naming names, since you should do your own research.)

anonu 9y ago
Those tickers mentioned are mutual funds. I wouldnt put too much trust in robo advisors as they are very new. Unless, we're talking Schwab's robo advisor which benefits from the scale of being in an already bigger place.
songshu 9y ago
Two things I don’t get about the robovisers: first isn’t there an ETF which does equivalent for any given risk profile? If not why not? And secondly whenever I look at a roboviser I check all of the risk happy YOLO boxes and they still recommend a very hedged portfolio, ie don’t get near the risk of a basic sp500 etf.
- anonu 9y ago
  What you're asking for are "target date" ETFs. Similar (non-ETF) products exist in some shape at the big money managers like Vanguard and Schwab... Why don't they exist as ETFs? This is a good question. It's probably only a matter of time before we see such products. Especially that given the current pace of things, there is a new ETF everyday in the US. I've personally looked into building target date ETFs through my work as well.
loeg 9y ago
Robo advisors are just a way to nickel and dime investors for a very minimal service. Go to an ordinary discount brokerage like Vanguard, Schwab, or Fidelity, and buy 2-4 mutual funds or ETFs (total US stock, total international stock, total bond).

anonu 9y ago

I feel slightly uncomfortable with a blanket allocation such as this one. Being 80% equities usually works for someone just starting out their careers in life. Typically as you get closer to retirement you would want to move the balance of your money to lower volatility fixed income products.

overcast 9y ago
Which is exactly what Vanguard Retirement funds do, automatically. I really don't understand why some of you take this "advice" so to heart. As if this is just cut into stone, and you follow it to the letter. This is a good general guideline to follow for someone that is completely clueless about what to do with investing. You've got guys further down the thread proposing you write your own day trading software, because THAT will surely work out in your favor. Do your research. Geez.
- mancerayder 9y ago
  The people here seem to be presenting extreme positions. On the one side, you can't beat the market unless you're a hedge fund or big player with special knowledge and equipment, so buy index funds or you're a naughty gambler. On the other side, we degenerate into self-creating automated trading software. There's absolutely a middle ground here, folks. One can have a portfolio of conservative picks (index funds), self-selected individual picks, cash, bonds, so on and so forth. This should hopefully be picked up by n-gate to make a mockery of us. Joking aside, I'm curious what some of you who are actually paid to write front office software by Wall St. think of all of these threads.
giarc 9y ago
Rule of thumb: 100 - your age = % of your portfolio you should have in stocks.
- kasey_junk 9y ago
  I take no position on this particular rule of thumb but to note it is much less aggressive than more broadly held advice on the subject.

Abekkus 9y ago

step n: somehow magically survive each year after military and police are automated, and weep as stocks & currencies no longer matter(not even bitcoin). (remindme: 10 years)

perseusprime11 9y ago

Great advice. I have Fidelity. What are the equivalent low-cost funds would you recommend on Fidelity?

ryan-allen 9y ago

I thought it was: Step 0: Spend all your money on toys Step 1: Run out of money Step 2: Look under couch cushions and car seats for coins so you can buy dinner Step 3: Spend $19 on beer and $4 on food Step 4: Do this regularly despite being on a high income I am excellent at this adult thing.

ythn 9y ago

Does 2a include maxing IRS limit?

overcast 9y ago
I think it really depends on the fees being charged by the firm handling your 401k. It could potentially cost you hundred of thousands of dollars over a lifetime, that won't be recouped by employer matching.

cat199 9y ago

> Vanguard Retirement that matches your retirement date Had my money in one of these accounts for 3-4 years (not sure if vanguard but another major investment firm if not) - it lost money every single year despite the market going up across asset types and geography. Years. not months. Needless to say this makes me highly suspicious of these 'magic' accounts..

a13n 9y ago

This is the best way to invest if your don't want to put any effort or time learning/researching. Set it and forget it.