I’m thinking dvictr’s onto something. I’ll probably just throw everything into a SPY ETF, at least until I save enough money to start picking and choosing without getting ripped on commisions 
^ the real piece of advice i would give is to actually save money up first… try to save up 6 months of living expenses/ income. Money for retirement/investments should be separate from a cash savings emergency fund . (money market/ CDs)
IMO Its not worth it trying to invest in risky assets/stocks with a few thousand dollars… Set a goal to save up $xx,xxx. With 100k or more you can use portfolio margin and have your own “professional institutional” portfolio with the ability to trade long with short positions as collateral. Long/Short portfolios offer better risk adjusted returns than just “long SPY”. read up on portfolio margin… trust me, you need it, you want it!
Best advice for saving is to open a savings account and automatically deposit a couple hundred bucks per paycheck into it.
And screw long/short portfolios and risk-adjusted returns when it comes to retirement accounts. Having a high IR or Sharpe Ratio is next to meaningless when it comes to retirement. You need to save about 15-20% of your income every year starting when your 25. Then you need to make 7-8% a year over the next 40 years. Then you’ll hit your goal. No where in your retirement calculations do you get to retire earlier if your IR is above .75.
I just have a Roth IRA…plan on contributing as long as I’m eligible…
And remember the later you save, the more of your income you have to save. The compounding effect in your early years (25 -35) is magical.
untrue. to reach a goal of 70% of age 65’s after-tax income, assuming 2% real wage growth during your lifetime and a decent 401(k) match, you only need to save about 7-10% of your income from 25 on, assuming retirement at age 65. and you only need to capture a real return of about 3%. you only need to save 15-20% if you’re 35-40 and haven’t saved a dime yet. that said, i think most people can save 15-20% and that rate of savings provides you with some pretty awesome financial flexibility… but it is not 100% necessary.
Behold! The SmartMoney Retirement Planner, which I repost to AF. Basically, it does all the calculations you are talking about, but with some pretty visualizations, and you can change a bunch of settings.
I’m basically 1 part equities to 1 part REITs to 1 part commodities index to 2 parts fixed income (half in TIPS) to 1 part gold. Plus a bunch of cash right now, eventualy to be deployed in the above combo. The stuff is mostly volatility weighted, but it more or less works out this way because fixed income is about 1/3 as volatile as equities, reits, and commodities.
I have some stuff with a nice dividend as well, but it doesn’t really fit in with the rest of my portfolio construction philosophy. I’m thinking of changing my basic plan to integrate the dividend part more explicitly into the portfolio construction.
False.
Actually it depends on several vairables neither of us mentioned. How much is the person making now, what’s the rate of their wage growth, and what’s their retirement income goal? If the goal is to be sure you don’t outlive your savings and your wages are in-line with the average American, the you need to save around 15% to have a reasonable degree of certainty you won’t outlive your money. At 20% savings the Monte Carlo simulations I’ve seen put the probability above 90% that you’ll have enough regardless of how conservative or aggressive your investment choices are.
The point is your savings rate is actually more important than your (reasonable) rate of return. People can haggle over how aggressive to be - whether to go for 8% or be happy with 6% - but it won’t matter if you’re not contributing enough.
This post would be better served on a different forum though. I’m sure we’re all doubling our money every year. Contributions don’t matter for the likes of us!
you’re still way too high. the average person, 50k per year only needs to save ~8% starting at 25 until age 65. that assumes age 90 in my calculations which is 12 and 8 years higher than actual life expectancy for men and women, respectively. 10 years is a pretty good buffer. you may want to add an extra 5 to that, but at 10% you’d still meet your needs until age 95. i would agree that you need to save closer to 15-20% without any 401(k) matching.
as for current salary, it doesn’t matter much as we’re talking on a % basis. i assume 2% real wage growth and 70% of after-tax income (at age 65). 70% is reasonable considering you don’t have a mortgage to pay anymore and probably have no debt (no LOC, no car interest payments, etc).
8% savings (with a match) and 3% real return over 40 years is all you need. but like i said before, oversaving is fine as a long as your kids are well dressed and fed.
You’d be lucky to save over $1.5m when you retire at that rate. You really think $1.5m in 40 years is going to be enough?
but he did build in inflation assumption there…