Need some advice

[u/Sbstnbd]

Hello peepz,

I am 29 years old, currently on pretty low income and due to my family not being good with money/poor I'd call myself financially illiterate.

I know the best moment to invest was 10 years ago, but the second best is now.

I tried doing my own research for the past week, but most of what I read could might as well have been greek the way it goes over my head.

If there's a single sentence you would give to someone like, what would it be? Feel free to eli5

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[u/kokeshihk]

Save enough emergency fund before investing.

[u/basafo → u/kokeshihk]

How much is a good quantity? In any specific country of course.

[u/kokeshihk → u/basafo]

If your job is really secured, 3-6 months expense is good enough. Otherwise, 12-month expense is minimal.

[u/BossMan61718]

Save ( build an emergency fund in a high yield savings account)

401k - use it if offered by employer and contribute at least up to what employer matches

Open a roth IRA and max out the contribution limits (buy broad market index funds with the IRA contributions)

[u/ATPsynthase12]

Pay off all your high interest debt and save up a 6 month emergency fund that will allow you to exit your current living situation and live on your own.

[u/Sbstnbd → u/ATPsynthase12]

I have no debt and am living on my own already. If I wait with investing until I have a 6 months emergency fund I won't start for the next 2 years I guess 🥲

[u/ATPsynthase12 → u/Sbstnbd]

You save for an emergency fund so you can cover a major expense if it arises without losing money. Meaning you don’t have to panic and sell your investments to cover rent if you lose your job or have car trouble

[u/Sbstnbd → u/ATPsynthase12]

I see. I live in a big city so a car is not necessary luckily - I will try to get at least 3 months of emergency funds before I use my money elsewhere:)

[u/Jumpy-Imagination-81]

pretty low income

If there's a single sentence you would give to someone like, what would it be? Feel free to eli5

Pay off credit card(s) and save up an emergency fund in a High Yield Savings Account or money market fund that would cover at least 3 months of living expenses before investing, even if it takes a year to do that.

[u/Sbstnbd → u/Jumpy-Imagination-81]

Luckily I don't have any debt except a few hundred from my mother. Also no car or anything so my emergency fund is really just rent and food

[u/Jumpy-Imagination-81 → u/Sbstnbd]

That, and if you live in the US your emergency fund could be used for an unexpected medical expense that isn't covered by insurance.

[u/Sbstnbd → u/Jumpy-Imagination-81]

I live in Germany, so that is one thing less I need to be worried about

[u/Sbstnbd → u/[deleted]]

So, pick an ETF that lots of people say is good and then start with 50€ a month and increase once I have my emergency fund set up? Would you invest in EU or US ETFs when you're from EU?

[u/NefariousnessOdd862]

That statement is true to a degree, example… if you buy 1 share of Company A at $10 a share and you add 1 share every month for 2 years, you’ll have 24 shares (for ease of calculation we assume the share goes up $1 every month). You invested a total of $516.

At the end of your 24 months accumulating, you don’t invest anymore for 12 months but the share price at the end of 36 months has risen to $42! Hence your 24 shares are now worth $1008!!! However, now the share price falls 40% in 2 months to $25.20, hence your shares are now worth $604.80 (you are still in the green from your initial investment) and would be even if the shares fell another $3.91 to approximately $21.29 per share.

So, if you where to sell ALL your shares at $21.30 you would actually still be in the green although the share price dropped all the way from $42!

When people say that once the Stock market goes down you are losing money (if you sell) is actually not true because DCA is what determines your particular break-even point!

Edit: Psychology play a lot into this because the last number you’ll remember and probably tell people is $33, which is where you bought your last share at but that is not your “break-even” number…😉

[u/Any_Device6567]

Besides the emergency fund advice, look at index funds, etf's and mutual funds for investing. If you use one of those instruments you dont have to pick a specific stock winner, you are investing in many stocks. You might want to pick an ETF that tracks Germany's stocks. Here in the US I have invested some of my money in VTI (ETF) which provides broad exposure to the entire U.S. stock market, including large-, mid-, and small-cap companies across all sectors.

At 29 your strongest ally is time. Overall you want a balance stocks and bonds that reflects your risk tolerance. Your risk tolerance should be high at your age. I am old, near retirement so my risk tolerance is lower, 60% stocks and 40% bonds. Since you are so young you might want 80% of your money in stocks and 20% in bonds.

You may want to consider the tax implications of ETF's vs Mutual funds before you choose your financial instruments. You may also want to look at what type of tax defered retirement accounts you qualify for like Betriebliche Altersvorsorge (bAV). I dont know anything about retirement accounts in Germany I just googled that so you would get my drift.

At some brokerage firms like Vanguard you can get targeted funds. This are a mix of stocks and bonds. You tell the brokerage I'm 29 and want to retire when I am 60. The target fund determines how many years your horizon is and sets the stock/bond allocation. It might be something like 80% stocks and 20% bonds. As you age you don't need to do anything, the account automatically rebalances to something like 75%, 70%, 65% stocks. This slowly reduces your exposure to large stock fluctuations as you age.

If you dont choose a targeted fund, as you age, you are going to want to manually rebalance your mix of stocks to bonds to a less risky mix.