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The Simple Path to Wealth: Your road map to financial independence and a rich, free life?
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With the assumption that you don't have significant investing experience or interest in spending a lot of time on investing, I strongly suggest you read this book: The Simple Path to Wealth: Your road map to financial independence and a rich, by JL Collins. Link below.
Simply invest in an index fund and a bond fund, rebalance yearly and you are on auto pilot for life. I've done Monte Carlo analysis on this strategy with a 4% annual rate and the outcome is a 99.5% success probability over a 60 year span.
If your interests or skill set changes over time, you can always change how you invest money.
Passive investing coupled with your very successful small business is a great strategy ... you get to focus on the thing you are best at.
Congrats on your great financial success!
JL Collins in The Simple Path to Wealth would say the addition of international exposure isn't worth the risk. I disagree with him as I feel he has an extreme home country bias philosophy. But he's also a few decades older than I am and probably wouldn't benefit from changing his plan.
I believe investing in US only equities places me in greater risk if the US were to experience a unique regional catastrophe. I gladly accept that I'm taking on more risk investing in EX-US and willing to take lower returns for the piece of mind it gives me.
For me this is where Personal Finance is personal.
I was where you're at to years ago, at the age of 42! You're ahead of most. The knowledge will come. I suggest giving The Simple Path to Wealth a read or listen. It will cover most of the basics. Just keep an open mind on international index funds.
I would recommend A simple path to wealth as initial reading. Also remember that at your age you need to be investing in yourself as much as in the market. Reading, education, experience and most importantly enjoy life.
Buffet started investing when he was 10 years old and he is now 90. It’s the 80 years of steady compounding growth that has made him wealthy. Since you and I are not among the world’s best stock pickers, the prudent thing to do is let the market do the pricing and invest in a total market fund like VTI (see: The Simple Path to Wealth).
Do you know what $25,000 per year invested in the US total market at 11% average annual growth for 80 years comes to? $1.1 billion. Focus on earning and saving, use total market funds instead of stock picking, and you’ll do fine.
In retirement some people stop investing. Some continue and want their money to grow.
Quick story: my parents live in an upscale neighborhood; most houses $1M plus. Many retirees and working professionals (doctors, etc.). They had two friends in the neighborhood get into day trading. They would hear great stories about how they made $25K or $100K in a day. Wow! Then the market turned and didn't head straight up. Those friends lost so much money they had to sell and move out of the neighborhood.
Day trading is gambling. I've never known anyone to make long-term wealth through day trading. I've known many people that invest for the long term in low cost index funds and get wealthier over the years.
This may be a good reason to work with a fee only advisor that is a fiduciary. Don't get into anything insurance related, stay away from annuities. You want to be in low expense ratio index funds or ETF's like VTI, VOO, etc.
I'm sure your SO is touchy. They made great money doing this thing and then they didn't. They probably want to get better at it so they can make more money and help take care of the family. But day trading is not a good long-term plan. The only people that make money long-term are the people selling classes and the brokerages. It's probably exciting at times and it can also ruin families.
If you can both read this book and do what it says, your life will be much better later in life.
The Simple Path to Wealth by JL Collins.
Read this book: The Simple Path to Wealth and do what it says. Invest 15 to 50 percent of what you make into a low cost market index. VTI is a favorite of many (which is the Total Stock Market Index).
Do this every month. Don't panic sell when the market drops. The market will drop, sometimes a lot, a few times during your investing lifetime. Those are great opportunities to buy more when stocks are on sale.
Some people start with a few ETFs and keep adding more and more and eventually have 10, 20, or more ETFs. That's probably not optimal and will usually underperform owning one or two of the best long-term ETFs. Simplicity is often the best path to long term growth.
You're starting early. If you get on the right path, you will likely have a great retirement if you're diligent about it every month.
Lina
If you don't have a Roth IRA, open a Roth brokerage account one immediately with Vanguard or Fidelity. Invest $6K a year into the Roth. If you have access to a 401K or similar at work, invest as much as you can and then convert it to a backdoor Roth each year to build up that Roth as quickly as possible.
Have any significant debt, credit card debt, that is above 6%? If so, pay it all off and stay away from debt.
Set aside 6 months of living expenses in a money market or local bank. Invest the rest into the market. Suggest you use the ETF "VTI," the Vanguard Total stock market index. You can keep it growing and growing. Avoid the temptation to sell when the market drops. That's when you want to buy more. If you would have strong feeling of regret if you invested right now and the market dropped 30%+ within months, you could spread out your investing over the next 6 months. If the market drops significantly during that time, put the remainder in.
Can you use some of the money to go back to school and improve your skillset to earn more money through life?
Take a year before you buy yourself anything because of your changing circumstances. It's easy to go out and buy a new car, a larger house, etc. because you have $400K or $600K sitting around. Bigger houses and nice new cars will step up your living expenses, requiring more money to keep it going. There's a reason so many sports athletes or music stars are broke later in life.
Read this book; it's excellent advice: https://www.amazon.com/Simple-Path-Wealth-financial-independence-ebook/dp/B01H97OQY2/
Give a portion of it away to a charity or charities you like each year. It helps separate you from the growing pull of greed and hoarding.
Thank God for your blessing and seek wisdom to know how to best prepare for the future.
I recently read and really enjoyed/agreed with The Simple Path to Wealth
I like this one because it's entirely geared towards the long term. No quick/easy answers or 'get rich quick!', just solid advice for investors at all ages. And it's not selling anything - the author does (in his own admission) recommend Vanguard index funds often, but he does also tell you exactly why he likes them, that he's not getting paid for that, and what to look for in similar funds offered by other companies.
I'm presuming you're asking 'should you invest in stocks' rather than another asset class.
Generally, if you don't have time or expertise, the index fund is definitely the clear choice.
This is a easy to read book that argues that this should by and large be your stock investing strategy for the common joe. I think his argument why is convincing too. When you buy the index fund of say US stocks, you are really investing in America's march of innovation and enterprise. Because what goes into the index and out is self-cleaning, i.e. creative destruction in a sense. So long you believe the US continues to innovate and grow then it makes absolute sense to buy the index fund without actually knowing what that value driver is, or will be 10-20 years into the future.
The S&P 500 grew on average 11.9%p.a. from 1975 to 2015, which counts a handful of big bad crashes. 11.9% is huge. If you are stock picking yourself I think this should be your ball-park performance index you have to beat.
In terms of experts advocating passive index investing, John Bogle and Warren Buffet are the foremost faces I can think of who advocate this, in contrast to putting your money in a professionally managed fund.
In terms of stock picking for yourself I think you should give it a good try, you sound like you already have some established skills/experience doing this but aren't sure if you want to commit fully to it.
https://paulmerriman.com/wp-content/uploads/2020/12/Were-Talking-Millions.pdf is a good read. Merriman advocates DIY investing but has no problem recommending using an advisor. He emphasizes using broad market index stock funds.
As to your 6-year emergency fund I would recommend something like the Vanguard Short-Term Investment Grade Fund Admiral Shares (VFSUX) bond fund, https://investor.vanguard.com/mutual-funds/profile/VFSUX. Six years worth is a rather large emergency fund, IMO most of that cash should be in an index fund like a total market or 500 fund.
With a little research and reading you can probably easily create a simple DIY portfolio and do great. https://www.amazon.com/dp/B01H97OQY2/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1 is a great book if you really want to keep it simple.
Best $10 audiobook out there.
This is the author.
It is what you need to prepare for when you finally get to your number.
This^
Simple Path To Wealth by JL Collins
I always suggest readingThe Simple Path to Wealth by JL Collins. It's a fantastic Boglehead read targeted at young investors.
Same content as his Stock Series blog but easier to digest. Also suggest the audible version. His voice is like butter. 😂
For budgeting, I use mint, it's a free app.
A good book for longer term planning is https://smile.amazon.com/Simple-Path-Wealth-financial-independence-ebook/dp/B01H97OQY2/ref=tmm\_kin\_swatch\_0?\_encoding=UTF8&qid=1660765509&sr=8-1
Just start now by investing 100% of your contributions in atotal market index fund like VTSAX or VTI and continue to educate yourself along the way. A Simple Path To Wealth is a good easy to read/understand to get you on your way.
Okay, everyone has good inputs concerning this. I've found that the more you educate yourself, the better you will make decisions based upon your situation. Don't hesitate to read a book or two that may guide you or at the least, give you ideas.
You may want to try some of the following as it's a big big financial world out there. Just a couiple of suggestions.
or
I hate these kind of questions. It's hard to maximize returns without risk. Especially short term risk. The best advice is not to take unnecessary risks even if you give up return.
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I have three married children who all are in their 40s. The all are rich and have very good incomes. In each of these families, there is a person who principally handles the money. One of these is financially sophisticated and the other two not so much. I don't give financial advice to the one who is financially sophisticated ... he's smarter than me and very capable of making equity investments and managing risks.
The other two have no interest in the stock market but they recognize the need for SOME of their long term savings to be in public equity. I did give them advice. I'll share it here:
[1] I gave each a copy of this book: https://www.amazon.com/Simple-Path-Wealth-financial-independence-ebook/dp/B01H97OQY2/ (disclosure: I know the author) I don't agree with every point but I do strongly support the point that a total market fund is the best equity investment tool for people who have no skill and interest in the 'stock market'.
[2] I strongly suggest (think loud and repetitive) that any money invested in the market is LONG TERM money. Money you don't need for 20 years or more. And I mean it. 20+ years.
[3] Only 25% to 33% of your retirement plan should be based on the accumulation of wealth via the public equity market. You need additional legs in your financial retirement stool for LT stability.
They know the market is diving. They know their VTSAX (or equivalent) is down. They remember the same from early 2020. But they just don't care. They have a reasonable expectation that 20 years from now that the value will be much higher. It doesn't affect their lives anytime soon.
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If you are using the market to get to FIRE sooner, ok. But there are risks and what is happening now is a good example.
If you are using the market to get that new home sooner or to buy a more expensive home, ok. But there are risks and what is happening now is a good example.
and so on. Funds for short term needs should not be in the market. Medium term is tougher but you still need to be cautious in your reach for extra return. If you don't know how to hedge for major events or collar a single stock where the money will be needed in a few years, don't do it or get professional help.
The market is sending a message and we just don't want to hear it: The market can go down. Suddenly. A lot.
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I've been FIRE for a couple of decades now. And market crashes have been a constant reality (think 2001 and 2008 as well as 2020). My solution is not for everyone but it works so far:
[1] I only have 30% or so in public equities as a percent of my net worth. And mostly dividend stocks/reits/closedend funds/etc. And 1% sizing limits. Easier to sleep.
[2] I have some monies that come to me federally guaranteed or from private sources that have multi decade positive payment history. Added to this is enough cash equivalents to cover my normal life expenditures for 5 years. Long enough to out live a 'crash' or to have the time to thoughtfully regroup asset allocation.
So basically, no worry. But yes, I do hate to see that my equity balance is lower. But really no change in my life. In 2009, in the middle of that crash, I spent a six figure amount to add a second story on my beach home. It was a great time to do this (huge cost savings) and I didn't have to sell a single stock to do it. That is how you want FIRE to be.
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The path to FIRE should not involve excessive risk. You might win life's lottery but most risk takers don't. We only hear from the winners. We think everyone is a winner but only 5% are in the top 5%. A lot of people didn't make it early or late.
Real Fire is the lifestyle you want and a lifestyle that is financially structured so you don't spend all your time managing your wealth or worrying about how you will handle this weeks market crash. Really. Your FIRE or RE or whatever should be relatively free from short term worry.
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And for anyone worrying about the market, I get it ... do what you need to do and I wish you success in your efforts. I'll even wish every one good luck ... it can't hurt.
And please use this experience to plan your response to the next 'crash'. There will be one.
First, gift him a copy of The Simple Path to Wealth by JL Collins.
2060... Only if he plans to retire in 38 years.
I'd advocate for a simple two fund portfolio of VTSAX and VTIAX
I would first start simple. My guess is that your money in the 401k is probably in a money market fund earning way less than 1% annually. That’s not where you want it to be for next 20+ years.
Here is a book that explains the advantages of a one fund (with a second fund option) portfolio .
And here is one that discusses a three fund portfolio.
IMO, either book’s recommendation will be good for someone who don’t know where to start. They both take on the notion that slow and steady investing in broad market mutual funds is the least riskiest way to fund retirement accounts.
Good luck!
When he gets the first job and paycheck. Teach him the importance of an emergency fund. and a copy of <em>The Simple Path to Wealth</em>
You're welcome. I'd recommend reading <em>The Simple Path to Wealth</em> by JL Collins.
To add to this The Simple Path to Wealth by JL Collins is a must-read.
First: Read The Simple Path to Wealth by JL Collins
Start with the financial planning page on the wiki.
Take a few bucks and read The Simple Path to Wealth by JL Collins. But take his opinions on international index investing with some skepticism.
Assuming your cousin is under thirty. Have them read The Simple Path to Wealth by JL Collins. If older The Little Book of Common Sense Investing. Both are worthy reads but the first is intended for a reader with 40+ years to invest while the latter is general.
VTI and VOO are very similar and have similar performance. You could pick either one and be fine; there's not much reason to own both. You could choose it or VTI or VOO and expect very similar results over the long term. My pick is VTI, but others pick VOO. VOO is only large caps, VTI includes some small caps, but a very small amount. Read more here. SCHB seems very similar to VTI. It has the same low expense ratio.
Help me understand your desire for dividends. Many stocks that pay a dividend are slower growing stocks, meaning their share price will grow less than many companies that don't pay a dividend. Many stocks that pay a dividend are very good & healthy. Utility stocks usually pay a dividend and they usually trail the performance of the overall market. See this chart that compares VIG to VTI. VTI outperforms by 6 percent over 5 years. Not a huge amount (1.2 percent a year), but absent any reason to believe they will reverse this trend, I'd go VTI and take the growing share price.
Do you still want dividends or do you want your account to grow more because the share price goes up? You can build a portfolio either way. My suggestion is to buy a low cost index fund (VTI or VOO or SCHB) for the long term. Buy it in all accounts. Retirement, taxable, anything. It's tax advantaged since it doesn't buy & sell securities often and it has a very low expense ratio. Put 80 percent of your portfolio into any one of those and then if you want to play around with some specialized ETF's (tech, dividend, etc.) then do that with up to 20 percent of your portfolio and see how you do over time. Investing a portion of my portfolio in VGT has benefited me over the last 5 years. No one knows if it will in the next 5 years.
Here are two book suggestions that will help you plot your path forward:
The Simple Path to Wealth by JL Collins
and
Common Sense Investing by John Bogle
Those are two of the best books to understand why low cost index funds will almost always outperform other choices over a long period of time.
If you don't have an emergency fund start three and pick up a copy of JL Collins' The Simple Path To Wealth
If you don't have earned income that pays $2000 this year you can't invest in a Roth IRA.
However, you can start a taxable brokerage account
Check out JL Collins Stock Series particularly the posts about retirement. Or better yet his book The Simple Path to Wealth
In The Simple Path To Wealth JL Collins writes the US Stock Market has been up 78% of the time. Long term, markets go up.
Although, I don't subscribe to the VTSAX only strategy.
Anything listed in the sidebar and The Simple Path to Wealth by JL Collins.
Read The Simple Path to Wealth by JL Collins. That's the best advice I can give you.
You're obviously just a a troll that's *clearly* making shit up. Did you even look up the definitions of the words you're using? Couse not, you're just a troll.
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But in the off chance someone is following this thread, and gets confused by the misinformation that you're spreading, I'll copy & paste 2 definitions I googled, as well as some actually *useful* information, rather the bullshit you're shitting onto you keyboard. Take care troll, enjoy your mom's basement.
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Value investing:
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
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index fund:
An index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor's 500 Index (S&P 500). Index funds are generally considered ideal core portfolio holdings for retirement accounts, such as individual retirement accounts (IRAs) and 401(k) accounts. Legendary investor Warren Buffett has recommended index funds as a haven for savings for the later years of life. Rather than picking out individual stocks for investment, he has said, it makes more sense for the average investor to buy all of the S&P 500 companies at the low cost an index fund offers.
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So, value investing is picking individual stocks, and index funds are investing into an enormous pool of stocks. They are literally not the same by definition.
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If you want to be an investor and make money that way, then I highly recommend this book, which was recommended by r/financialindependence:
https://www.amazon.com/dp/B01H97OQY2/ref=cm_sw_r_tw_dp_KD43T1P9535CFGXWN820
Also, if $10 is too much right now (no judgement), then just know that the author is already financially independent & living off his index fund. So you can guilt free get this book as a PDF from here:
https://drive.google.com/file/d/1Aj5-BugLC\_FDT1T8uxwAGsdK1P5YIRxx/view?usp=sharing
If you're in the US: Fund your Roth first. Put in $500 every month and that will equal $6000 for the year. Do this every year. Start by investing in the ETF's VTI or VOO.
Read this book: https://www.amazon.com/Simple-Path-Wealth-financial-independence-ebook/dp/B01H97OQY2
Don't sell when the market drops. It will drop multiple times during your investing life. Sometimes it'll be severe and scare the hell out of most people. That's when you should buy more, as much as you can. It always recovers. Sometimes it takes weeks, months, or years...but it always comes back.
Don't take out a loan on your IRA. Some people think that's a fabulous option; your money isn't growing when you take it out for a loan or any other reason.
Have more to invest than $6K? Own a business? Open up a Simple IRA or a SEP IRA. Don't open a business? Invest in your taxable brokerage (non-ira). Buy and hold.
Read this book and do what it says. It's excellent advice: The Simple Path to Wealth.
In summary: Invest each month into a low cost ETF. Open a Vanguard or Fidelity Roth IRA. Invest $6,000 each year into it. Pick the ETF named "VTI." It's the Total Stock Market Index. You can buy it at Vanguard or Fidelity.
You have more to invest, so open up a brokerage account as well. Invest the remaining $150,000+ into it over a few months, or all at once depending on your risk tolerance.
Have an emergency fund in a cash management account (Federal Money Market fund at Vanguard or similar at Fidelity) that is equal to 3 months of your expenses in case something goes wrong at work or in life.
Always live below your means. Aim to invest 20-30% of what you make each year. Don't buy new cars or huge houses you can't afford. Stay away from debt as much as you can. Get a 15 year mortgage someday.
You have 40 years to retire. If you follow this advice, and continue to invest at least $6,000 a year toward your retirement and earn an average 10% return, your $200,000 will become $11M when you retire in 40 years. Plug in the numbers yourself here.
You have the greatest gift there is: time. Time for compound interest to take over. Start now and don't panic sell during the drops. You'll experience a number of them during your investing life. Buy as much as you can when stocks are on sale.
Read/listen to The Simple Path to Wealth. You're already on your way!
I would recommend "The Simple Path to Wealth" by J L Collins.
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And then watch this: https://www.youtube.com/watch?v=3psiPdkW_Ao&t=3s
And then, if you want to learn more, buy this book: https://www.amazon.co.uk/Simple-Path-Wealth-financial-independence-ebook/dp/B01H97OQY2/ref=sr_1_1?crid=300GPO16PWOQF&dchild=1&keywords=the+simple+path+to+wealth&qid=1596757944&s=digital-text&sprefix=the+simple+path+to+%2Cdigital-text%2C178&sr=1-1
Avoid shares or stocks. Personally I am a passive investment advocated. Globally diversified, low cost index tracker ETFs are fine for me.
Spend some of your money buying this book:
https://www.amazon.co.uk/dp/B01H97OQY2/ref=cm_sw_r_wa_apa_i_J-I1EbF49CEXT
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