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sarahsugs's avatar

Any good investing tips for poor people?

Asked by sarahsugs (2888 points ) January 5th, 2007
I don't have a lot of extra money each month, on a really good month I can save $300-400, but I figure I should be investing that somewhere instead of just letting it sit in my savings account. Advice?
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41 Answers

gailcalled's avatar
How old are you? How long do you expect to be earning a salary? How comfortable w. risk are you? Do you want some income or do you want your principal to increase in value?
gailcalled's avatar
www.vanguard.com has a little survey you can take; they will recommend a few of their mutual funds (very low fees if you choose one of their funds).the Vanguard 500 Index Fund is a safe and conservative investment but I don't know what the start-up amount is. You can find that online also.
sarahsugs's avatar
I am 26 years old. I expect to be earning a salary for the forseeable future unless I need to take a break of a year or two if I have a kid. (I don't expect that to happen for 3-5 more years though!) I'd say I'm a low-risk kind of gal. I don't need extra income necessarily, just increasing principal.
gailcalled's avatar
There are also a few tax-free Vanguard Muni Bond funds, but available only for 5 or 6 states...NY, MA, CA, OH, NJ and maybe a few more.
gailcalled's avatar
If you live in one of these states, you can simply (for no fee) reinvest the interest each month so the value will compound. The only downside (and there is a downside to all investments except under the mattress) is that all successful funds have a capital gains tax at the end of the year...due to what the managers have bought and sold.
gailcalled's avatar
BTW, good for you. If you can invest $4000/year for your working career, you will be one rich puppy when you return.
gailcalled's avatar
That's "retire."
ben's avatar
One point -- If you don't already have one, you should definitely put this investment inside a Roth IRA, this way you can deduct it from your taxes (It's a great deal, with a max of $4000 per year, but I'd say the best first thing to invest in).
ben's avatar
And how's this for agreement: My Roth IRA is actually all in the Vanguard 500 Index (with Vanguard). My whole experience with them (and the fund's performance) have been great.
gailcalled's avatar
Great gene pools think alike ;-)
auntpeggyo's avatar
Ditto the Roth IRA. A good book to read at your age with so many years of investing ahead of you is The Millionaire Next Door by Thomas J. Stanley.
erik's avatar
I'd recommend The Motley Fool (www.fool.com) for useful, down-to-earth money and investing tips. Plus, the site has a sense of humor.
gailcalled's avatar
Caveat emptor re; Motley. I took an online course w. them, did some investing (in tech stocks at the height of the bubble - it was like speculating in tulip bulbs) and then lived to regret it. They ARE funny and do make tons of $$$ selling courses and their books. I bought several :-(
gailcalled's avatar
During this course, peope thought MY advice was good. THAT was a bad sign.
emilyrose's avatar
also see what kind of retirement fund your employer offers, if they do.... people older and wiser than me (I'm also 26) tell me to put as much into that as possible, and you can usually do it pre-tax through work so you save a bit more
kfingerman's avatar
n.b. the Roth IRA advice, while good, assumes you know you're saving for retirement. If you're talking about buying a house, or putting a kid through college someday, or taking a few months off to backpack through somewhere in 2009, then yes, put it somewhere other than your savings account, but not in an IRA
gailcalled's avatar
Here's an interesting site for "Lazy, Boring Portfolios...winners."This is from July, 2006 and an article on same subject will be coming out soon from same site.
gailcalled's avatar
These are Vanguard Index funds; from 11 to the really lazy one of only 2. Good management and both no-loan and no-brainers.
gailcalled's avatar
*no-load*
sarahsugs's avatar
Can anybody speak to putting the money into something like Vanguard versus into an Orange Savings Account (rates of around 5% and the money stays liquid)?
gailcalled's avatar
What's an Orange Savings Account? Many of the Vanguard funds (ie; their money market and the State muni-bond funds) have checks that you can write, making them liquid. For example, interest on the NY triple tax-free (Fed., state, and NYC) today is .0377, compounded to a little more/year. Figuring out what interest rate is good for you depends on your tax bracket and whether you are better off w. a lower tax-free rate or not. It gets confusing; ask yr CPA,if you have one, or poke around onllne at Morningstar.com or the reuters one someone mentioned somewhere.
gailcalled's avatar
Also, I have some young friends who invest in CDs w. high interest rates or money market funds that they have found online. Capital One has a good one. I use their credit card and have seen the info online when my monthly bill arrives.
hossman's avatar
As a bankruptcy attorney with over a decade experience, there is only one "secret" to accruing wealth, you must live within your means. If there is one thing all of my bankruptcy clients have had in common, regardless of income, reasons for filing bankruptcy, etc., it is that they had for a number of years lived a standard of living that either exceeded or matched their income, thus had no emergency reserve of savings or investment. On the other hand, I have had clients in other areas of law who have never had what most people would call a significant income, yet they have accrued wealth, simply by living a very basic lifestyle and delaying gratification until they could actually afford it. As an example, if you worked from the agest of 16 to 21 and put $2000 into an IRA each year, that IRA would be worth over $1 million by the time you were 65. Any "safe" investment will do, what is far more important is to develop the habit of saving.
hossman's avatar
That said, it's not easy, and I am certainly not a good example of this.
gailcalled's avatar
To the point, as usual, Hossman. I might add that I have kept a yearly budget for decade...the easy stuff first; taxes, real estate taxes (or rent),
gailcalled's avatar
car payments, home and car insurance; then the info I get from MC bills; food, gas, clothes,gifts, books, sundries (that is rather a broad subject), entertainment, travel, car expenses, utilites...etc. Some is by-guess and by-golly, but I pay most things on amonthly budget online and guestimate my expenses on the high side (throw in a lump for capital home improvements and catastrophes)...then I check my annual income and know what I have left for "play money." I just got my real estate tax for 2007 and it triggered me to do this year's budget. There is always wiggle room but it gives one some structure.
gailcalled's avatar
After all our bloviating, let us remember that Sarashugs, at 26, can and is planning to save $300-$400/month..that's at least $3600/year. Five stars!
lily's avatar
Sarah, i always knew you were responsible, but i am very impressed! I've only gone the roth ira and cd route, but when i graduated from college they gave us a book on how to survive life (so useful!) and in the financial section they said that the best way to invest at our age is a money market, which apparently you can find online. I'll do it if you do? :)
sarahsugs's avatar
hey lily...turns out I asked my Dad (my financial advisor) and he said the same thing. Money markets are the way to go. Turns out I already had a teeny bit of bat mitzvah money in one at Charles Schwab, so I'll just add more to that. Who knew it was so easy? Now it's your turn! ;)
benjiwitz's avatar
oppose the privatization of social security... especially if you're poor.. privatization would cut benefits significantly.. meaning, less money for you.
samkusnetz's avatar
if i may summarize, it sounds like the most important investing tip is: DO!
SomaShine's avatar
Don't do it unless you have the extra money. Generally if you invest money you "Don't Have" and lose it, you'll just feel stupid about it
erik's avatar

In regards to the “Orange Savings Account” – this refers to an online bank called ING Direct (www.ingdirect.com). You can set up a savings account (even a checking account!) and maintain it all online, if you’re computer savvy then it’s a great way to manage your finances. I’ve found it very reliable and easy to use. Plus, the interest rate is among the best you’ll find for a savings account.

So that’s if you want to have savings on hand that is easy to get to. If you are looking further into the future, then it’s tough to beat Index funds. They will equal the market’s return, you don’t need to stress about individual stocks, and there are no hefty management fees.

ironhiway's avatar

First of all stop calling yourself poor anyone who can do 300–400 a month is doing ok.
My first stock investment in 1991 was $1000 and each year I invested my tax return about $1000.

Also in 1990 my brother, sister and I purchased a condo together, which we had gotten a lease option on a year prior, borrowing 3000 each from our dad for the down payment. We lived in it 2 more years than turned it into a rental until we sold it in 2001.

In 1994 i sold my first stock investment for 3000 and added to it for a 5700 investment which returned enough to acquire a 4 unit apartment building in 1995 $7200 out of pocket. Which we lived in until 2004 and sold in 2005. Although it cost us about 200 a month more, out of pocket, than the average rent for the first 3 years. The tax benefits reduced that to bellow the average rents. By the time we sold it we had basically lived for free for 9 years plus some income. Plus we got to have some say in who our neighbors would be.

Hossman’s advice about living within your means is very important because no matter what you buy if you can’t keep it what good is it.

Also a ROTH IRA is not deductible on your taxes an IRA is. The ROTH IRA when you start collecting from it there are no taxes on the pay outs.

drewyb99's avatar

I would agree with the tip that it’s a matter of DO. Trial and error and learning from others. People get all frantic when purchasing a credit card because all of their friends have had sob stories of paying so much interest, you just need to learn how to ‘manage’ money, then you’ll become rich within yourself. From there, money is easy to gain as your knowledge increases. Read other people’s stories but don’t go ahead and believe every single one of them, you need to learn for yourself. I would compliment ironhiway for his great story, expressing that you can start with something so small and turn it into a big thing…learn how to DO and become wealthy within yourself first.

LindaDT's avatar

Only invest 10% or your savings and look into mututal funds.

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ItsAHabit's avatar

The very best investment you can make is one in yourself. Invest in your education and or job skills. That will pay the highest return.

ItsAHabit's avatar

In addition to investing in themselves, those who spend less than they earn don’t stay poor. Over the long haul, it isn’t how much you make but your net worth that represents wealth. And the greatest wealth is in the ability to make choices. If you have a good education and substantial net worth, you’re more able to do what pleases you. That’s true wealth. But if you’re tied down making payments for things you bought that you didn’t need with money you didn’t have to impress people you didn’t know, then you’ll be a slave to your own inability to defer gratification.

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