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My situation:

  • I'm 24, single, and I live with my parents in the United States
  • I have no debt and I have 100k in a savings account
  • I have a 90k job
  • I am currently maxing out my 401k
  • I have no experience with investing and no family with any experience

My company offers a discount deal for managed 401k accounts with Alight for half of a percent, which I am using.

I recently started looking at this site and realized that due to inflation, I am losing money by having that much in my bank account. I'm not sure how much I have lost but it must be a lot.

From reading other questions, I am interested in dumping some of my savings into Index funds which rise with inflation. Admittedly I don't know much about it.

My parents have suggested that I consider buying a house as an investment and renting it. With my savings I could put down a larger down payment to get a better deal on a mortgage. They said they would help me fix it up and that I could live with them until I decided to move into the house in the future.

I understand that property should not be thought of an as investment and that there could be another crash like in 2008 at any time. But I still think that is an interesting suggestion.

Question 1: Any suggestions where to invest my saving account money, especially options not presented? In principle, is getting a house with a bigger down payment a good idea?

On the new investing options side:

I have plenty of room to invest more per month.

After my monthly part of the bills, rent, groceries, and putting some away for fun stuff, I can afford to invest 3k per month.

I have read a lot about Index funds, Vanguard, and Roth IRA on this site but I don't understand most of it. While I continue to study, where is a good place to immediately put this extra money instead of letting it deteriorate in my savings account?

Question 2: Is there a basic advice where to invest after maxing out a 401k?

Lastly, what are some good sources to start researching some investing concepts?

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  • Regarding your side question "I don't understand most of it. While I continue to study, where is a good place to immediately put this extra money instead of letting it deteriorate in my savings account?" are you aware that you can easily find a savings account paying over 2%? That way you almost keep up with inflation. The list I refer to myself is here: doctorofcredit.com/high-interest-savings-to-get/…
    – Ben Voigt
    Sep 24, 2018 at 0:32
  • @BenVoigt I was not. That is very informational and maybe the answer to my original quandary.
    – ThrowAwayPerson
    Sep 24, 2018 at 0:34
  • 2.2% is still far below the market average return, and even farther below the return the past few years... but it gives you time to think and learn without that feeling that inflation is eating your money. And maybe it also lets you get comfortable slow and steady... starting with say 20k into a Vanguard index fund will let you experience market moves so you don't feel so blind with the rest.
    – Ben Voigt
    Sep 24, 2018 at 0:45

1 Answer 1

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Here are 5 basic asset classes:

  • Cash - money in the bank;
  • Bonds - like term deposits, but these are notes issued by governments or companies (often called "fixed interest" but there are also bonds that pay variable rates based on benchmark rates);
  • Property - real estate (houses, apartments, land, shopping centres, etc);
  • Shares; and
  • Commodities.

This is in rough order of risk, but each asset class can crash depending on circumstances that don't necessarily affect other asset classes, likewise with assets within an asset class. People often advise splitting funds across different assets and asset classes so that if one particular investment fails (goes negative, doesn't keep up with inflation, etc), the others have a chance of picking up the slack.

For example, mortgage repayments and property taxes don't care if can't find tenants. If the property market tanks, you'd even make a loss on your invested capital. In that situation, cash at bank paying a bit of interest comes out in front. On the other hand, if you get a good tenant and property prices appreciate, the property purchase looks like a better deal. Likewise with shares and so on.

Then there are various ways to slice and dice these things. For example, you can pay a small sum for the right to buy a particular company's shares at a fixed price. If that company's share price soars, you can exercise your right and then sell the shares at the (high) market price, pocketing the difference. If it tanks, you just lose the sum you paid. Depending on how you do this and how it turns out, you can earn a lot or you can lose the shirt off your back.

Then there are those who will do the thinking for you (managed funds and the like), charging you a fee to manage your money. Note that there's no guarantee that they'll get it right.

Congratulations on getting to a no-debt, money-in-the-bank, regular-salary position. Do some research on the pros and cons of the basic asset classes, then spend some time with a financial advisor. Note, though, that if you're not paying the financial advisor, there's a greater risk that their incentive for advising you might not be aligned with your reasons for seeking the advice.

Finally, there's no reason you need to pick just one asset class to dump all your money into, or even just one asset within an asset class. Make sure you keep enough cash for a rainy day or even a prolonged rainy period. It's usually a lot easier to make an investment than to get your money back at short notice by liquidating one. Think especially carefully if making an investment requires you to go into debt.

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    Good to talk about different asset classes, but you're mixing together two different degrees of freedom. One is level of ownership; along this axis you have "control", "shared ownership", and "creditor". The other axis is what is supported; along this axis you have "government", "companies", "real estate". For example, owning a rental property, having shares in a real estate investment trust, and holding a mortgage-backed security are all investments in real estate, but one is as controller, one as shared owner, and one as creditor.
    – Ben Voigt
    Sep 24, 2018 at 3:15
  • @BenVoigt It's possible to look at the various instruments from different angles. When talking about asset classes at a basic level, it's helpful to model them more simply and focus initially on their return and risk profiles.
    – Lawrence
    Sep 24, 2018 at 6:53
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    But the risk and return profile for "real estate" is very different depending on whether it is self-managed, shared ownership (REIT), or mortgage-backed bond.
    – Ben Voigt
    Sep 24, 2018 at 14:52
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    @BenVoigt Indeed. That happens with the stock market as well, depending on whether one buys outright, invests in a managed fund, or uses derivatives. I hinted at these in my answer, but they are refinements for a later stage. The OP is currently 100% invested in cash, with "no experience with investing and no family with any experience". This answer provides a bird's eye view of the 'lay of the land' to help the OP get a handle on the broader (than cash) investment landscape.
    – Lawrence
    Sep 24, 2018 at 16:26

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