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Right now I'm 23, decent job ($50k/yr), about $6k in the bank, and about $50k in debt (car loan, student loan, no credit card debt or other 'high interest' debt). I'm about to start putting roughly 8-10% of paychecks into my 401k but havent as of yet.

I have been saving money by budgeting and just cutting spending (admittedly WAY too high but that's a different matter) but the money I save is just sitting stagnant in my bank account with no interest. Monthly, it seems I spend a certain amount $1700-2k and then make back $2200ish, so saving $200-500ish. The other ~$4k in my account does nothing, so I'd like to put it to use.

I've been learning about investing in the stock market, watching trends, investing in paper trading to simulate trades, reading what analysts say, etc. and it looks like a route I may want to go down. In particular I have been watching a specific company. They have been on a pretty steady gain for a long time and as of the recent year have been climbing fast. Also I have been reading about a 4th quarter share buyback and how many analysts expect it to climb even higher. I was thinking of buying roughly $2200 of the stock to get some of my stagnant money moving and hopefully get some decent returns. Is that a good idea or should I put it somewhere else (perhaps just a savings account)?

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    Think about the "emergency" part of "emergency fund." You have a good job, what happens if you get fired, the company goes under, etc. What happens if you're in a car accident so you need to buy a new car, or worse, get injured, can't work, have big medical bills? You think Google will go up, but what if it doesn't? Or what if the market goes down as a whole a lot, dragging Google and everyone else with it? Right now you only have about 3 months of spending saved up. Also, the interest you'd save by paying down your debt is a sure thing, Google not so much.
    – blm
    Commented Nov 10, 2015 at 20:45
  • So would you recommend not touching it or at least moving to a savings or something else?
    – DasBeasto
    Commented Nov 10, 2015 at 20:49
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    First of all, don't trust some random guy on the internet. :-) My comment is more things to think about than specific recommendations. It seems (from your post at least), that you're just looking at the positives (good job, no high interest debt, some savings). Now think about negatives that could happen, and how you would handle things if they did. If I were to make a recommendation, it would be to build up at least 6 months to a year "rainy day" fund, then think about investing. That could be in a savings account to get (slightly) higher interest, but it should be somewhere liquid.
    – blm
    Commented Nov 10, 2015 at 21:01
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    @Ross I'll look into that! never heard of them
    – DasBeasto
    Commented Nov 10, 2015 at 21:09
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    I assumed this would have been linked already, read this first: Oversimplify it for me: the correct order of investing
    – Lilienthal
    Commented Nov 12, 2015 at 14:20

4 Answers 4

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Forget investing, you need to focus on managing your debt.

I would keep the 6k in a checking or savings account because you need that money in case of an emergency.

If you save up more than 10k, use the excess to pay down the principal on your debt. Worry about investing when you have a positive net worth.

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Your debt is insane. Forget investing, pay off your debt. You owe 100% of your salary, with only one smallish asset (6K in the bank). Sure you have a car, but the value of the car is falling rapidly and can be taken to near zero by a simple accident.

Once you have your debts paid off (or at least to a reasonable level) you can think about investing. The 401K is the best place to start as you alluded to.

Okay so you have some money left over and you want to do some other investing. What is the goal of that investing? If your desire is to learn about the stock market, and play a bit, then sure, by a few shares of some hot stock.

If your goal is to buy a house, then a savings account is probably best.

It all depends on what you want to do.

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    So if his 401k matches - you are saying he should not get free money since he has debt and also ignore compounding interest - the most powerful concept in investing? Def. not the answer I would recommend.
    – Ross
    Commented Nov 10, 2015 at 21:37
  • Thank you for the answer I will definitely consider what you said. I agree my debt is very high, fully paying for school + expensive car taste. For what it's worth to Ross' comment my company fully matches up to 6% of my income on 401k investments
    – DasBeasto
    Commented Nov 10, 2015 at 21:54
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    Ross, the match is a great thing if the employers= offers one, but compunding intetest applies to debts too and high debt impedes your ability to borrow in an emergency. I can argue this either way under normal circumstances, but in this case the existing debt load is much too high and must come down for immediate liquidity; after that and emergency fund are dealt with one can start looking longer term, at which point 401k rises to top priority.
    – keshlam
    Commented Nov 10, 2015 at 21:55
  • My suggestion would be to at least get the max you can from the match (since his does offer one) while paying off the debt - as long as the match doesn't take all your discretionary income. Also, in a few years all student loan debts will be forgiven anyway (JK...but curious to see how the government is going to mess the mess up).
    – Ross
    Commented Nov 10, 2015 at 22:08
  • Ross is certainly offering conventional wisdom. Conventionally, most people are broke and will not retire with dignity. I'd prefer to follow the advice of guys like Mark Cuban: get out of debt.
    – Pete B.
    Commented Nov 11, 2015 at 14:02
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As per everyone else: it's hard to make/earn off savings and investments the same amount you pay in interest on debts. That's literally how the financial sector makes its profits. It's a good idea to have some emergency slush but... how much are you spending each month just servicing your debts? If you can afford to start putting $4000~5000 a year into a pension plan, and already can save a good $500 a month... pay that shit down. You can get rid of 10% of it in a year, and that has an immediate payoff, a lot of the time, in reduced minimum/regular repayments, if the statutory term stays the same. Which gives you more money to play with and "invest" in paying it off. It could be gone in rather less than 10 years. Then you have a fair bit of extra cheese to actually invest...

(Or at least ... actually be able to put a deposit together and get a mortgage, buy a house, so no longer paying rent, then focus on paying THAT off quickly... the above is partly based on my experience paying my mortgage down... even though I didn't have much spare when doing that, I was able to chip away enough over a couple years to reduce repayments by nearly 25%... which meant more money in my pocket instead of going back to the lender afterwards. The compound interest is where they get you... and that builds up quickly during the early part of a loan repayment period, whilst it takes quite a long time to get going when you're saving)

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Can you afford to lose the $2200? If not, the answer is don't buy the stock.

No one can tell you if a stock will continue to go up. But the general rule is that the more hype there is on a stock, the more likely it is that it's reached a top and is due for a downward correction soon. Also note that the more expectation there is for a company, the more negatively the market will react if the company's earnings report comes in even slightly below expectation, or if the company hints at a slowdown in the future. If that buyback doesn't happen you mentioned, expect the stock to drop a lot. Only a really positive surprise news announcement will make it continue to rise on earnings day.

If you really want to buy this stock, my advice would be to learn about chart patterns and other basic technical analysis to have at least some idea of whether the stock is due for a correction soon. (If you see it grow in a hockey-stick shape upward, it probably is.)

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    You seem to be a fan of technical analysis. Care to back up this statement recommending technical analysis with academic studies that show technical analysis indeed works? My opinion is that there are only three things in investing that work: (1) allocation, (2) diversification and (3) managing costs and taxes.
    – juhist
    Commented Dec 25, 2015 at 23:50
  • Downvoted, learning to read charts isn't what I 'd call exactly easy and beginner friendly and its a costly hobby to get into where you 're almost certainly guaranteed to lose money learning (all these actively managed funds ran by experts would outperform the S&P 500, which they don't). It's a very precarious suggestion to make to someone with no cash to spare (and heaps of debt) like in this case.
    – Leon
    Commented Apr 15, 2019 at 6:57

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