[tomaha]

But one important part of their success was to invest their income. I know too many people that use their money to consume. Investing early in your life is what makes the difference. It's very easy to spend it on little things and claim to not have anything to invest.

[plop_]

Do you have advices for young people in long term investments ?

[sokoloff]

If you have money to invest, invest in low-cost, broad-based index funds. I personally bias slightly towards small cap (said more precisely: I avoid biasing toward large-cap, but to many people, that looks like biasing towards small caps). One specific choice is VTSAX from Vanguard, but there are many others.

Keep an emergency fund of 2-4 months in cash or equivalents, and invest everything else that you can when young. Don’t buy the flashy new car, the rounds of $15 drinks, don’t carry a credit card balance, etc. When the inevitable market gyrations come, do not take the money out. Don’t try to time the market.

If you don’t have much money to get started, consider real estate as a second job. The leveraged nature of that bet is one of the few ways to start from relatively little money and build a nest egg. It’s a second job, though. If you pay a PM to manage it, the PM makes more current income than you do in most cases.

In addition to jacquesm’s advice to read MMM, I also recommend the jlcollins stock series: http://jlcollinsnh.com/stock-series/

[notheguyouthink]

Any thoughts on strategy's for not "if your young" people?

My wife and I (early 30s) have been getting her school debt settled but with little retirement outside of a small 401k, we've started looking at aggressive retirement plans.

At the moment we're just treating everything as the most yield (compounded or not). So her high interest debt is the most yield, however once half of those are out, a lot of investments will yield higher than her debt, so we'll likely shift priorities towards those.

[sokoloff]

30s is still young for retirement purposes, which for at least one of you is likely to extend out to more than 50 years from today.

When considering yield, always consider after-tax yield. Having a 6% non-tax-advantaged debt is better to pay off than a taxable 7% investment.

Here's a good "order of operations" guideline: https://forum.mrmoneymustache.com/investor-alley/investment-...

[mbesto]

Early 30's guy here.

First, no matter what you do, construct an asset mix (even if it's wrong) to start, then do research on what is most appropriate for you, stick to it, and just keep investing to each of those buckets.

I think I sit generally along the lines of:

- 60% real estate property - 10% retirement investments (401k, IRA, etc) - 10% Vanguard Index funds (diversified across 5 indices, large cap, SP500, small cap, REIT, etc) - 5% direct stock investments (moderate risk, high reward) - 8% high risk, high reward investments (e.g. seed investments) - ~2% cash (mix of checking account and HYS account @ 1.7% APY)

- 20% of my overall portfolio is basically liquid in case of an emergency

NOTE - do not strictly follow this asset mix, it's just illustrative based on what my wife and I have decided to do.

[jacquesm]

Go read mr money Mustache (but take it with a grain of salt and ignore the cult bits) and 'the millionaire next door'

https://www.mrmoneymustache.com/ (the older stuff is better, he's making bank through the blog so caveat emptor)

https://en.wikipedia.org/wiki/The_Millionaire_Next_Door

[bigjimmyk3]

TMND is rarely mentioned in these discussions on HN, and I think that's a shame. Despite being a bit over 20 years old, it's a fascinating study of documented high net worth individuals. They also do a good job of contrasting high net worth and high income.

[falcolas]

Keep in mind MMM started with a sizable inheritance to kickstart his nest egg and currently works full time talking about living frugally.

Take from that what you will.

[jogjayr]

> Keep in mind MMM started with a sizable inheritance to kickstart his nest egg

Please provide proof of this. He's never mentioned it anywhere on his blog.

> currently works full time talking about living frugally.

This he has talked about: http://www.mrmoneymustache.com/2013/02/13/mr-money-mustache-...

The tl;dr for others is basically, what's someone who is hardworking and driven enough to retire at age 31 actually supposed to do with the rest of their life? Sit in front of the TV? Of course he's going to do some things he enjoys (writing, working on houses, hiking, skiing), and maybe some of those activities will make him money - but he doesn't need the money to maintain his current lifestyle.

[falcolas]

I messed up on the inheritance; it was a house leftover from the house building business and used for rent and a sale later.

Their own yearly reports put the second part to a lie - they would have to cut back significantly on their spending if they lost this income. It's possible for them to do without going homeless, but it would be non-trivial.

His last reported year, his base costs (food, clothing, electricity, etc) were $30,000 - within the range. But as he himself notes right below that total, they spent around $90,000 on health insurance and a vehicle, which he pretends doesn't belong in the previous category because "the job pays for it".

Not holding that job suddenly puts him on the hook for that $90,000, or puts him at risk of not having health insurance and reliable transportation.

[jogjayr]

> Not holding that job suddenly puts him on the hook for that $90,000, or puts him at risk of not having health insurance and reliable transportation.

He doesn't need a car that expensive and he can move back to Canada if health insurance gets to be too much.

He's inflated his lifestyle with his increased earnings (falling short of practicing what he preaches, though in fairness he says he's bought an electric car to support the industry but that's a way to justify the purchase), and would probably dial it back down if the blog stopped throwing off that much cash.

[falcolas]

A correction: The house I was referring to was not actually an inheritance. It was a leftover from an abandoned house building business, funded via the usual business means (some personal money, lots of loans, etc.), acquired prior to 'retirement'.

It provided 5-6 years of rental revenue and a $400,000 final payday.

[davedx]

Put as much of your monthly income into a Vanguard fund as you can afford.

Most of my money is in this one: https://americas.vanguard.com/institutional/mvc/detail/mf/ov...

You might want to put some into a fund that comprises bonds, though they've performed poorly (for my investments) in recent years. If you're young (<40), I would put as much, if not all, in a fund consisting of stocks.

Also: this is a long play. Leave it there.

[alanfranz]

All those indexed funds suggestions are biased by the fact that the stock market, overall, has increased in value OVER TIME:

http://www.macrotrends.net/1319/dow-jones-100-year-historica...

Remember, the stock market does not create money, it's not a fundamental advancement for humanity. That just means that more people poured money into stocks, rather than other investments or savings.

There's absolutely, ABSOLUTELY no reason for which this growth should keep going on in the future.

[thebigspacefuck]

A stock is a piece of a company. That company should be creating value and that value should be worth money, maybe revenue or assets. The price of a company goes up because it is either worth more today than it was yesterday or people believe it will be worth more tomorrow than it is today. Usually people that own a company are trying to create more and more value. It's human nature bubbling up to the top. Why would the stock market suddenly stop reflecting this value growth for absolutely no reason?

[alanfranzoni]

Because it may be (already) overpriced, and maybe somebody will stop investing in the stock? Because automatic systems (e.g. AI, HFT) will lessen investors' faith in the stock market? Because better investment opportunities come out?

[gieksosz]

This is not exactly like that:

- new companies go IPO, they do it because there is liquidity in the market, so they can count on someone buying their shares and cashing in.

- some blue-chip companies pay out dividends

- as much as many people hate on that, profitable companies engage in shares buy backs which is a way to return money earned by the company to its shareholders. If the company makes no profit, it has less to do buy-backs with.

- in the end a share is a piece of a company, big part of their long term valuation will always be driven by their fundamentals like a ratio between profit and revenue or how likely they are going to default on their debts, no one wants to own a piece of company that is going to disappear

in summary, there is quite some connection to the real economy, but I agree that part of the valuation is just because other people pour money in it is just not that bad.

[alanfranzoni]

It is true that the total market capitalization may be connected with more companies being publicly traded. But the stock market won't create value on its own. It means that somebody pours money into it.

[frockington]

Recent earnings reports and guidance suggest otherwise

[bigpicture]

While not providing any specific investment advice, this is a wonderful, free resource for understanding the risks and benefits of long-term investing:

http://www.crsp.com/resources/investments-illustrated-charts

Check out the "Big Picture 2018" pdf, especially.

Edit - there is one specific piece of advice that you can see very clearly in the chart - reinvest your dividends!!!

[tomaha]

I really liked investing in companies I love to use or just want to succeed because I think they are onto something. More risky but at the same time 'supports' what I like and with more reward if it works out than index funds (which you should do in general).

[whataretensors]

Don't listen to risk-averse engineers. You are young, invest in high risk things you believe in. Make it an active investment if you can.

Recognize who is giving you boring advice(index funds), look at the risk levels in their life, and then disregard them if they don't take chances on anything.

At a young age your risky investment % should be at it's highest. The exact amount will depend on your appetite.

[sokoloff]

That's a fair thought to entertain and thanks for raising it. As a counter-balancing point, I'd advise considering input from a variety of people who have created financial security or built actual wealth, ask them how they did it, and consider the extent to which your situation, skills, and goals have similarities or differences from their path. (I absolutely agree that full or nearly-full "risk on" is the way to go as a young person during the accumulation phase of your life.)

"Boring advice" works to make multi-millionaires in a predictable, boring fashion, especially when the available timeline is 40-50 years.

[liftdd]

I will have personally invested $110k (by 2019) at age 23. All of my retirement accounts (401k, T-IRA, HSA) are invested in ETFs (0.06 expense ratio average) and a few actively managed funds with 20+% returned from 3YR-5YR view.

The rest is invested in individual stocks and high-risk mutual funds. Once I am 30, I will start pumping more into ETFs (stocks and add in bonds).

I absolutely love the advice. Everyone is different but I try to be as risky as possible with at least 40-50% of my portfolio until I am 30.

Two possible changes to my strategy will be if I build a good software product/business that makes more income. I will divert the money put into risky investing and dump it into my products/business. The other change is buying a home ($100-250,000). I want to raise backyard chickens!

[vinceguidry]

I like this advice, particularly the warning against risk-averse behavior. Literally anyone can give the most common answers. It takes someone with true insight to actually see what the person needs, in this case how the risk profile changes over time.

[kd5bjo]

As this is an Internet forum, it's kind of hard to evaluate how much risk commenters take in their lives; don't assume that all of the boring advice comes from boring people.

[dgacmu]

Only make it active if you have influence on the outcome (i.e., starting your own business). If we're talking stock investing, you'll just get eaten. Which can be a good lesson, but it's one you can skip if you want and go directly to index funds. :)

You can use your money to generate passive income, or you can use it to get leverage (retaining more of a percent of your startup; taking a risk on a risky but better job; etc.). In either of those paths, do it smartly.

[Jach]

I'm not sure if it's true that your investment percentage should be at its highest while young. Maybe as a percentage of your total assets? But then it's just a consequence of when you're young you have lower assets. Whereas if you're instead talking about a percentage of your income, say, then perhaps your risky investment should be highest when you're older, because by then you've developed a nest egg that will basically secure your retirement so long as you leave it alone (e.g. with "boring" index funds) you can devote all of your income to whatever risky endeavors without having to worry about the high probability downside of losing it all.

There's some basic math around compound interest that comes into play that young people should consider. While growing up my state required a "financial literacy" course for everyone, I assume that's expanded across the country so most people should be able to do the math if they're so inclined, but I also think charts like these are useful and good enough to get the point across: http://www.businessinsider.com/amazing-power-of-compound-int... Generally speaking, start-time for getting the investment nest egg rolling dominates.

Also even if your appetite for risk is large now, you have to really ask what you want out of any risky endeavor, when you want it realized, and what you'll be satisfied with, since if you'll be satisfied with X there's little reason to pursue some high risk activity that if it works out returns Y >> X but most likely (being high risk) you won't even break even. Consider a risky endeavor that's less risky in that if it works out will give you X, but with the nature of risk the probabilities of not working out are lowered. Boring index funds are a type of this lower risk investment that can satisfy "effectively able to retire" in your 30s, but they're not going to satisfy rich startup gains leading to double-digit millionaire+ status. It's at least a path if you want that certain state of "retirement nest egg" when you're in your 30s, and by extension works if you just want it for your 60s too. On the other hand, maybe you're someone indifferent to when you want unicorn-success riches to be realized (great if tomorrow, fine if 20 years from now after you finally catch a break and haven't died first).

[davedx]

Easier said than done. What high risk (low effort) investment opportunities are there for non accredited investors?

I guess there's real estate but I don't know if that qualifies as 'high risk'...

And cryptocurrencies, but I'd call that 'gambling' not 'investment' :)

[thebigspacefuck]

ATMs - put one in a popular spot, there's an app that tells you when it needs to be refilled, go refill it. You can find people selling their ATMs already set up in locations. You have to drive around and refill them so the biggest risk is that someone robs you. Liquor store is another good one. A friend's roommate bought one for $400K and makes $16K/month. He just refills inventory and sits around selling booze. A lot of that goes towards his loan but after that he'll be making way more than I probably ever will. The risk again is that someone robs you. I always check bizbuysell.com to see what kinds of things are out there.

[kd5bjo]

The low-effort part is your sticking point. In my experience, most people are best served treating money conservatively and taking large risks with their time investments -- learn a rare craft, start a business, etc.

[Aaargh20318]

> I know too many people that use their money to consume.

All those dumb poor people wasting their money on food.

[jerguismi]

Well, if you really use money only for basic food and essentials, I think you can survive with very, very little money. I did that when I was a student. Life can be just quite dull if you eat that kind of food from day to day.

What I see is that most people just appreciate the luxury today more than the savings which would enable more luxury tomorrow. I think there's nothing wrong with that. You might die any day in a traffic accident, so why bother saving all that money? Those are quite subjective decisions.

[CompelTechnic]

Hyperbolic discounting is the term economists use to describe people liking things a lot more now than later:

https://en.wikipedia.org/wiki/Hyperbolic_discounting

The hedonic treadmill is, in a nutshell, the reason we become complacent to newly acquired luxuries:

https://en.wikipedia.org/wiki/Hedonic_treadmill

So not only do we want fancier things now, but we don't really appreciate them when we have them! Humans are silly.

[Radle]

Maybe you are misunderstanding what the term consume means?

Consuming means using resources on things that immediately loose their value. If you for example buy a house, that's not consuming since the house has inherent value.

But if you yourself the newest gaming rig, the gaming rig is consuming the money. This is what Americans mean when they talk about consumer society.

[Aaargh20318]

> Consuming means using resources on things that immediately loose their value.

You mean like food ? It's literally the first definition of 'to consume' on Google.

[Xophmeister]

Expending resources (i.e., money) for food doesn't cause the food to immediately lose its value. Expending resources (i.e., physical energy) for eating the food also doesn't cause the food to lose its value, as it almost certainly provides more energy and nutrition than is expended in its digestion, thus maintaining the consumer (i.e., a net gain); it may also have additional value, which probably attracted an additional cost to begin with (e.g., superior flavour, scarcity, etc.)

It's an overloaded term, sure, but it's clear that consumables -- i.e., things that need to be consumed to release their value, such as food -- only fall under the category of "consumption" when there's a surplus of value that becomes illiquid. For example, eating a balanced meal when you're hungry is a net gain, while eating 50 pizzas when you don't need to isn't!

[Radle]

The word has a dual meaning.

You can consume food, you car consumes gas and your girlfriends expensive holiday consumes money.

When Americans say "consumer" they mean someone who spends money on things that they are not going to sell again. That can be smartphones, luxury cars, drugs or food.

You could also say a consumer is the opposite of an investor.

[brlewis]

As a side note, a house also has inherent cost. If you're thinking of a house as an investment, you have to factor maintenance in, which can be hard to calculate in advance.

[Fradow]

I don't think the GP meant "consume" as eating food.

Consume here means non-essential needs such as always buying latest gadget (while previous one still works), changing your car early for no good reason (less than a few years), or even buying one if you don't need one, going out often at expensive activities etc...

[tomaha]

There is a difference between consuming and getting what you need to live.

[sokoloff]

Philosophically, perhaps. Economically? No.

[Aaargh20318]

To consume, verb. 1. eat, drink, or ingest (food or drink).

[tomhoward]

The commenter didn't say that.

They were talking about the people (of whom I've been one, earlier in life), who have been privileged enough to have earned a lot of money but wasted it.

[ahmetkun]

But you have to eat, don't you?

[Aaargh20318]

Exactly. So why criticise people for spending money on consumption when they need it to stay alive.

[maxerickson]

That's an extremely tiresome interpretation of the comment you replied to.

If you give them just the tiniest little benefit of the doubt, it's easy to see that they are talking about the money they had available after meeting their needs and that they probably aren't criticizing people that don't have a lot of such money.

[Aaargh20318]

> it's easy to see that they are talking about the money they had available after meeting their needs

And the point was that many people do not have money available after meeting their needs.

[maxerickson]

Yes, I understood your point. My point is that it is tiresome to bring it up anytime and every time someone makes a comment about saving money. They weren't being dismissive, they were replying in context (people that save their way to riches sort of obviously have had money that fits into the 'savable' category).

[ryanwaggoner]

The vast majority of Americans aren’t being held back from building wealth because of their spending on essential food. Americans actually spend a smaller percentage of their income on food than many developed countries.