What should a young person do with $20,000? | Hacker News Reader

What should a young person do with $20,000?

finance.yahoo.com

21 pointsneovive29 comments

I disagree strongly with this article.

  > Even if the market roars, an investor can only make
  > so much with only $20,000. Even in a strong bull market,
  > they can make 20% to 30% a year, which is insignificant
  > to a young person.

Insignificant? I would be out-of-my-mind ecstatic at 20% returns. 20% of $20000 is $4000, which is (for most young adults) equivalent to several months of wages.

However, it's also dishonest to imply that 20% is at all realistic. 3-4% per year is more likely over the long term, and most young adults will see better returns from using the $20000 to pay off credit cards or student loans. Remember: $100 to pay off a 15% credit card is guaranteed 15% returns!

  > Putting money in the market means living with uncertainty.
  > Young people do not want to deal with that kind of stress.

What uncertainty? I don't care how much my stocks are worth today or tomorrow, because I don't plan to sell them for years (or decades). Some prudence is wise (such as not buying at the top of a bubble), but the only people I've seen get stressed out about the market are usually 1) invested in some dodgy get-rich-quick scheme or 2) planning to retire in a year or two.

  > Someone in their twenties should focus on their education
  > and other investments that will advance their career.
  > Altucher suggests taking classes, brainstorming ideas,
  > starting a website and attending networking events.

None of these require $20000, unless "taking classes" means "attending Harvard" or "networking events" means "week-long drug-fueled orgies".

  > It is also not a bad idea to have $20,000 cash in the
  > bank. It can provide a safety net and peace of mind
  > during a time when many are losing their jobs.

$1000? Definitely. $2000? OK, if you live in an expensive area. $20000? Waste of capital. Savings accounts have very low interest rates right now -- better to have your money working for you than being slowly eroded via inflation.

The best time to buy into a market is when the crazies are out in force. With all the goldbugs panting into their paper bags, and old white folks on medicare demonstrating against "socialism", there's probably no better time to buy high-quality stocks. Conversely, anything looking "bubbly" (gold, Apple, salesforce) is not worth touching with a 10-foot pole.

I think Altucher was under the assumption that high-interest loans and other debt were already taken care of, since he was talking about investing in the market vs investing in yourself.

I don't think it's a bad idea to have an emergency fund of up to 6-8 months of living expenses, especially in this economy. Once that's taken care of, I don't agree that the capital left over should be put in the market vs in yourself. $20,000 is not a lot of capital, and taking classes, building a web site, marketing it, etc will quickly use that up, but the upside and benefits are much higher.

Even you said it yourself, at 2-3% realistic (and 20-30% at the highest level), investing in the market is not really worth it.

$20000 is a lot of capital; I could probably live for a year on that, and I don't live in a cheap location. A young adult (low medical expenses, no children, no mortgage) living in a less-populated area (north pacific, midwest, south) could probably stretch that to two or even three years, if they find a decent deal on an apartment.

Classes at the local community college run about $50 per quarter, plus books. Building a website is free, and hosting it nearly so. Marketing doesn't have to mean full-page ads in the New York Times -- a few humble links on popular community sites can go a long way.

I think there's a certain group mentality on News.YC which builds up the idea of startups as hugely capital-intensive operations, requiring hundreds of thousands in capital and slick marketing campaigns across the web. This mentality is harmful. Every startup I've ever heard of has either 1) started small and built slowly or 2) flamed out in a hissing ball of comedy. There's no doubt thousands I've not heard of, which quietly curled up in a corner and died after spending all their investments on fancy chairs and television commercials.

If your objective is to stretch the $20K out over a long while through reducing your living expenses, I don't doubt you could make it last if clever enough.

However, if your objective is to turn that $20K into a much higher sum and gain much higher % returns (which I think Altucher was referring to), given the age range (20's), and the amount of capital, it makes sense to parlay that into knowledge and experience.

While it seems snide, snarky, or possibly juvenile to suggest it... "Two chicks at the same time" or alternate versions of blow it all in a glorious escapade is actually a valid suggestion.

Money means fuck all if it isn't spent. Liquid assets are liquid. They can disappear to economic eddies and flows, or simply be squandered on poor planning. If you are young you are in a pretty agile financial situation.

Honestly, I'd say screw off to the idea of the mutual fund. Every engineer I went to school with ( as well as me ) got taken in by our differential equations classes. We lost most of our early investments in our 401ks.

If you are young you have the option to invest that money in a fun amazing experience. If that means a start up for you, do it. If it means moving out to some other city and finding a life there, do that. If it means hookers and blow... I suggest joining the republican party first you might be able to parlay it into a career.

Seriously though, if you are young you have the option of throwing responsibility to the wind, and you really don't get to have a second chance at it. Memories, experiences, they live in you forever. They make you a better person. And all the economic recession on earth won't effect the value of that.

If you're smart and motivated you're likely to find that your most precious resource is time, particularly that portion of time in your life when you're healthy and free of serious obligations.

Live a little. You can always make money.

Ok, I'm going to actually suggest something crazy instead of either the stock market or blowing it all on a trip around the world, or hookers and booze. The two latter suggestions may be more worthwhile individually, but for the sake of argument, lets focus on investments.

Put it towards a HOUSE. Whats that, the housing market sucks? Time and time again the US Government has been telling us they will do EVERYTHING in their power to prevent further price erosion, even at the risk of inflation. They've kept the rate incredible low and are willing to continue to do so.

Getting a house gives you a place to live, a hedge against inflation, an income generating opportunity, and a tax write-off.

A two bedroom apartment in my neighborhood is around $2000-$2500 bucks a month. My housing expenses are $2500 a month, but I rent one room out to a friend ($650 a month), around $500 a month of my payments go to principle, and I save about $700 a month on my taxes.

All in all, even if prices stay flat I'm much better off than renting (and my place is bigger than the apartments with a yard).

> Put it towards a HOUSE. Whats that, the housing market sucks?

That's good advice iff the housing market sucks "enough" where you're buying. You want enough rent to cover a significant fraction of the expenses. In some places, housing prices still haven't dropped to that level.

Take it from a 38 year old with a mortgage and two kids: take time off from your current job/venture and see the world.

I travelled a bit, but not enough. My wife tried to convince me to backpack with her, but I thought my job at "CyberCash" (ever heard of them?) was just too important - turns out that it wasn't so important after all. I had the freedom, but didn't fully appreciate it.

Anyone here have suggestions on what to do with excess money at that age besides starting a company? I'm 22 and use my excess money to max out my roth ira every year and keep the rest in the bank, but if there's someway to "invest in myself" I'd certainly be willing to consider it. I'm a PhD student in CS if it matters, but general advice would be preferred.

If you're 22 and you have excess money (meaning your tax advantageous retirement contributions are maxed, your bills are all paid for, and you have 6-8 months of emergency fund), and you don't want to start your own company (and you don't want to donate the money), then you can become a small angel and help others start their companies. The reason I'm not saying things like "buy CDs", or "put it in a mutual fund", is because you're 22, this is Hacker News, and you can afford to swing for the fences and play conservatively later (eg. when you have a family that depends on you).

Also, by keeping the money in the bank, you're in effect saying that the rate the bank is giving you is the best return you'll get for your money (voting with your dollars). At present time, this is most definitely not the case, so it may be beneficial to look into anything that produces a higher return than bank rates (currently maxed at ~1.5%/yr).

In my experience, starting a company early yields extreme results beyond just money, and you're in a position to do so -- why, may I ask, do you say "besides starting a company"?

EDIT: Not sure why I'm being downvoted. Parent poster was looking for advice on how to invest in himself with excess cash. I'm posting from experience since I've been there, and looking to hopefully get him on some track to put his cash in a place that generates higher returns than in the bank. It's silly to give the bank free use of his cash with the return they're giving him, when he could be using the same one to generate higher returns elsewhere.

> why, may I ask, do you say "besides starting a company"?

Because I'm looking for options that I'm not aware of. I didn't say I wasn't considering it.

you can become a small angel and help others start their companies

It's actually really HARD to become a small angel if you are not an accredited investor (something like $300k/year income and/or $1m+ assets).

I have some money I am looking to play with but I'm not accredited status and most startups (if properly advised) won't touch non-accredited investors.

At the age of 23, with five thousand dollars to spare and no commitments outside a PhD program? Take a trip around the world.

If you'd like to sock away a bunch of extra tax-deferred cash, variable annuities (low cost ones from vanguard/tiaa-cref) can be OK options....Assuming you're genuinely saving for retirement at 65, the present value of a tax deferral over the next 43 years is pretty big.

This seems absolutely crazy to me. I was always taught put money into long term, stable investments when you are young so that you have the longest possible period for return.

The last paragraph I think is dangerous. Putting $5000 towards four ideas may teach you something but it's certainly not going to guarantee "Something is going to hit."

Agreed. If you try to think up four ideas under the constraint that they all have to cost roughly five thousand dollars, I'm not convinced you'd get better results than trying to think up four ideas you can do for less than fifty bucks. You'll probably have an equal chance of success, and wind up $19800 better off (plus if any of the ideas does start to take off you'll have some money to sink into it).

This seems absolutely crazy to me. I was always taught put money into long term, stable investments when you are young so that you have the longest possible period for return.

You're in the wrong place.

$20,000 is more than enough for a young person to support themselves, and possibly a co-founder, while they bring their product to market. As the article states, if it hits, you'll see returns in the thousands of percents, not tens or hundreds.

Young people are precisely those who least need risk-free investments. It's as you get older that you should adjust your investment mix towards more risk adverseness.

Not sure why you were taught that. If you walk into any financial planner's office and tell them you're in your 20's, they will set up your investment portfolio to be almost 100% stocks. They will then tell you that as you get older, they will scale back the % held in stocks and replace it with bonds (which are safer). As you near retirement, your portfolio will mostly be bonds/other safe vehicles, and very small % of stocks.

On the other hand, any financial planner who told you the best thing to do was to stick your money into the highest-yielding bank account you can find would be out of a job. They have an incentive to make investing look complicated.

I've tried both commission-based financial planners and fee-based financial planners.

Not surprisingly, commission-based financial planners hawked their firm's mutual funds which just so happened to have high fees on them.

With my fee-based financial planner, their only incentive was to make sure I did well, was happy, and would be back next time to get more unbiased advice. If you're interested in a referral, send me an email. She appears on CNBC a couple times a month, and I've been satisfied with her work.

Was in the same situation some time ago with exactly $20k cash in bank account. I invested in my new venture - developing prototype, incorporating, renting room in Bay Area etc.

Not sure that it can be good for everyone but at least it was good decision for me

Other crazy ideas: 1) Buy new chevy camaro for 25k - cmn you are in twenties that will not last long! 2) Vacation in places like Thailand can be really cheap and amazingly refreshing! 3) Taking time for self-education and trying out some of your crazy ideas! 4) Getting some more money and buying entry home around the place you always wanted to live in.

http://en.wikipedia.org/wiki/James_Altucher

According to the wiki page, the guy doesn't have any degrees in finances or economy, so I don't exactly see how his advice is authoritative. (And , no, the daily work for hudge funds managers is not very close to average-twenty-year-olds financial situations)

He's basically saying "here's what I did". He went to CMU and says investing in a good education is smart.

He also is the founder of a (successful) site, so it's no wonder that he suggests to try out your luck in a start-up.

In the video, he talks about investing in yourself (he gives an example of a friend who does video, and his suggestion is to invest in better equipment). The advice is good, but it doesn't necessarily have anything to do with money. Programmers invest in themselves for free all the time by learning new languages, frameworks, etc.

Also, when considering investing, you have to take into account risk tolerance on an individual basis. Some twenty-somethings still have student debt, some already have a mortgage, some are carefree butterflies with money to burn. Some can't sleep at night not knowing where they're making money the next morning. There is no one-glove-fits-all.

>Putting money in the market means living with uncertainty. Young people do not want to deal with that kind of stress.

So you should start a company instead! Then you'll be totally devoid of uncertainty and stress ...

Paying off any consumer debt and/or student loans wouldn't be a bad idea.

Yes, when young, investing in yourself will yield extremely better % than stock market ever could (unless your company IPO's).

The only money I have in the market are from SEP-IRA contributions, and that's only because it is tax advantageous. The gains I've gotten were nothing compared to when I invested capital in myself and my ventures. I was able to consistently turn $10-15K/mo investment into ~$150K-200K/mo return (normalized over a year). I cannot see anything remotely close to this with pure stock investments.

It may make sense when you're looking at a fund significant size, and the % per year = significant money. One of my friends manages a fund of > billion trading mortgages on wall street, and a half percent swing translates to significant sums for him. But at a smaller scale (less than $1mil), starting your own business yields tangible (money) as well as intangible results (invaluable experience).

Invest in yourself.

If you don't watch the full video, Altucher suggests keeping it out of the stock market and investing it in yourself. And he's looking for the SPX to run to 1500.

I'm in the market all day--speculating in the stock market is a pain in the ass right now. On the short term, HFT firms have changed the market structure, and many that haven't adapted have closed up shop-- see Schonfeld: http://bit.ly/9aKwJu .

By investing in yourself, if you're good at it, you'll guarantee smoother returns with much, much more under your control. You can directly affect your CR on your site, but if the carry trade unwinds it doesn't matter how good of an investor/stock picker you are.

Treasuries.

Reply on news.ycombinator.com