So how should I go about investing/creating a portfolio? I'm 29 and finally making decent money. Not sure how to move forward
VTI (Vanguard Total Stock Market) + BND (Vanguard Total Bond Market).
If you're saving for retirement, 30% BND + 70% VTI is a good starting point. Bonds grow slower than stocks, but stocks are riskier than bonds. Both grow over time.
VTI charges a 0.03% fee/year.
BND charges a 0.03% fee/year.
These are very low fees. The management style is hands-off (which is why its so low): VTI buys every stock in the stock market proportional to their size. BND buys every bond in the bond market proportional to their size (ie: mostly US Treasuries, but also some company-debts). Since these are broad and diversified, you should perform decidedly "average", which is fine.
--------
If you're saving for something near term (ex: new car, new house) that's within 5 years, you'll want to be more-bonds and fewer-stocks, 50/50 or maybe even 70% bonds / 30% stocks
Research bonds and stocks very closely. Learn their details, how companies work, dividends / profits are distributed (in particular, learn the theory between dividends vs capital expenditures vs stock buybacks).
For Bonds, learn about inflation risk, interest-rate risk, and more.
Once you understand the basics, feel free to branch out and put small amounts of money into specific stocks (or specific stock-sectors).
A more conservative suggestion that I read once and have mostly adhered to says that any money you expect to need in the next five years should not be in the stock market at all.
>BND (Vanguard Total Bond Market)
Individual bonds and bond funds are two quite different types of investment and should not be considered equivalent.[0]
[0]https://www.fidelity.com/learning-center/investment-products...
Bond funds move based off of the sum of bonds that are inside of them.
Much like we programmers study assembly code to understand the machine, even though we write code in C++ or Javascript, any bond fund owner should study bonds to understand the underlying mechanics and risks of the overall fund.
But, the mainstream investment handbook is a little out of date. With a 50 year Bond bubble brewing, bonds are close to an all time high right now, which means interest rates are close to all time lows. This means, you'll get very low returns from bonds, much lower than the last 50 years and almost certainly won't keep up with real inflation. Much of the bond returns from the last 50 yrs were from increasing bond prices/decreasing interest rates. those days are over. so, now we only have the yield left, which averages about 2% or so.
In a secular low rate world or ever low rates, risk assets, unfortunately are the only life boat available to rescue us from the onslaught of inflation. :(
this is Not financial advise.
There's a lot of instruments out there.
I-Bonds are super-safe since they have a minimum (currently a 0% minimum) rate. TIPS can go negative during periods of deflation. But if you actually want an inflation hedge, then TIPS exist for that reason.
If you invest in GOLD, do it in an IRA otherwise you will be hit with 28% collectibles tax, no matter how low your income is.
Get some bitcoin (or GBTC in an IRA), the two wrongest allocations for bitcoin are 0% and 100%, but many financial professionals today will recommend 3-5%.
Disclaimer: I know nothing and This is NOT financial advise.
Most importantly, try not to pick winners. that's a fools errand. Pros that know absolutely everything can't even beat the market, so just try and be average. If you can be average with the VTI, then you'll beat the returns of most people who try to pick winners.
Most importantly, try not to pick winners. that's a fools errand.
But start with index and etf because if you start with individual stock you are already over 10% ;)
This series of articles https://www.investopedia.com/articles/basics/11/3-s-simple-i... gives a good overview of how to start investing. However, it don't cover country specific things like taxes and 401k.
Edit: Disclaimer: I know probablay less than throw8383833jj about finance so This is NOT financial advise.
There is no high-income restriction on contributing to a traditional IRA. Only the possible tax deduction is limited, however earnings on any contribution are still fully tax deferred.
>, you won't be able to sell that in any year where you make income above 40K because of "capital gains"
Let's clarify: for U.S. tax purposes, if your taxable income (which is much lower than gross income) as a single filer is below about $40K (double that if married filing jointly), your tax rate on long term capital gains is zero (for now). But even if you go over that, you still receive a highly favorable rate of only 15%, it doesn't go higher than that until taxable income gets up around $450K, so if you must sell with a gain, it's still quite tax-friendly. (Unfortunately, some states such as California have no special capital gains tax rate).
Yep. Which is why I think it's a great little bucket for REITs and perhaps dividend stocks where distributions would have counted toward your annual income but don't when you use the TRAD IRA.
Dividends are taxed at max 20% (AFAIK) but REIT dividends are taxed like income at your highest marginal rate, so if your marginal rate is high enough (above 20%) you may want to buy REITs in a traditional IRA.
This is not financial advice.
But I do think I have some 100% guaranteed "advice" (this isn't financial advice and you would be stupid to listen to anything I write here) which is that you should always max out tax-advantaged accounts. It will depend on your income level and specifics, but you should basically max out your 401k and any IRA vehicles you have access too (depending on income level) with whatever you do. While the regulatory environment can and will change, based on what you know today and can predict, these accounts are huge up-front 0 risk ways to save even more money.
With all of that being said, generally it's advised to follow something like a 2 or 3 bucket portfolio with a mix of total US stock market (or S&P500) making up something like 90% at your age and then reducing by 10%/decade + emerging market funds + bonds. Allocations depend on goals/ideas.
Speaking of goals, the #1 thing to do is figure out your goals. Want to be financially independent at 35? Well you will want to put money into different accounts and probably different assets. Want to "work" until you are 50? That's a different strategy. Etc.
When it comes to investing, you don't get rich and then all of a sudden you are rich.