The Investment Thread

[sveumrules]

Can't find the article now, but the gist was something along the lines of since home ownership in the USA is around 65%, that means that for around a third of the population their largest investment is their car, or computer, or television, or cell phone...all things which immediately depreciate in value upon purchase.

[owbc]

I have a government job with a retirement plan in TIAA that I’ve been contributing to for a couple years now. My wife gets a quarterly stock vest from her company that is worth more than the entire value of my retirement account. Plus her company matches at a higher % than the government does. That’s the reality of the world these days.

[homer]

I read Nudge by Richard Thaler a few months ago. He's a behavioral economist at Univ of Chicago (and won a Nobel). He says most people go with the default option when signing up for something. So if you have to "opt-in" to a retirement plan a lot of times people just won't "opt-in". He wants it to be "opt-out" so the default is you are automatically enrolled but you have to fill out a form to un-enroll.

 

Certainly not the only reason people aren't saving but a simple change that can help.

[GAME05]

The opt-out option would be a lot smarter way of setting it up, kind of protecting people from themselves. And I wonder how many people don't opt-in just because they think the immediate $200 more in their paycheck is a better deal.

 

A high-school class on investing and general life skills would be so much more valuable than AP Chemistry or some other senior-year class. Parents just aren't teaching their kids about these things anymore.

 

I would think more young people are trying their hand at investing after Robinhood kicked off no trading fees. Although I'd guess if you're young and male and don't know what you're doing, you'd probably jump into options trading. Heard a story from not long ago that there's some kind of hedging options strategy, but Robinhood has it where it shows all your losses first and only later shows the profits. So a guy killed himself because he woke up to a -$750,000 account. Worse yet when the profits later rolled in he'd actually made a couple thousand dollars.

[homer]

People are horrible at making decisions now when the impact of that decision won't be felt for many years. This has been shown/proven many times over. We are built to live in the here and now - worked great when we were hunter/gatherers but not anymore.

[FVBrewerFan]

I have a government job with a retirement plan in TIAA that I’ve been contributing to for a couple years now. My wife gets a quarterly stock vest from her company that is worth more than the entire value of my retirement account. Plus her company matches at a higher % than the government does. That’s the reality of the world these days.

 

That's actually pretty unusual that a private company's retirement package is superior to public sector. Do you get a pension as well, besides the plan you contribute to yourself?

[JosephC]

A high-school class on investing and general life skills would be so much more valuable than AP Chemistry or some other senior-year class. Parents just aren't teaching their kids about these things anymore.

 

 

They do. It's called Personal Finance. Here is the course description from my local high school-

 

Personal finance is one of the most useful classes you can take in order to prepare for your future! It is proven that poor financial decisions can lead to an accumulated debt spiral that will prevent you from saving and planning for a secure financial future. Learn

to manage your personal financial affairs through real life applications. Areas of study include investing, banking, taxes, credit,

acquiring insurance and loans, budgeting, and successful employment skills. Technology is infused throughout this course, with

applications ranging from personal money management to preparation of income tax forms to evaluating investment options.

 

Have to disagree with the concept that a Personal Finance course is much more valuable than an AP Chemistry course.

[CheezWizHed]

The main problem is that kids DO learn finances from their parents (by walk at least) and no HS course is going to change that.

 

For Christmas, this year, I got my kids this course: https://www.daveramsey.com/store/product/foundations-in-personal-finance-high-school-edition-for-self-study

 

We always give them one gift that is Education focused. They weren't jumping up and down over this gift (like they did for the downhill ski passes and lessons), but sometimes parents have to parent and do what is good for their kids.

 

The single biggest lesson I could drive into the skulls of people is to start saving money (even a small amount) EARLY. I started my 401k with my first job and put in the minimum to match my company. I just sat down to review how things are going (24 years later) and it is looking like I'll be able to retire when I'm 55 or 60 (which I'm actually a bit surprised). My financial goal that I hoped to hit at 65 should happen about 10 years earlier now. Compound interest and dollar cost averaging ROCK!

 

I started 529b accounts for my kids' college education - and started them late when they were already 5-6 years old. Interest has over doubled my initial contributions and they will have 2-3 years of their college paid for without me contributing another cent. Now I'm kicking myself for not starting them at birth. But I'm still in a better situation then my friends that are shelling out $$ to pay directly for their kids' education.

[wallus]

 

A high-school class on investing and general life skills would be so much more valuable than AP Chemistry or some other senior-year class. Parents just aren't teaching their kids about these things anymore.

 

 

I believe most schools require Personal Finance these days to graduate. I am biased since I teach personal finance but it is incredibly valuable.

[CheezWizHed]

I'll add that both my parents were blue-collar workers that scraped to get by. They didn't spend money they couldn't afford and taught us to save money. I ended up with an engineering job, while my brother became a mechanic. He just retired at age 56 and is living comfortably. I mentioned that I'm on the same track right now.

 

It isn't about how much you make... more about how you manage what you have.

[Fear The Chorizo]

And I wonder how many people don't opt-in just because they think the immediate $200 more in their paycheck is a better deal.

 

I think it's much more that the immediate $200 in their paycheck is needed to cover monthly bills for the vast majority of people in the low middle class and below incomewise - not that it's a better deal, but that it's necessary to put food on the table.

 

Where I think a huge benefit could be realized is understanding that putting even a pittance towards retirement early on can really make a difference, and understanding what minimal amount people could put into a retirement account to get some sort of company match and reduce their taxable income to the point where takehome pay reductions from retirement contributions are offset by a similar reduction in payroll tax. This isn't talking $200/check, more along the lines of $25-50 a check.

[nodakfan17]

At best, public education will only nudge kids’ personal financial behaviors in the right direction. By age 18, they’ll already have inherited 75% of their money habits from their parents.

[FVBrewerFan]

 

A high-school class on investing and general life skills would be so much more valuable than AP Chemistry or some other senior-year class. Parents just aren't teaching their kids about these things anymore.

 

 

I believe most schools require Personal Finance these days to graduate. I am biased since I teach personal finance but it is incredibly valuable.

 

Good for you! I took that class in HS, but I didn't pay too much attention to anything that year other than girls and beer. Some of it must have sunk in though.

 

One of the things I would like t do in retirement is be a "life coach" if there's any non-profit out there that provides that sort of service. I'm done preaching this to my children for the most part, they're adults. But I would love o help others who are ready to change and need help. We all have family/friends where you think (or say) what are you doing!?! Something as small as paying $3 to get $20 from an ATM or paying delivery fees and tip to get Noodles from Uber Eats. To bigger things like always, always, always pay-off your CC in full every month. Don't buy more house/car than you can afford, etc. If your employer offers 401k match, that's called free money!

 

It's frustrating because most of this stuff is common sense. I also believe many people inherently know a lot of this, but it's no fun to say no. I want the newest Iphone, I want to eat out every day, I want that new car, I want Starbucks every day, etc.

[wallus]

 

A high-school class on investing and general life skills would be so much more valuable than AP Chemistry or some other senior-year class. Parents just aren't teaching their kids about these things anymore.

 

 

I believe most schools require Personal Finance these days to graduate. I am biased since I teach personal finance but it is incredibly valuable.

 

Good for you! I took that class in HS, but I didn't pay too much attention to anything that year other than girls and beer. Some of it must have sunk in though.

 

One of the things I would like t do in retirement is be a "life coach" if there's any non-profit out there that provides that sort of service. I'm done preaching this to my children for the most part, they're adults. But I would love o help others who are ready to change and need help. We all have family/friends where you think (or say) what are you doing!?! Something as small as paying $3 to get $20 from an ATM or paying delivery fees and tip to get Noodles from Uber Eats. To bigger things like always, always, always pay-off your CC in full every month. Don't buy more house/car than you can afford, etc. If your employer offers 401k match, that's called free money!

 

It's frustrating because most of this stuff is common sense. I also believe many people inherently know a lot of this, but it's no fun to say no. I want the newest Iphone, I want to eat out every day, I want that new car, I want Starbucks every day, etc.

 

But it's my money and I want it now!

[GAME05]

Guess I learned something that high schools are indeed doing all that. Wish I had that class, too.

 

Think we're gonna start a contest at work. Paper-trading (fake money) only, starting with $10k, who can be the first one to get their account under $1. Winner gets the pool.

[owbc]

I have a government job with a retirement plan in TIAA that I’ve been contributing to for a couple years now. My wife gets a quarterly stock vest from her company that is worth more than the entire value of my retirement account. Plus her company matches at a higher % than the government does. That’s the reality of the world these days.

 

That's actually pretty unusual that a private company's retirement package is superior to public sector. Do you get a pension as well, besides the plan you contribute to yourself?

 

Nope, no pension. I think it's becoming standard for private sector benefits to be better than public sector--at least at tech companies. I also switched to her health insurance since it was $50/month cheaper than my public sector plan (which has gotten way more expensive in recent years).

 

The main point I'm trying to make is how crazy stock-based compensation is and how significant the transfer of wealth is that is occurring right now. I grew up in an average middle-class Wisconsin family and my father was smart with his money his entire life and built up a comfortable retirement. I could do the same thing with my government job and still be falling farther and farther behind the top 5-10% of the country. My wife's career was the first window I got into how things really work...obviously with compensation in the form of stock options there is a risk of them being worthless, but with the government pumping up the stock market it's more like 200-300% gains this year. And I'm like great, I made 10% on my retirement fund this year.

 

The situation in the tech cities is all the same...when you get hired you get a bunch of stock options which vest in a year or two...at that point, especially with tech stocks the way they are, $50,000 suddenly appears in your bank account overnight. Which many are using as down-payments on houses. There's no "saving" involved, the money appears and you can suddenly afford a house. That's the way it is for first-time home buyers these days. And those are for entry level software-type jobs at Amazon...management/director-level compensation is completely off the charts.

[FVBrewerFan]

Ok, that makes sense. Yea, that scenario is typical for tech/ biotech, but pretty rare to see it anywhere else in the private sector.

[JosephC]

Not really typical in biotech either unless you are talking the CEO, COO, Senior VP level of management. Most of the publicly traded biotech companies offer stock purchase programs where employees can buy at a discount, but it's not typical that the rank-and-file workers take part of their pay in stock options.

 

I do have one friend that is working for a startup and gets about 10% of his pay in company stock, but that's a major risk for him. If a big company swoops in and buys the company for twice of what it's worth, then he'll make out like a bandit. If they just pay what the stock is worth, then he gets all his paid but obviously delayed and loses out in the long run. If the company goes belly-up, then 10% of what he should have been paid just vanishes. But that is a unique case with a startup, it's not typical of the business as a whole.

[nodakfan17]

My wife and I have similar educations, experience, and salaries. She is a state employee and I work for a public company (non-tech). Her benefits are better than mine, but I have some modest bonus and stock award potential that exceed the value of her added benefits in most years (she’ll definitely come out ahead this year). I think our situation is pretty typical. Most households earn their money in a linear fashion. Tech companies (and select others) are notable outliers.

[owbc]

As someone who lives in a tech city it sometimes feels like 'everyone' works in tech now. So it's interesting to hear these perspectives. With Amazon giving out so much stock-based compensation I think it is causing everyone else in tech to do the same. Even for mid-level managers.

 

Getting back to the 'investment' perspective, I've seen a number of friends take 'Funemployment' time after working in tech for a few years and saving those lofty bonuses and stock grants. I have another friend who is practicing 'FIRE' and hopes to retire in his 40s. Although I think he's too intellectually curious to do that.

[CheezWizHed]

As someone who lives in a tech city it sometimes feels like 'everyone' works in tech now. So it's interesting to hear these perspectives. With Amazon giving out so much stock-based compensation I think it is causing everyone else in tech to do the same. Even for mid-level managers.

 

Getting back to the 'investment' perspective, I've seen a number of friends take 'Funemployment' time after working in tech for a few years and saving those lofty bonuses and stock grants. I have another friend who is practicing 'FIRE' and hopes to retire in his 40s. Although I think he's too intellectually curious to do that.

 

I worked for Motorola as a software engineer in the late 90s and was getting stock options somewhere around my third year in the company. They used it to keep their best talent (not bragging, but only the top-rated engineers got them). So it isn't like that is new.

 

What is FIRE?

 

I used to by much bigger into investment; even being one of the first online trader accounts on eTrade. I read nearly everything Motley Fool put out (still a lot of good advice there). I did ok but realized how much time I was spending at doing it (enjoying it or not). So I stopped and simplified my approach: Mutual funds and index accounts, dollar-cost averaging, max out 401k matching, etc. have all done me very well. Someone mentioned working hard to get a 10% return but that is about what I've been getting without working at it at all.

 

Now I need to start looking at switching gears being 8-14 years from retirement and start preparing for that switch.

 

One thing I'd take advantage of right now (if you haven't) is to consider refinancing your home mortgage. For the first time in my life, I paid points on a loan to drive down my rate to 2.25%. My required monthly payment went down, but I'll plan to pay the same monthly amount. Thus, I'll pay off my loan 4.5 years earlier then my previous loan (saving myself about $75k). The refinance costs will pay back in 39 months, but I have zero plans on moving so that shouldn't be a problem. Step one to retirement is completed.

[owbc]

What is FIRE?

 

Financial Independence Retire Early

 

It has a bit of a cult following online, but the basic idea is to save at least half your income by living simply and investing enough to retire very, very early.

 

As you can imagine, it's popular with some in the 20-something tech crowd who are living in studio apartments while bringing in six-figure incomes.

[CheezWizHed]

Yeah, I've seen those. There is a balance to life, which is one reason I stopped focusing on it so heavily - go live it instead. But investing early is ALWAYS good. Even if you have to start small.

 

Each pay raise, I'd take part of it and increase my 401k contributions for my 529b contributions. With each tax refund, I'd pay off more debt (never had CC debt, but paid off vehicles that way).

[wallus]

Anyone have a vacation rental that they own and produces income for them? I am looking to invest but want something that I can use for fun and maybe make a few bucks as well.

[GAME05]

My folks have a second house in Glendale that they rent out. They hire a cleaning lady, a landscaper and a rental agent. It pretty well pays the mortgage but not a money-maker. Pretty good number of folks who rent it for 2-4 weeks at a time. But certainly a better deal than leaving it empty for 10 months out of the year.