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I agree with most things SOON said, but I respectfully disagree on the above item.
For someone starting out, it makes little sense to invest this way.
One of the keys to investing is to invest in non-correlated assets. For most of us, when we invest in what we know, we don't achieve this.
The ideal 2 stock portfolio, an old professor of mine used to joke, is to invest in one company that makes condoms & birth control pills, and also in another company that makes baby food. When one does poorly, the other will probably do well, and on average you're OK. In his joke, he actually shows 2 stocks that probably have high negative correlation rather than being uncorrelated.
For someone starting out, the most important thing to do is invest for the long term, which means ignoring daily variation in stock prices & making sure you allocate a very large fraction of your long-term savings to equities (stocks) because in the long run they tend to do better than alternatives.
You don't want to own individual stocks -- you want to own portfolios that contain many stocks where those stocks are chosen for the characteristics they add to the portfolio as well as their own intrinsic value. You need to place your investments on the Pareto-efficient frontier of risk vs. reward. Most people who invest in individual stocks are not on this frontier, which means they can both lower their risk AND increase their reward (yield).
The most efficient way to build a portfolio is to just buy index funds or ETFs or mutual funds at your stage of your life.
I'd suggest starting your nest egg (once you have at least 6 months of living expenses stashed away) by opening an account at Fidelity or Schwab or TD Ameritrade. I'd buy ETFs such as SPY (one "stock" that is comprised of the entire S&P 500) and QQQ (Nasdaq 100) and DIA (Dow Jones Industrial Average). That's a good start. Then attend free seminars offered by the brokerages on investing basics.
Finally, you're smart. Start to educate yourself. The public library is your friend. Read books on investing, focusing on long-term investing for your retirement.
I won't list 10 or 20 other good books - browse the internet & the library. You'll need to have your BS filter on high, though. Ensure that authors have good academic credentials & work at good universities & B-schools rather than just being journalists.
PS -- one of the things that happened in the financial melt down was that traditionally non-correlated assets all of a sudden became correlated. That's one reason so many smart people lost so much money (at least on paper).
OK Fine with that. Then maybe we say after investing in a 401K or similar tool that we invest as you state. Still I like holding individual stocks that I understand. I keep them in my portfolio. I like the idea that Warren Buffet teaches about keeping things that you know about. I also think that owning 5 or 6 stocks is diversification. Look the deal is that their are plenty of paths to the punch bowl. Find the one that you can safely work with and understand and run with that.
Nope, run of the mill. No granite or luxury stuff, though it may have in unit w/d which I do not consider anything approaching a luxury but I guess people in CA do. Course its a good location (w/I 3-4 mi of Google and bikable and closeish - biking distance - to downtown MV is my main criteria). I've looked for cheaper, and darned if I can find one. 2600-3000 for 2br 1ba seems to be the going rate.
Maybe because of its proximity to Google? I would consider widening your field, you could get a place in Sunnyvale or Santa Clara at that price with marble, gated, 24 hour fitness, pool, newer development...
Although, frankly, I'd find the cheapest damn place you could rent, sock away as much income as possible and buy a condo... Good starter property, and when you move to a house, you can convert it into a rental, and make it into a nice tax write off.
Additionally, your mortgage at the outside will be mostly interest, and that does reduce your taxable income. My wife and I rather than renting just bought a 1 bedroom condo, total cost is about 1400 a month (mortgage, tax, hoa) - Pretty crazy, the previous owner spent 370,000 on the place, and we got it for 150,000 in a short sale.
Just a suggestion - better to invest the money you're spending on where you live, rather than just giving it away with no chance of return. Interest rates are at record lows, too.
Sorry to derail the thread! Oh, and to derail it further, with tech on the peninsula heating up again, rents are going up, so buying makes more and more sense if your situation is right (plan on staying in the area long term).
Maybe because of its proximity to Google? I would consider widening your field, you could get a place in Sunnyvale or Santa Clara at that price with marble, gated, 24 hour fitness, pool, newer development...
Although, frankly, I'd find the cheapest damn place you could rent, sock away as much income as possible and buy a condo... Good starter property, and when you move to a house, you can convert it into a rental, and make it into a nice tax write off.
Additionally, your mortgage at the outside will be mostly interest, and that does reduce your taxable income. My wife and I rather than renting just bought a 1 bedroom condo, total cost is about 1400 a month (mortgage, tax, hoa) - Pretty crazy, the previous owner spent 370,000 on the place, and we got it for 150,000 in a short sale.
Just a suggestion - better to invest the money you're spending on where you live, rather than just giving it away with no chance of return. Interest rates are at record lows, too.
Sorry to derail the thread! Oh, and to derail it further, with tech on the peninsula heating up again, rents are going up, so buying makes more and more sense if your situation is right (plan on staying in the area long term).
Oh I hear you - I love the idea of buying. Unfortunately, I *just* bought a condo here in Northern Virginia less than a year ago (OCT 2011). This Google possibility was a total fluke and unplanned. I haven't made up my mind yet, but leaving my new condo that I also just sank 7 grand of upgrades into is going to be a very hard sell for me. One of the negatives of relocating is that with already owning a property here, I probably won't qualify to buy in California anytime soon (I plan to rent out my condo not sell it - I should come w/i $100/mo of breaking even). That, and I have exactly 0 for a down payment since I just put it all into this place.
I hear you on getting a cheap place and saving, but I've decided if I do relocate (which I'm not wild about - in addition to my condo, all my family and friends are here - as much as I enjoy visiting the Bay Area, I have very little connection to the west coast) at the very least I'm going to improve my lifestyle - and that means being able to bike to work, not having a roommate, and having an extra room so all my east coast based family can visit me without paying for hotels. I agree with you financially doing a nice 1br in Sunnyvale would make more sense, but those are my terms . If the offer is good enough to get me to make this move, I should be able to afford it and still save some bucks. Once I've spent a year in the area and saved some money, if I like it enough to stay long term, I'll start making some plans around buying.
Also, I'm not just out of school like OP - early 30s male, single, law degree.
The likeliest way to increase your wealth is to work your way into management. The largest group of people who make high incomes in Silicon Valley, as a generalization, used to be engineers and eventually got into more responsible roles where they were managing projects and people. This would be your "surest" path to getting into high salaries.
As for investment, financial markets are a crapshoot, so I would recommend staying away from those unless you feel like gambling. If you're going to put money into the stock market, make sure it's a small portion of what you have - an amount you won't miss if it disappears.
As you already know, investing in property here is impossible unless you have a lot of cash. So once you start accumulating cash, maybe think about purchasing rental property in a cheaper state. It's always better to pay for something with cash, rather than taking on debt, so if you save enough money to buy an apartment or duplex in, say Minnesota, then I think that makes more sense than taking on a huge mortgage in California.
AS for buying a nice car, my personal opinion is that roughly 10% of your net worth can be spent on your vehicle. So if you have $100k in the bank, then you can spend $10k on a car. Dont' take a loan, just pay cash.
Other advice would be: don't invest your money in anything you don't understand. If you plan to buy and sell things to make profit, you'd better understand/have experience in the market for what you're buying and selling. So if you end up buying some rental property, for example, it better be in your hometown or somewhere you know well and understand how things are in that area.
Insurance. The point of insurance is to protect yourself against big personal financial losses. So be sure you have sufficient medical (protect against big bills), personal property/renter's (protect your belongings), disability (protect your income), automobile (protect both your car and protect against lawsuits from other people in case you cause damage), umbrella insurance (protection against lawsuits).
I guess other general advice would be:
* whenever you come across bargains, snatch them up (but don't go into debt or spend all your money on it)
* don't ever put yourself into a position where you can be wiped out by a bad investment
* get to know people in the local business community. these are sometimes where "bargains" appear (being able to purchase services or goods below market value)
* work on improving your public speaking skills (necessary for management roles)
Oh I hear you - I love the idea of buying. Unfortunately, I *just* bought a condo here in Northern Virginia less than a year ago (OCT 2011). This Google possibility was a total fluke and unplanned. I haven't made up my mind yet, but leaving my new condo that I also just sank 7 grand of upgrades into is going to be a very hard sell for me. One of the negatives of relocating is that with already owning a property here, I probably won't qualify to buy in California anytime soon (I plan to rent out my condo not sell it - I should come w/i $100/mo of breaking even). That, and I have exactly 0 for a down payment since I just put it all into this place.
I hear you on getting a cheap place and saving, but I've decided if I do relocate (which I'm not wild about - in addition to my condo, all my family and friends are here - as much as I enjoy visiting the Bay Area, I have very little connection to the west coast) at the very least I'm going to improve my lifestyle - and that means being able to bike to work, not having a roommate, and having an extra room so all my east coast based family can visit me without paying for hotels. I agree with you financially doing a nice 1br in Sunnyvale would make more sense, but those are my terms . If the offer is good enough to get me to make this move, I should be able to afford it and still save some bucks. Once I've spent a year in the area and saved some money, if I like it enough to stay long term, I'll start making some plans around buying.
Also, I'm not just out of school like OP - early 30s male, single, law degree.
Keeping the condo in VA is definitely a good idea. Sounds like you aren't yet sold on making this your permanent home... So renting is probably the right choice. If it makes you happy, then it is money well spent.
Congrats on getting a job at google, they didn't think too highly of me, apparently.
Keeping the condo in VA is definitely a good idea. Sounds like you aren't yet sold on making this your permanent home... So renting is probably the right choice. If it makes you happy, then it is money well spent.
Congrats on getting a job at google, they didn't think too highly of me, apparently.
Thanks man! Nothing is final yet, but I should have an offer in a week or so.... then I'll have something to actually evaluate and consider my options rather than fretting constantly about the decision which is what I've been doing since this process started in April
Mid 20's ..
Started out under $100k Some years ago and worked into mid $100k range after some years (involved company change - this is where the big jump in salary came from).
MS degree Electrical/Computer Engineering from top U.S school.
Got started on trading/investing ~1 year out of college.
Max 401k (company lets employees manage via brokerage account.. avg. 20%+ returns annually)
Manage private portfolio which I have doubled throughout the years and continue to turn double digit returns annually.
Trade options/equity. My job is a source of trading capital and money to leverage on personal ventures. I progress at a steady pace but see diminishing returns doing 14 hour days (etc).. If you're going to do that, make sure the company rewards you heavily (rare).. Do it at a start-up that gives you a nice %'age of equity or do it for a company you are running. Don't work yourself into the ground as some Mountain Dew/Pizza eating code monkey.
Everyone has an MBA now-a-days.. Everyone is hip to the idea of pursuing management positions.
Bay area has its own good-old-boys club among immigrants.. They network and hang out alot outside work and take care of each other. Younger tech companies have less of this and more home grown U.S employees so you have a better chance moving up at these.
Mistakes I made :
> Materialistic purchases earlier on when I could have been focusing on saving/turning over the capital (I got over this 6 months after graduation). Nonetheless, this is a big trap. Don't fall into it....
> Lacked the balls to take risks (takes years in the investing/trading world)
-----
Tips :
> Get the idea of buying overpriced real-estate in the bay area out of your head
> Do not buy an overpriced condo in the bay area (this is about the dumbest thing you can do .. HOA fees are a stupid waste of money). I cannot stress avoiding real-estate in the bay area enough .... You're young and want to become a millionaire .. Find a good roommate/roommates and rent .. Find places to invest your capital.
> You're in California. When investing/trading (tax efficiency) should be a factor
> Find someone who completes you, compels you, and makes you feel .. Chasing skirt can be an expensive lifestyle.
... More on me :
> Live in Palo Alto/Mountain View area (rent a 2/1 w/ a friend from college $1695-$1895-$1930) over the years.
> I avg. $1k rent/$1k credit card charges ($2k a month living comfortably) .. You shouldn't be spending more than this. I don't have a car payment. I paid off my honda civic in the first year after purchasing.
> When I didn't have enough capital to invest initially, i engaged in app-o-rama (0% balance transfers on credit cards .. got it up to about 60-80k) <- this path is dead and was only around during boom times.
Take away : leverage up intelligently .. Debt is good sometimes as long as you are making more than the interest.
More :
> Save your money
* Turn your money over (this is how people get rich)
> Don't spend your money living the bay area playboy life
> If you want to enjoy the city, get off your but and drive out there. Don't pay the insane rent to live there. You have work to do and work outside your 9-5. Bars/hangouts are good enough in southbay... Weekends, enjoy your life and do the city if that's your thing.
I am parting the bay area as I am at the point of buying a house/starting a family and its stupid to do it here (vacuum sound : all your cash goes bye bye if you do it here). Job is coming w/ me as a remote worker (salary not adjusted to new region ) ... House will be max : $115k .. 3/2.5 starter. Approaching half a mill. Still an engineer. My next job will be in management.
As for conversations about the bay area pay... The cost of housing is definitely influenced by the tech worker's pay and new grads making $100k+ a year straight out of college. How do companies do this? They outsource to very cheap places and avg. opex down ... ($100k+$40k)/2 = $70k.. America at large suffers from it. The minority make top dollar only to **** it all out the window on the opportunistic housing pushers in the land restricted bay area.. It's a vicious feedback loop.
I decided to maximize the situation.. Live frugal for some years. Get great work experience.. Save like crazy.. Exit with contacts, $$$, and live life elsewhere. If you win the lotto at a start-up, maybe you don't think about an exit.. Although I have a good cushion of cash, I've had to work very hard for it personally and I just didn't get the sense of pissing it away on an ever vanishing goal of buying a house here.
As you can imagine, startups/etc are sprouting all over the U.S as the bay area has hit a point of diminishing returns. The latest big ipo's have been duds and we are in the last cycle of idiocy. I expect many great things in the future to happen outside of the bay area and the recovery to mount in unexpected areas.
Best wishes to you.
P.S - Ignore the grumpy old get off my lawn types. Life is very different for our generation and you have to 'think different' if you want to get ahead. Many old types don't know or appreciate those differences and its best to just ignore them. You need big $$ to live comfortably and by all means you should pursue it. The average person doesn't know what the hell they are talking about and are broke... When it comes to money and living efficiently, you'll generally want to ignore them and the beaten path.
Oh, and don't let a company or anyone sh*t on your youthful spirit. It's priceless and you want to hold onto it as long as possible. Life has a way of wearing people down... Don't get worn down. Don't concern yourself w/ too many of the world's problems (esp. politics). You will find they require a village of people to change and not a hero ... Focus on your personal life and getting to where you want to be. I know it sounds selfish but you'll find most people are in the world. You want to help the world? Do something great w/ your time... Your energy... to positively shape it.. Give back once you've made it to where you want to be, etc.
Last edited by yeahthatguy; 06-14-2012 at 09:53 PM..
mysticalgyer, thank you for your sincere opinion. I am so glad that I've asked these questions here. I think this is really an eye-opener. "The reality is that few people can both afford to both live rich and actually BE rich." I think this is the crux of everything. Apparently, I can only afford to live a modest life and have some saving in my bank account. This is what I should do. I should trim all my expenses until I can afford to live rich and be rich. I think this is an experience that you gain as years go by. It's hard to see the big picture when you are fresh out of college. I have a good starting point with no debts and I should not waste this opportunity. Most importantly my motivation should be my job as you said.
Before my plan was renting a 2.5k house, paying 1.3k for a car, etc. Now my plan is simply living very modest life. I will basically rent a 2B apartment, not a house with max 1.75k rent. I will buy middle class, 2nd hand car, with no more than $600 per month and less than 18 months.
Thanks again for helping me out on this issue. I'm sure this will bring success sooner than it was.
You're welcome. I'm glad you're listening. You can tell some people this stuff until you're blue in the face, but some people will never listen.
Eh, by the way, I don't know how realistic $1750 is for a 2BR here. They have really jacked up the rents. I suppose you can get one if you don't have to be in one of those apartment complexes with all the amenities.
The problem is I don't have any liquid money for down payment for a car, hence the high monthly cost. However, 1.75k for 2B apartment is very good price (not very low, not very high) and I've found very decent apartments in nice communities (Pleasonton, Willow Glen, Dublin, Campbell) etc. I will check them in person and if I don't feel like I could be living there, I will up my limit to 2k for either a house or an apartment. Because there are many houses for that price in Hayward and Fremont area in nice locations. I don't know what to do with the car. Because I will be living far from workplace (30 minutes driving), I will need a car ASAP. Maybe I'll commute by bus for a month, until I save some money, then using signing bonus and saved money I can make a down payment.
Honestly, I think Pleasanton and Dublin are too far. They are nice suburban areas, but they are boring for single people and a long commute. Whatever you save on rent in these areas is going to be eaten up with higher gas costs and wear & tear on your car (not to mention your time has got to be worth something!)
Campbell or Willow Glen are much better options, IMO. Campbell has a young and popular mayor who seems to have his act together. It's a smaller city than San Jose, and I think it is better managed/less corrupt. Just watch out though. Willow Glen is generally pleasant, but it has some dumpy apartments.
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. If the offer is good enough to get me to make this move, I should be able to afford it and still save some bucks. Once I've spent a year in the area and saved some money, if I like it enough to stay long term, I'll start making some plans around buying.
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