Best advice for young guy planning retirement

[mommabear2]

Originally Posted by JoshB

I'm 20 and want to start saving for my retirement. I've already put $3000 in the bank as savings and am earning interest. The problem, I don't understand anything when it comes to retirement financing et cetera. I'd love to retire by 45 and want to retire good. I'm a very frugal person and I live pretty simple.

Where do I start?


Josh

Josh, you'll get a million different answers for your question... but I'll throw in my two cents...

The #1 place to start is... educate thyself on financial investing. No one knows your predicament or goals more than you. Everyone has a different opinion on what to do with money - some of them may or may not be right for you. You will be able to weed out "good" advice from "bad" if you have an idea what you're doing.

[Cosmic]

But if I was 20 years old and wanted to think about retirement goals, I would keep it simple at this point. The World financial system is in a mess, tough enough in good times, this is definitely not the time for a complete Newbie to be attempting many investments that even very experienced folks will have a difficult time with today.

#1 - I would think cash at the present time. You are on the right path with accumulating a working bundle. Then how to multiple that with nominal risk. I might look at buying low income tax credits. What that sets you up for is basically being able to pay zero or nominal taxes legally and giving a far better return on the investment with a very nominal risk. Done properly you know exactly what you are getting into. Your returns are immediate. Something so very nice to know how to do, something you need at all stages of life, one of the best return available for the average Joe today if they have working cash.

Look at your paycheck. How much are you paying in taxes. If you can avoid taxes, you will get a multiplying effect being able to earn even more cash as time passes. Plus you get a high return (~equal to your tax rate with almost no real risk). Something in the 15 % area or more depending on your present earnings.

You can use something like ING Direct and buy their CD's which are in the 3 - 4% range but I don't like that as a main strategy for a very young person. Maybe do a lil bit, each month, just to have a cash reserve, you can also ladder the CD's which makes it more available in principle. With ING you can couple a good saving account to CD's, even having the CD's pay the interest back into the saving account monthly and then tie all that back into your normal local checking account. You want to know all about this sort of stuff.

You can also get a Rewards type credit card, use it to pay all your bills, get cash back on the totals, also tie that into a saving account, back into your local checking. The neat ways to save momey, make money and mulitply things. Of course you always pay the credit card off each month, builds up your credit score, makes your cash work, again you can typically get savings rates greater than banks, like in the 2 - 3%, with the rewards programs you are always paying a tad less than retail. 1% - 5% but it all counts, especially if you develop good spending habits.

The World is in a mess. Lots of normal investment instruments are loaded with high risk for nominal returns. Stocks, bonds, etc. Normally you would want to have a cash side, bonds, stocks, various other types of investments. But a lot of them are just too risky today.

I would first accumulate a working amount of cash. Get into a position to cut the taxes you pay. Look to buy a house. That if done proper is still one of the best investments a fellow can make. Stay with things that have a chance to work at present.

I would study the stock market / bond markets as a paperwork exercise. Learn to chart stocks, find what you have an interest in / develop strategies that you are comfortable with. Get experience before playing with real money.

I learned how to play the stock market in High School by playing on paper for fun. Say you have $10K imagined money and you play and keep score, learning to make all the decisions, see how you do. I didn't actually play the market with real money for a number of years afterward but I made most of the rookie mistakes with no harm. I have done extremely well in the markets over the years, today I am very put off by what is happening.

Today the sad fact is there is a lot of Happy Talk and how the market are so ripe for the pickings. Don't believe any of it. Your basic disaster, complete loss of any confidence, I know what I am doing, will not buy anything. Same clowns are running the game with the same rigged rules, lots of messes needed to be cleaned up. Game has gotten way out of hand.

Stay on the cash side of things until the future is more certain. Know why you are working on a particular goal and refine the approach over time.

Good to start so young, it all can happen even today but keep it within bounds and understand the risks being assumed. Understand the cash side of things first, work on that until things are clear. I am betting the stock markets are heading south longer term, not up. I sure am not risking any money in it, least not yet. Cash is KING always has been, learn that side first.