Building wealth, an ambitious student looking for insight

[sahtt]

I'm graduating from the University of TX next year with a major in Economics and Minor in Mandarin Chinese. I've been on my own financially for the majority of the last 4-5 years and have done 'ok', 2k in debt currently, no interest loan. I have a net worth of around 25k currently. I have been fortunate enough to own several nice cars by buying/selling them for profit. I have got out of that because the stress of doing so every 3 months is simply not worth it anymore. I try to avoid working during the school year, but work in distribution centers in the summer months to cover my expenses.

I'm looking for advice from those that have already trekked down this path. I read a lot on various topics, real estate, the stock market, etc., but it's difficult to find more 'general' advice. I value the knowledge I receive from this site and it's many successful members greatly. I read a lot of John Mauldin's material as well.

I realize this is a very broad topic, but I'm debating on how to approach life financially after college. I have good enough grades to get into a decent law school, but that will give me further financial stress which is extremely tiresome, but I'm always willing to make sacrifices. I have already put off having a family, time will tell whether that was the right thing to do. I was thinking get the law/masters after 4 or 5 years when I can do it without living dollar to dollar.

Get a 3-4 collaboration going and try to build a company? Get a foot-hold in the expansive, lucrative Houston area real estate market [only large city I'm aware of with basically zero zoning restrictions]? Try to get 60k a year making someone else rich and save until I have 6 figures to invest? I've worked enough hours and sweated enough as is to realize life is short and I don't want to waste time.

I have enough work experience and understanding of economic infrastructure to realize getting a job making someone else rich is not going to get me where I need to go, not without an electrical engineering etc. degree. Any literature, tips, or combinations of degrees that would bring about leverage in the marketplace in my favor is all greatly appreciated.

 

[steveny]

I'm graduating from the University of TX next year with a major in Economics and Minor in Mandarin Chinese.

I have been fortunate enough to own several nice cars by buying/selling them for profit. I have got out of that because the stress of doing so every 3 months is simply not worth it anymore.

I try to avoid working during the school year, but work in distribution centers in the summer months to cover my expenses.

If I had the above skills I would be in the import/export business. Keep in mind working for yourself is always going to be stressful.

 

[satan_srv]

If you have mandarin go do consulting / finance / new business develoment in China for a major firm, you'll make sick dough. I can't imagine you did Mandarin to help you out in Texas

 

[sahtt]

I've been trying to put the pieces together to make it all work out, but combining the distribution center experience, sales, and chinese skills are what I'm trying to accomplish to get ahead. I have a friend that works with a Chinese government funded/subsidized chinese oil company in Houston. They are not profitable but just trying to make an impact into the market. Learning chinese was far more difficult than any other subject thus far in school [I'm just a 'regular' white guy]. I will make it pay off.

 

[OLDE GUY]

A basic fact: If you put $2,000 each year into an IRA from age 21 through
30, you will have $1,000,000 at age 65 if the money compounds at 10% each year. The earlier you start the longer your money has to compound.

Investment recommendations: 50% Vanguard Total US Market and 50% Vanguard Total Global Market Funds. Dollar cost average by religeously investing a fixed amount each month, or invest it all the third week of October each year. October is when mutual funds sell their losers and the markets makes a pretty consistent low each October.

 

[ryans]

A basic fact: If you put $2,000 each year into an IRA from age 21 through
30, you will have $1,000,000 at age 65 if the money compounds at 10% each year. The earlier you start the longer your money has to compound.

Investment recommendations: 50% Vanguard Total US Market and 50% Vanguard Total Global Market Funds. Dollar cost average or invest it all the third week of October each year since October is when mutual funds sell their losers and the market makes a pretty consistent bottom each October.

I was going to suggest investing in a type of (VUL) variable universal life insurance. (VUL) is risky but with high rewards. Being at your age you have time to play around, or you can go with a more stable one. EIUL is better but VUL was popular awhile ago. With EIUL the interest rate won't drop below 1% so your protected.

http://invest-faq.com/articles/ins-vul.html

If your interested in setting something up just send me a PM.

 

[OLDE GUY]

..... (VUL) variable universal life insurance......

Advice: Check all the fees if you ever consider an anuity or life insurance. Generally the fees are high and the return on investment less than average compared to no-load, index mutual funds. Term life insurance (death benefit only) is usually best.

The main idea behind 50% Total US and 50% Total Global Vanguard index funds are: various categories of stocks go in and out of favor i.e. small vs large cap; growth vs value, but over long periods of time (decades) each of their returns are very similar. So by investing in an index which mimics the total market, you will capture the significant returns of all the categories over time. Also, 90% + of actively managed mutual funds don't better a broad based index over time. Your returns would be worse with most actively managed mutual funds although they advertise a lot ....and hype as guests on CNBC.

Secondly, the reason for putting half of your money in a Total Global (non US) index fund is that the different country markets are out of sync. For example, the European and Japanese markets have bettered the US the past 3 years - emerging markets even more so. You might recall the US market dramatically bettered the world during the 1900s; the Japanese market bettered the world in the 1980s. Again, over decades, the return of a given major country is no better than another. They all return about the same. However, by investing in the entire world (50% US and 50% Non US), there is less volitility with the same longterm return because some markets are doing very well while others are doing less well. Also, having half your money denominated in other currencies helps protect your assets from a depreciating dollar.

Basically this kind of allocation resembles the Morgan Stanley Capital International (MSCI) world index. Most people my age (64) will tell you that they have made one mistake after another in their investments. Unless you are a professional in a given area, you should keep it simple and go for world market returns.

And don't try to time the market! Your emotions will have you buying near the top out of mass enthusiam and selling at the bottom out of fear. The recent example of the internet/NASDAQ boom/bust is classic - most people became enthused in the last 12 to 18 months of the boom and then sold in fear 2 - 3 years later near the bottom. They couldn't stand seeing their savings going down; and down; and down.

Did you know that stock markets go up 80% of the years? A lost of more than 10% in any year is pretty uncommon. So if you are young, you can afford to stay fully invested in world stock markets for decades. I didn't understand that and was always fearful of market declines. Don't check your stock assets more than once a month, if that!! When you are young, just invest in a broad based portfolio as I suggested and don't think about it. Don't worry about it.

And don't watch CNBC, it will make you very short term oriented and cause you a lot of unnecessary concern. Most of what they talk about each day doesn't matter in the long run. Just invest in very broad stock indexes and your assets will grow with the world population and the increase in world wealth.

 

[ryans]

My wife was saying don't mention VUL's... I was just saying for this young guy if he did a small monthly savings per month using a EIUL he could retire very nicely (in theory). You obviously have more experience than I do in this field, so i'm going to read your post a few times to let it sink in.

thanks!

 

[LeftLane]

A single guy with no kids has no need for an insurance policy at his age. Also, VUL's are no riskier than other investments, since it will all depend on the subaccount managers. All you would get would be extra fees that are unnecessary at his stage of life.

The way to acquire wealth is actually extremely simple, although it has been shown by most people to be unattainable. All you have to do is live below your means. Period. Do not spend in anticipation of income, do not take on debt, do not bank on a raise, do not keep up with the neighbors. If you make $30k, try to live on $25k - bank the rest. Participate in any retirement plan you have access to - right now it might just be an IRA, later it will be a 401k (most likely). If you can start now with a systematic investment plan and be consistent with it no matter what happens in the market, I can almost guarantee you will end up a millionaire. Pay yourself first.

By the way, there are plenty of good mutual funds besides Vanguard. Nothing against them, but index funds tend to outperform only in a rising market environment, and underperform in a sideways/down market.

Go get "The Wealthy Barber" by David Bach. He shows why it doesn't take en enormous amount of money to build wealth, especially when you have time on your side.

BTW - don't forget to give yourself some credit. Just by having a positive net worth, even if it's "only $25k", you're ahead of the vast majority of your fellow conspicuous consumers.

 

[lrsudog]

Go where the money is. Even the middle level Hollywood exec or Wall street analyst is making twice as much as the world's best Plumber or college professor.

China is getting to be really big in film production, and every "Crouching Tiger, Hidden Dragon" has some Hollywood exec sheperding it through to the U.S. distribution. In addition, I can think of ten American movies that were/are being filmed in China recently and as we speak.

Someone has to be the liason with the Chinese municipalities and locations.

 

[NsXMas]

...I realize this is a very broad topic, but I'm debating on how to approach life financially after college. I have good enough grades to get into a decent law school, but that will give me further financial stress which is extremely tiresome, but I'm always willing to make sacrifices. I have already put off having a family, time will tell whether that was the right thing to do. I was thinking get the law/masters after 4 or 5 years when I can do it without living dollar to dollar.

Get a 3-4 collaboration going and try to build a company? Get a foot-hold in the expansive, lucrative Houston area real estate market [only large city I'm aware of with basically zero zoning restrictions]? Try to get 60k a year making someone else rich and save until I have 6 figures to invest? I've worked enough hours and sweated enough as is to realize life is short and I don't want to waste time.

I have enough work experience and understanding of economic infrastructure to realize getting a job making someone else rich is not going to get me where I need to go, not without an electrical engineering etc. degree. Any literature, tips, or combinations of degrees that would bring about leverage in the marketplace in my favor is all greatly appreciated.

working for someone else when you're starting out is not a bad thing.

making 60k to make someone else rich is one way of looking at being an employee. I approach each job as a learning experience. I take the training opportunities that are offered to make my skills more valuable, and I try to keep moving up in skills. Those skills make me more valuable on the market, and I build skills to run my own business.

Don't get stuck in a dead-end job, no matter how lucrative it is. But being an employee while you are getting key experience is a good thing.

 

[evof575gtc]

you should really talk to this guy. got his first NSX when he was only 20.

the wealthbuildR

 

[DocL]

A single guy with no kids has no need for an insurance policy at his age...

Sorry, but I disagree. I bought a whole life policy at 21 and I've continued to contribute to the paid-up additions. Currently the cash value and death benefit have increased tremendously. Furthermore, 18 years ago I didn't have the health issues that I currently have, so getting a cheap rate was extremely easy. Although he doesn't need one for asset protection apon his death right now, it is a good investment if you keep on paying into it well beyond the initial seven years.

 

[LeftLane]

Sorry, but I disagree. I bought a whole life policy at 21 and I've continued to contribute to the paid-up additions. Currently the cash value and death benefit have increased tremendously. Furthermore, 18 years ago I didn't have the health issues that I currently have, so getting a cheap rate was extremely easy. Although he doesn't need one for asset protection apon his death right now, it is a good investment if you keep on paying into it well beyond the initial seven years.

It only makes sense if you become uninsurable later. You've paid significantly higher expenses all along, and while it has made sense for you, life insurance typically is bought to create an estate at death, which would be used to pay final expenses and pass along assets to your beneficiaries. Odds are that he will work for a company that will offer life insurance anyway, usually at pretty fair rates.

If you were to run a hypothetical comparing what your insurance policy has grown to versus the same dollars invested sytematically over time into an allocated portfolio of funds, I bet you'd have more money without the added expense of an insurance wrapper around your account. And remember, you have to die to get the death benefit.

 

[sahtt]

I am extremely greateful for you gentleman's advice. Being poor and whole-heartedly dissatisfied is what led me to economics and my desire to understand commerce. I realize 21 is probably quite young to many of you, but 5 years of battling $ feels like a very long time. I am winning the battle for now, but it is almost vertical [uphill analogy extended]. I am very proud of my savings, and I know of no one personally that has attained what I have at my age even remotely under the same conditions [besides pure inheritance]. However, that doesn't change the fact I want to add a couple 0's behind that before I begin to rest.

I have tried to study the stock market/indexes/CD's/etc. as much as possible, but it is such a broad subject it's difficult to find direction without thinking I'm 'missing' something potentially very valuable. The vangaurd type information is what I've started focusing on. I ENJOY saving and have little problem leaving below my means, I can't even get myself to purchase something expensive unless I think I can make profit or break even on it. Although my father is a lawyer and often gives me good savings advice [similar to your 2k annually = 7 figures at retirement age], he has refinanced our home in such idiotic ways it literally blows my mind. To keep it simple, 22 years paying it off, still 100k out of a 150k loan remains. Good God eh? The rest is self-explanatory in why I pay for my own school.

If I continue on my present habits, which may or may not be possible, I can probably get 66% of what I earn annually, given I earn enough annually, to in some form or fashion add to my net worth. We'll see how feasible that is once I purchase a home. I am more than willing to make sacrifices for the longterm. Once school bills are gone, I want to immediately create some serious savings to give me the chance to get into real estate etc. if the time comes. Thanks again for any advice.

 

[sahtt]

This may sound optimistic, but I am 100% determined to reach 1,000,000 net worth by 30 years of age. If I'm driving a 96 coralla from an auto auction I purchased for 500$, so be it. I can only fathom what that takes at this point, but I have the will and I know there is a way.

 

[OLDE GUY]

Don't forget to smell the roses! Focusing too much on money will distroy all relationships and your life.

Keep a good balance of work, play, healthy diet, exercise and good friends.

 

[DocL]

...And remember, you have to die to get the death benefit.

That my friend is the final word.

We are all here for a limited time and I know that on my deathbed I will not say "I wish I didn't have that life insurance policy." :wink:

 

[druby]

The best advice is to invest on a regular basis in something. Over time you will become rich. Remember there are no get rich schemes that work unless you put in sweat equity (i.e. start a business that becomes successful or work with someone that takes you along for the ride and you progress as that company grows). As to the VUL life insurance debate. I sell life insurance although I primarily sell benefits to companys now I started out selling life and still sell enough to be a member of the million dollar round table). Personally I feel life insurance should be bought for the death benefit, buy something permamnent if you can but pay what you have to in order to have life long coverage and be able to stop paying at retirement. Don't buy life insurance for purposes of investment. There are fees associated with the insurance benefits and the commissions we are paid on life policies are much higher than those on other investments (i.e. mutual funds and variable annuities). Variable annuities can be worthwhile if the benefits offered are worth the additional charges over mutual funds. You need to talk to someone that sells these products to get full disclosure.

Good Luck!

 

[hydrazine]

Yep, life insurance should be bought for the insurance itself, or for estate planning after you've "made it". And he's right, there's a reason how so many agents can make a living selling those policies.

Since you're young .. it's better to keep your pace now. Save first, have a plan to either own your own business or invest in something solid.

 

[steveny]

This may sound optimistic, but I am 100% determined to reach 1,000,000 net worth by 30 years of age. If I'm driving a 96 coralla from an auto auction I purchased for 500$, so be it. I can only fathom what that takes at this point, but I have the will and I know there is a way.

Having a lot of money in the bank means nothing if you are not enjoying life.

 

[Patdeisa]

Although my father is a lawyer and often gives me good savings advice [similar to your 2k annually = 7 figures at retirement age], he has refinanced our home in such idiotic ways it literally blows my mind. To keep it simple, 22 years paying it off, still 100k out of a 150k loan remains. Good God eh? The rest is self-explanatory in why I pay for my own school.

I wouldn't be too quick to dismiss the "idiotic ways." I'm assuming he's done something with the money from the 22 years of paying it off and only $50k less on the loans. Did he refinance to get some equity out of the house to have cash to invest? Considering that the house is a tax shelter, he could be making huge money on investing while still owing the last $100k. It's not always about being debt free- it's about keeping and making as much as you can.

Then again, there are business geniuses that make stupid money mistakes all of the time...

 

[sahtt]

I wouldn't be too quick to dismiss the "idiotic ways." I'm assuming he's done something with the money from the 22 years of paying it off and only $50k less on the loans. Did he refinance to get some equity out of the house to have cash to invest? Considering that the house is a tax shelter, he could be making huge money on investing while still owing the last $100k. It's not always about being debt free- it's about keeping and making as much as you can.

Then again, there are business geniuses that make stupid money mistakes all of the time...

Ofcourse he has done 'something' with it, he spent it. There is no need to go into great detail, you'll just have to trust me I suppose. 15 years into the loan, he refianced the 30 year loan for another 30 year loan to around 7%. That's fine, if he hadn't extended the loan again. He borrowed 25k from a relative just to be able to do it. Of our 1800/month mortage, about 1/3 is pure interest, if not more. My mom currently works 3 jobs btw, 1 full time, 2 about 10-15hrs/wek. Besides his and my mother's cars which are paid off, the house is pretty much their net worth at age 50. No 6 figure investments laying around. They have had rough times in the stock market like everyone else, but mostly it was just very poor money management. Anyhow, it's a long story, but I won't make the same mistakes and I'm doing my best to try to rebuild their financial standings.

 

[Patdeisa]

Ofcourse he has done 'something' with it, he spent it. There is no need to go into great detail, you'll just have to trust me I suppose. 15 years into the loan, he refianced the 30 year loan for another 30 year loan to around 7%. That's fine, if he hadn't extended the loan again. He borrowed 25k from a relative just to be able to do it. Of our 1800/month mortage, about 1/3 is pure interest, if not more. My mom currently works 3 jobs btw, 1 full time, 2 about 10-15hrs/wek. Besides his and my mother's cars which are paid off, the house is pretty much their net worth at age 50. No 6 figure investments laying around. They have had rough times in the stock market like everyone else, but mostly it was just very poor money management. Anyhow, it's a long story, but I won't make the same mistakes and I'm doing my best to try to rebuild their financial standings.

Well, maybe it was idiotic...:redface: I was thinking maybe he put $100k from the refinancing and such into the market or bought some other investments... If done right, by the time the home loan was paid off, he'd have $300-500k worth of investments (worth more than the extra interest paid on the house). I was trying to be positive. Good luck to you and take note of his lessons!

 

[Patdeisa]

Back on topic (sorry for the off), I'm a few years ahead of you in life (out of school for 4 years). I think that getting a $60k job working for someone else in the industry you want to be in eventually could be a good path (although others may say differently). Even if the money's not what you're expecting, you will learn a lot about the business world in that time- I know I am. It's also a good time to learn about 401ks and maxing company contributions and other life lessons, while putting some money away. In a few years, you can change your mind and go into business for yourself, but learn key lessons on someone else's dollar.

As far as investing goes, many on here will have better opinions. Right now, I don't have as much time as I'd like to devote into research, so mine's relatively simple- funds are easy to start with. For now, a good chunk of my money is in spider funds covering S&P, Wilshire 5000, and international funds such as EAFE (actual funds managed by my brokerage firm, but emulate these). I'm up 8% in less than a year, without touching the money for the past 8 months. I think it's a relatively good safe place to start as long as you aren't looking for quick returns and spread it with a combination of domestic and international funds. Also, my wife mentioned that an advisor once said that you should invest in areas that interest you, because if they don't interest you, there might not be many other people interested in them (hence why she started with shares in Disney, as she's a Disneyaholic).