I am a recent grad who just began working for a 'big 4' software engineering firm. I earn a good salary and I would like to invest 75% of it efficiently so that I can retire early at age 45.

Various sites that I have read suggest that investing provides a great long term return. I don't know much about stock trading but I want to learn various methods of investing. I'm learning as much as possible from googling terms but I think I need hell lot of time for this.

I do not want to invest in mutual funds and let someone work over my money. I do not plan to invest all my money in stocks. I also plan to put some percentage in fixed deposits and government bonds which are less risky and provide a lower return.

What should investment strategy be?

TLDR : Can anyone suggest effective methods or road-map beginners should follow from where one should start learning stock trading and basic market terminologies to feel confident for trading?

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    "However I do not want to invest in mutual funds and let someone work over my money." Why? You think you know how to invest better than they do? You think 1% is too much to pay for their expertise? – D Stanley Nov 14 '19 at 16:39
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    Here is what I would suggest, why don't you temporarily put your money in mutual funds, 8% is better than nothing, right. Then start learning and doing research while trading on paper, when you have a strategy that is consistently beating the market, then move your investments out of the mutual funds and into your picks. – Glen Yates Nov 14 '19 at 17:04
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    "But I kinda feel that they are scams." You're wrong. (Well, some are, but generalizing from "some MFs are poorly run" to "all MFs are scams" is akin to saying "all cars are lemons because this brand has a lot of lemons". – RonJohn Nov 14 '19 at 17:39
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    Kind of off-topic, but which of the big 5 do you exclude to choose the big 4? – Hart CO Nov 14 '19 at 17:42
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    @Bob Baerker I vehemently disagree that OP won't be able to retire at 45 given the information he listed. FACTS: (1) He is saving 75% of his income which implies that he is comfortable living off the remaining 25%. (2) Even if he only sees 8% growth in his investments (slightly below what the long-term trend for index funds has been) it would only take him 6.5 years to save up to the point where he has 25 times his annual living expenses. (3) With 25 times his annual living expenses he can follow the 4% rule and draw down an amount equal to his annual living expenses indefinitely. – Dugan Nov 14 '19 at 18:27

I'd suggest you read JL Collin's stock series. This will give you a good primer on the pros and cons of stocks and bonds and (most importantly) teach you how to think about your investments. His main recommendation would be to invest in index funds which have been shown to beat the vast majority of actively managed funds over the long-term. I highly recommend reading these articles as it also explains why You Can't Pick winning Stocks since your comments imply that you think that you can beat the index (spoiler alert- there's a 95% chance you can't-- largely because the the distribution of winners and losers is not uniform-- i.e. there are a tiny number of very big winners and a lot of losers).

Aside from building your base of knowledge I would also recommend avoiding bonds and GICs at this point in your life since I infer that you're quite young, and your retirement date of 45 is not a 'hard date' i.e. you could conceivably push your retirement date to 50 if the market experienced a 2008 style economic meltdown. Equities will always beat bonds over any long time frame, so you're better off staying highly invested in Equities when you start out and gradually transitioning to bonds and GICs as you get older when stability is more important to you.

Congrats on the excellent savings rate and the journey towards financial independence/early retirement.

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Think about the income produced by the portfolio at retirement. Then a $75,000 income requires a $2,142,857 portfolio at 3.5% return.

To produce the portfolio requires $75,000 a year put-in for twenty years at 3.5% return with monthly compounding to reach $2,209,253 . Or even yearly compounding reaches $2,195,210 .

The first problem is taxes and so taxes can be minimized by realizing the 3.5% return as qualified dividends. The second problem is inflation but dividend-paying stocks are likely to keep up with inflation. Also, capital gains taxes are avoided by having to the same portfolio before retirement and after retirement. After retirement the dividends are spent as income while the portfolio is held. Before retirement the dividends go into a dividend re-investment feature to build-up the portfolio.

Now an index fund is not going to pay 3.5% dividends and so a custom portfolio is needed.

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  • 1. 75K seems like a high retirement income to shoot for given OP's frugality if he's living on 25% of his salary (unless he makes 300K) 2. Why would you assume a 3.5% return on investments? Long-term stock market trend is 10% 3. You still pay taxes on dividends, setting up a DRIP will offset this but you could also just have low-dividend paying funds. 4. "capital gains taxes are avoided by having to the same portfolio before retirement and after retirement." -- this doesn't make any sense. – Dugan Nov 18 '19 at 20:31
  • The number wrote it itself in the calculation. As I said begin by calculating the income that the portfolio produces at retirement. Also, the goal is to retire in twenty years. The calculation is based on 3.5% stock dividends. Taxes are reasonable because of the system of qualified dividends. And as I said, stock gains in addition to the dividends is what keeps everything up with inflation. The stock portfolio never changes from its beginning and therefor there are never any capital gains taxes. Make the given number or don't make retirement in twenty years is the point. – S Spring Nov 18 '19 at 21:31
  • Furthermore, anyone who is planning on getting 10% investment returns in worldwide deflationary economies is not going to make it with stock market averages. A current trend of successful government market support is only 11 years recent history. Also, investment returns are mostly relative to inflation they don't just print a number. – S Spring Nov 18 '19 at 21:40

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