What would you do in my situation?

No. I'm saying that there are THREE TOTAL PARTS to everyone's retirement plan:

1. Money they've put in "before tax" accounts such as 401k or IRA.

2. Money they've saved in "after tax" accounts.

3. The home they own.

Everybody focuses on item 1 - and they forget about 2 and 3.

I'm suggesting that you focus on number 3 first home ownership , by saving money in after tax accounts (2) until you have a down payment.

Over the long haul - yes, you'll lose out some "compounding interest." per se. But it won't vanish - you'll have switched some of your long term wealth accumulation from investment accounts to real estate.
Remember, over the long haul, homes appreciate too. And in an appreciating market, the earlier you buy it, the lower your cost and the greater your gain is. Since the real estate crisis of 2008, folks have tended to forget that real estate is also an appreciating investment over the long haul.

 

Okay, so you are saying I should make my 401K and IRA accounts "traditional" so that I contribute to them, lower my taxable income, and then take my earnings out taxed?

As for the home part, got it. That should be my goal for current after tax investments.

 

I have invested in property right now, so I get about 45% of my income from rental income, its not easy money, but there is always a call for rental property in my area. Second, I invest in what I know, in my case it is art. Thats not really for a profit per se, but I have sold some works at a real nice return. I am being, slowly, vested into a pension as is my wife, but with a state that can't keep the dumbasses out of office, so we will see what happens there.
I started early like you, but took a bath in 08, so realize that can happen. The one other thing I would do in your situation, if it were me, I wouldn't tithe. There are better more efficient places to put your money.

 

I too want to own rental properties some day but not for a while so I can build up to that point. What happened in 08 if you don't mind?

I understand the extra little bit could be invested or saved but I make enough and keep a tight enough grip on my spending to give 10% of my money to charity and the needy. It may not be for everyone but that's what I like to do.

 

Updated OP with another question (4)

 

I'm saying unless your employer is contributing/matching (never turn down free money!) you shouldn't contribute to tax deferred accounts AT ALL until after you have a house.

 

08, market crash and housing bubble burst, I lost about 40% of my market investment. And giving away 10% is about what we do, support local food pantry and non for profit art program (and about 5 kids in my wifes 4th grade class, clothes, shoes and food this year) I just get wary of the idea of a church tax personally.

Rental property, is more stable with houses, but more profitable with apartment buildings. Just do your reasearch.

To answer your 4th question: We put away about 15 to 20%, but if we made more we would invest and save more. I think you have to decide what kind of life style you are comfortable with and live like that. But, we together don't make much and I bet that all changes in the high income brackets.

 

I understand you're saying I shouldn't put into them at all (unless I get a company match) until I own a home, but when I DO, you're suggesting traditional?

Oh, you mean THE bath in 2008. I thought something happened to you specifically. Derp.

I didn't mean to imply anything about others tithing - but I will say that tithing does not only mean donating to your local church. PM inbound to stay on topic.

If you aren't writing off that 10%, you have the option to. It will lower your taxes.

Tithing before tax costs more but your return is greater. So if you're in a 20% bracket, you can give 20% to Uncle Sam and 8% to charity (8% is 10% of what's left of your income after a 20% tax)
OR
Give 10% to charity, 20% to Uncle Sam, and then write it off to only pay 18% tax.

Both options remove 28% of your income. The only difference is who gets it.

 

We write it all off that we can, but there are dollar limits placed on what can be deducted for a classroom expense and its not close to what we spend each year. I have joked about starting a non for profit to allow us to donate to that then into her classroom, but I'm sure that wouldn't fly with the taxman.

 

From an investment standpoint, I wouldn't necessarily put "buying a house" first on the list until he knows where he's going to live and researches what the local housing market is like.

 

Lots of good advice, some not so good....do your research and do what works for you. At your age and income, if you qualify for an IRA you might consider a ROTH as you won't get much of a tax break from a traditional IRA (save the regular IRA for when you are making the big bucks). The earlier you start the better! A few $$$ now makes a huge difference down the road. The comments about Fidelity are true, I have both a Fidelity account and an E-trade account that are both self directed (no management fees). If you have more to invest that does not fit in IRA's or 401k's put it in an Individual account. As to 401k's most don't offer the best investments so do your IRA first, unless the 401k has employer matching, then contribute as much as you can to the 401k first...when you reach the limit of employer matching funds (read free $$$), then switch to putting the $$$ in your IRA. For starters, ETF Index Funds are good (stay away from the "specialized" ETF's as most don't do that well and have higher fees). Bonds? Not as important at your age, and right now they are mostly priced above PAR with very low returns...give it a while and wait until the Fed raises rates and Bonds come back to earth pricing wise. Also, I heard mention of Buffett. Put some $$$ in Berkshire Hataway B shares and you pretty much can't go wrong down the road (wish I had bought mine when I was your age). Buy them on the dips and simply hold them. Also, if you are doing things yourself, take a small percentage and take a flier...buy a stock you like that may be a bit risky just to keep things fun. So...maybe a total market ETF or S&P ETF, some Berkshire, and a play stock or to for fun should get you on a good start. In the 401k if they have Growth Fund of America, it has been a good long term holding. Also Fidelity's Contra Fund (great fund with a great manager). Most important, don't go way crazy watching things, but do keep track of your investments to make sure they are still doing OK....most important, have fun at it! Good Luck!

 

Sorta.

That stuff is definitely a prerequisite for doing the shopping and actually buying. But that's the easy part.


The hard part is saving up the money for the down payment. And he can be doing that no matter what.

 

I'm making no recommendation there.

 

Know I'm a lil late here, but just wanted to chime in terms of investing priorities.

S. Before we get into any investing ideas, there is little sense in investing if you have credit card debt. NOTHING will guarantee a return over 20%, so do not begin saving/investing until you've eliminated all/most high interest credit card debt.

1. Figure out how much of a home down payment you'll be looking towards in your area and set a horizon for when you want to have enough saved for said down payment. (example: if you want to have $40k saved in the next 5 years, that's $8k/yr). The sooner you get out of a renting situation, the sooner you start building home equity.

2. Open a ROTH IRA and try to come close to the max annual contribution of $5.5k. A Roth is a great tax savings vehicle, like you said the principal grows tax free, but you can also take the principal out anytime w/out penalty so you still maintain high liquidity. Since savings accounts offer shit for interest, the Roth is a must while you're still in the lower tax brackets.

3. When you open the 401k, find out if your employer contributes and how they calculate said contribution. Example: Employer matches 50% annually up to your first $2k invested, which would mean you should contribute at least $2k because anything less would be leaving money on the table. Understanding the rules is key to maximizing your employers contribution. Also, many 401k's offer funds where the funds will automatically adjust your market risk v fixed income exposure as the fund matures if you want to go with a "invest and forget" approach.

In terms of investing, it's all about personal preference and risk tolerance. I personally use a blend of 30-40 Stocks, 5 ETFs and 5 Mutual Funds. If the market took a dive tomorrow, I understand that I have 30+ years to make it back. I'm not currently investing in bonds as the current yields (2.5% on the 30yr) just aren't appealing and I have little use for fixed income. In another 15-20 years I will begin to slowly increase my bond mix.

Notice how "I" appears in the above paragraph a lot? It's what works for me. Your solution will be dependent upon you accurately determining how active of a participant you want to be in these accounts and how much time/energy you're willing to expend. <~~ Reassess this every couple of years as new priorities in your life may change your answer.

 

says it all really. I just do an IRA with Fidelity (old 401k). low fees. Last year I made 9.5%. This yea 3-4% so far. Contrafund, and Asset manager.
Real estate is good to be in I think if your in ther right spot. I bought a condo at the peak of the market the day befor the financial meltown. I owe 140K still and its only worth 135K so it won't appraise. I have to rent it out for enough to lose only 450$ per month. I own a house in another town to live in and that one has increased in value. I just need to wait for the condo market to come back around. Location, location, location...

 

if you trust the banking system open a fidelity account and start investing, that will only give you exposure to stocks.... but stock are super over price and have ran tier course and there will be a 5 year or longer correction coming.....

You should also save in silver and gold or other under priced hard assets that you can hold and own with no 3rd party risk...

Third and most important is to find an income stream from some type of business that is how you will retire and build wealth now days.... Rich dad Poor dad, great info....

 

You will get a lot of advice on where and how to invest. When it comes down it many companies that you will work for offer only a specific number of investment options. ( funds to invest in) . My advice.
1) put as much away as you can into you company plan. I would say start at 10%
2) pick at least two funds
3) If you get a raise of 3 - 5%, add another 1-2% into your plan.
4) Don't buy the most expensive homes and cars you can buy. ( Do not adjust down your savings to be able to buy these)
5) when you talk to others about investments. If it sounds to good to be true. It is. Stay away.

If you start when you graduate in your early 20s, you will be able to retire early.

 

I make about 100k as a nurse. Started about 65k 10 years ago. I have a house and kid. I try to save and invest. About a years salary saved and about that much invested between IRAs and my 403b through work... I also have a duplex I have owned 10 years that I rent out...anyway according to my calculations I need to work til I'm 70...at least. Started working at 22. Bought duplex at 22. I'm now 33 and couldn't imagine retiring in 7 or even 27 years unless some unforseen stock market victory for myself haha. That's with my one kid and living my current comfortable lifestyle.

 

So I can switch from a ROTH to traditional later in life? How does transferring accounts work?
Yes, my advisor has suggested that bonds aren't really for me at this point in my investing career (being 20)
Thanks, I'll look into Berkshire Hathaway B. As for doing some myself, I took a chunk and invested in natural gas. It dipped right after I bought for months and has finally come up to give some par returns. I meet with my advisor about twice a year (I set up 12 month payments into certain stocks/funds to keep the fees low, to 2% rather than the standard 5.75%)
Thank you!

S. I have never used a credit card and don't really intend to unless it is a necessity to building credit. I hope it isn't.

1. I am not in a renting situation and when I move for work I am mostly compensated. After graduation I will live back at home unless I decide I want to rent to be on my own and with some friends rather than at home which is likely, especially if I need to relocate.

2. I could do that after graduation. I currently ONLY have my individual investment accounts and those are aimed at buying my first house. If I opened an IRA at this point I would only be able to minimally contribute to it and that would be reducing the contribution to my current accounts. What do you suggest?

3. I expect 100% employer contribution up to 6-8% based on talking to family/friends who work in the plants I am on the path to working in. I am not sure if matching is across the board or is used as part of raises or promotions. I hope it starts at that rate and stays there.

My current portfolio is 70% mutual funds, 30% stocks. This year I am only contributing to stocks and next year we will reassess.
As far as time and energy I don't like to set things and forget them (Like a truck, obviously) but I also don't feel the need to overwork it, that's what the advisers are for. So I will do some research in my downtime and when I reassess my portfolio and come to my adviser meetings with plenty of questions.

Sorry to hear about your loss on the condo! Good luck with the market coming back. Since I have the option of living at home I will most likely not buy a house until I find just the right deal, or build my own.

How do you recommend finding an income stream from a type of business? My only ideas for passive income are renting my first home out when I move and possibly owning something like a billboard, ice machine, etc..

Thank you for the advice! I plan to buy/build a home just big enough for my needs. I don't want to stay on the couch too often.
Retiring early seems to be out of my grasp after reading all of these replies, especially if I want to pay for private schooling and college.

That's an awesome salary, what kind of nurse are you? RN, practitioner, etc? I can't believe at that amount of holdings you're retiring at 70! It sounds like you have what's important though, which is living comfortably and not giving that up for the sake of investments. I hope I can stay on that path.

Thanks again everyone for your responses and patience.

 

I'll just share what worked for me, what I've suggested to others who worked for me, and what my mid 30's kids are doing. There are too many variables and details to give specific advise over the internet, and I'm not the guy to do that anyway. Although if you looked at my portfolio you might think differently.

1) If you have no company savings available, fund a Roth, as much as you can up to the max. January 2nd every year

2) If you have a company 401, 403, etc. that has some matching program, put in enough to earn 100% of the match. If you have more funds available, fund the Roth. If you fully fund the Roth, and have more to save, go back to the 401 and max that out.

3) If you have a company 401, 403, etc. that does NOT have a matching program, fund the Roth first. When fully funded, put all you can into the company plan

I suggest low cost index funds for the Roth. Vanguard has been my go to for 30+ years. At least use their cost as a benchmark when shopping. There is no need for an actively managed plan at your age.

Keep it simple. At your age something like their 'Total Stock Market' fund is just fine.

In a 40x plan, invest in plans that have the same concepts, ie the lowest cost index funds that touch the broadest stock samples.

The above only deals with funds available for savings. I've known a lot of folks with healthy incomes, but none of them have ever needed any more options that what I suggested above (if they had a 40x available), because there are other things that can benefit you well, like..........

Pay cash or cash equivalent for everything but your home. If you can't pay for it, don't buy it till you can.

Have a large cash emergency fund.

Have a savings fund for your next vehicle, so you can upgrade with cash.

If you want to be a homeowner (not everyone does, or should) save enough to put enough down (20%?) so you have no PMI, get a better rate, etc. Finance it for as short a term as possible, 15 or 20 years. If you have done all the things above to the fullest, and still have disposable income, make extra principle payments on the home.

In this, I'm assuming you also live life. Maybe not rolling big baller, but comfortably. Travel, enjoy nice things, etc. For cash.

So basically live below your means. Don't worry about what your peers are doing, keep your own focus.

So here is one result. I retired at 61. We are not using any of savings as income. We currently have 5 income sources that generate right at what I was earning at retirement. 3 paid for homes, two paid for (used) cars, travel internationally 2-3 times a year, generous with our kids, grandkids, charities. I have no intention of tapping the savings until the government makes me at 70-1/2.

It's refreshing just to see someone your age have interest!