Ryan Shook

I’m going to get into investment stuff in a second but first I recommend you make a basic monthly income/expense list. For example:

Monthly expenses:

Rent: $400
Food: $200
Gas: $100
Other expenses: $100
Tithe: $100
Save: $50
Total: $950/month.

By comparing your estimated monthly expenses with your income you get a good idea of your financial situation and also get a better idea of what you can save.

I recommend having three basic accounts: 1) Checking for everyday expenses, rent, gas, etc. 2) Savings in case of an emergency, accident, etc. 3) Investment for long term growth and retirement

1 Checking) You want an account somewhere that has low fees and is reliable. I like USAA but whatever floats your boat will be fine.

2 Savings) I recommend keeping at least $1,000 in a savings account where you can get to it in case you need a car repair or whatever. Having your savings account at the same bank you keep your checking will work fine but if having the account next to your checking is too tempting you can open another savings account at a different bank (may be more hassle than it’s worth).

3) Investment

There are many different account and investment types. For the sake of simplicity I will just make what I think is the best recommendation I’ve got. I recommend starting a Roth IRA at Vanguard that is invested in a broad index.

Why a Roth IRA?

A Roth IRA is ideal for you, me, and anyone else our age for several reasons but the main one is the tax advantage. You pay no tax on your earnings if you wait until you’re 60 to take your money out. Another good thing about the Roth IRA is that you are allowed to withdraw what you’ve invested (ex: you invested $100 and your account is now worth $150. You can take out the $100 you invested but you have to leave the $50 in earnings in the account) but ideally you won’t need to take out any of what you’ve invested until your 60.

Why Vanguard

There are several big retirement account and investment firms that people can choose from but most of them are expensive. Vanguard keeps their expenses low and passively manages your account for a very low fee (usually between 0.10% and 0.50% of your earnings) I’ve had an account there since 2007 and many others use them for their retirement account.

Choosing your investment

Vanguard is just a broker and the Roth IRA is just an investment container. Where you make or loose money is in what you invest in. You can invest in stocks and bonds, but you don’t want to have to pick individual stocks because it would take a lot of time and money. The better approach is to bet on a large market in the form of a mutual or index fund. I like index funds because the expense is low. There are many different funds to choose from; theres emerging market funds, us stock market fund, energy fund, tech funds, commodity funds, etc etc etc. The common characteristic of these index funds is that they diversify your risk by investing in many companies.

My Investments:

Right now I own two index funds. 70% of my Roth IRA is invested in the Vanguard 2050 retirement fund. 30% is in the vanguard emerging market fund.

2050 Retirement Fund:

This fund mirrors the performance of the S&P 500. So if the US stock market does well, I do well and vice versa. Over the life of the US stock market the average return has been about 7%. The 2050 refers to the approximate year you will retire and what that means is that as we get closer to 2050 the fund’s assets shift from riskier stocks to safer bonds. The idea is that when you’re young you take more risk to get more reward and as you get closer to retiring you look for more stability but less reward.

Emerging Market Fund:

Emerging markets are pretty high risk, high reward. This fund invests in the large companies of China, Brazil, India and Russia. Over the past several years this fund has average about a 13% return but some years have been as bad as -13%. My personal opinion is that over our lifetime these emerging markets will provide much more growth compared to the US’s developed economy.

So basically my portfolio is 95% stocks 5% bonds. The general idea is that as your dividends get reinvested and if you contribute a little to your savings every year then you will grow a very nice retirement sum.

Disclaimer: I am not a financial advisor and all investment decisions must be decided after thoughtful research and consideration.