How to manage money without thinking about money
November 10, 2021 2:58 AM Subscribe
My wife and I have always seen money as purely a means to an end, and are not used to thinking about it as something we need to do anything with. We're now making more than we need to satisfy the day-to-day needs of our family, and I'd appreciate some ELI5 advice on what do to with the surplus.
So just a bit of added context:
Thanks for any advice!
So just a bit of added context:
- We were both raised in very modest, hippy-intellectual type families and so are really not used to thinking about money. We both like it this way, but don't want to be irresponsible.
- We aren't rich per se, but are making enough that with careful planning I think we could work towards e.g. investing in property in a nice city.
- We currently live in Germany, but we're both scientists, and will certainly move again at some point, possibly to somewhere else in Europe, or Canada. So even though we might like to invest in property, we still don't necessarily know where we'll be in 5-10 years.
- When I've asked people I know they tend to give me advice along the lines of "stocks" or "bitcoin", but I'm somehow repelled by... I guess what I see as essentially gambling.
- Putting everything in a savings account seems like an obvious first step, but people also tell me that the returns are so low these days it's barely worth it. We are at least putting a fair bit into our pensions.
Thanks for any advice!
Best answer: I think the most adult thing you could do is spend a few hundred bucks on getting face-to-face personal advice from an independent fee-for-time (not commission!) financial advisor. Helping you understand how you can best use whatever assets and income you have to further the goals that matter to you is literally their whole job. Acting on the advice from a good one will easily pay back what you spent on it many times over, which is all you can ever ask from an investment.
posted by flabdablet at 3:18 AM on November 10, 2021 [11 favorites]
posted by flabdablet at 3:18 AM on November 10, 2021 [11 favorites]
Failing that, spend a lot of time soaking up the aggregated wisdom available at Bogleheads.
posted by flabdablet at 3:20 AM on November 10, 2021 [7 favorites]
posted by flabdablet at 3:20 AM on November 10, 2021 [7 favorites]
Bitcoin is not any kind of “investment.” It’s speculation into an asset bubble. Do not risk primary retirement savings on a bet. People advising you to put primary savings in crypto may not be the “friends” you think they are, as like any pyramid scheme it requires constant waves of new suckers coming on board so current crypto “investors” have a deep interest in normalizing the idea to newbies.
You *need* a trustworthy and fiduciary professional financial planner or investment adviser, not a bunch of strangers on the web, to get you started. International setting makes it more than usually complicated. Where are you in your careers? What assets do you own? Do you expect inheritances? Where and when do you plan to retire? Do you have dependents, or will you? How secure are your current jobs and incomes? Do you have sufficient emergency cash funds for a crisis? Will you actively manage this money or should you set it and forget it in a relatively automatic investment vehicle? What are your current and future tax situations?
There is no “ELI5” for this. It’s complicated AF. You need to have professional guidance or do a ton of learning yourself or ideally both. Money is freedom, and it’s very easy to make bad decisions that cost you huge amounts in the long run by being impulsive, over-confident, trusting, or chasing speculative gains.
posted by spitbull at 3:25 AM on November 10, 2021 [7 favorites]
You *need* a trustworthy and fiduciary professional financial planner or investment adviser, not a bunch of strangers on the web, to get you started. International setting makes it more than usually complicated. Where are you in your careers? What assets do you own? Do you expect inheritances? Where and when do you plan to retire? Do you have dependents, or will you? How secure are your current jobs and incomes? Do you have sufficient emergency cash funds for a crisis? Will you actively manage this money or should you set it and forget it in a relatively automatic investment vehicle? What are your current and future tax situations?
There is no “ELI5” for this. It’s complicated AF. You need to have professional guidance or do a ton of learning yourself or ideally both. Money is freedom, and it’s very easy to make bad decisions that cost you huge amounts in the long run by being impulsive, over-confident, trusting, or chasing speculative gains.
posted by spitbull at 3:25 AM on November 10, 2021 [7 favorites]
Best answer: You’re in Germany, so some of the specific products and ordering may be different, but the UKPersonalFinance wiki (built by the community at the corresponding subreddit) is a fantastic resource, particularly the Flowchart. I suspect most of the advice will apply to you (broadly speaking) while you’re in Germany.
There’s also a US version.
Both communities are pro-passive investing, emphasise teaching yourself the basics and advocate for fee-based financial advice once you have a grasp of the basics. Highly recommended.
Whatever you do, don’t pick individual stocks, stay out of high volatility assets and if you don’t understand it, don’t invest in it. If it seems too good to be true, it’s a scam or has downside they’re not explaining to you.
posted by Happy Dave at 3:43 AM on November 10, 2021 [14 favorites]
There’s also a US version.
Both communities are pro-passive investing, emphasise teaching yourself the basics and advocate for fee-based financial advice once you have a grasp of the basics. Highly recommended.
Whatever you do, don’t pick individual stocks, stay out of high volatility assets and if you don’t understand it, don’t invest in it. If it seems too good to be true, it’s a scam or has downside they’re not explaining to you.
posted by Happy Dave at 3:43 AM on November 10, 2021 [14 favorites]
Best answer: I manage institutional money for a living and am the child of hippy science/creative types so I feel your pain.
I think there is some really good advice on personal finance posted above. You should read those links. I have very strong personal views on lots of investment options - many of them will be wrong so I won't share them. The one thing I think specific to your situation that you need a professional for is tax planning. Given your "EU or Canada" long term plans the kind of vehicles you select at the beginning of this journey could have a big impact on your after tax returns - both in the sense of deferring taxes today in one jurisdiction but also the taxability of your gains on the other end of the road.
posted by JPD at 4:01 AM on November 10, 2021 [6 favorites]
I think there is some really good advice on personal finance posted above. You should read those links. I have very strong personal views on lots of investment options - many of them will be wrong so I won't share them. The one thing I think specific to your situation that you need a professional for is tax planning. Given your "EU or Canada" long term plans the kind of vehicles you select at the beginning of this journey could have a big impact on your after tax returns - both in the sense of deferring taxes today in one jurisdiction but also the taxability of your gains on the other end of the road.
posted by JPD at 4:01 AM on November 10, 2021 [6 favorites]
stay out of high volatility assets
is thoroughly sound policy, but it doesn't hurt to make them account for about 5% of what you add to your portfolio. Seems to me that holding a relatively small amount of something that could go to the moon is well worth the very real risk of completely losing whatever I paid for it.
Another sound policy is aiming to sell off about half your holdings of any such highly volatile asset if you ever get the opportunity to do so at a price that recoups your your entire original purchase cost plus capital gains tax and brokerage. If you can do that, you've completely future-proofed your ongoing holding of the remaining portion: all that its ensuing volatility can ever possibly do is mint you some totally free money.
And if some such moonshot asset does end up making you some huge additional amount, never begrudge your earlier self's selldown of what apparently could have made you at least that much again. For starters you could not possibly have known that it would do so, and for seconds that kind of resentment amounts to looking a gift horse in the mouth.
This is an extreme application of the investing principle that the most you can lose on any (non-leveraged!) investment is what you paid for it, but there is no upper limit on what you could possibly gain. Which asymmetry, with a little thought, can be seen to be the entire justification for having as much diversity in your investment portfolio as you can be bothered to arrange for.
If you invest in a wide variety of organizations that are doing work you think ought to be done and impress your financial adviser with how well run they are, you can pretty safely assume that about half of those investments are going to keep growing over time while the other half tanks (if you achieve two-thirds growing and one-third tanking, you've had exceptionally good financial advice). Neither you nor anybody else is ever going to be able to predict which half is going to be which, but give it a good ten years and you'll find that the growth of the good ones will pay for the shrinkage of the duds and then some.
And there's really very little point selling off the duds. Some of them might just turn out to be sleepers, and some of your good ones could eventually go bad. Just maintain diversity in a stock portfolio is the thing, and keep on collecting dividends.
But for heaven's sake stay away from leveraged investing. That's how people lose houses.
posted by flabdablet at 4:42 AM on November 10, 2021 [1 favorite]
is thoroughly sound policy, but it doesn't hurt to make them account for about 5% of what you add to your portfolio. Seems to me that holding a relatively small amount of something that could go to the moon is well worth the very real risk of completely losing whatever I paid for it.
Another sound policy is aiming to sell off about half your holdings of any such highly volatile asset if you ever get the opportunity to do so at a price that recoups your your entire original purchase cost plus capital gains tax and brokerage. If you can do that, you've completely future-proofed your ongoing holding of the remaining portion: all that its ensuing volatility can ever possibly do is mint you some totally free money.
And if some such moonshot asset does end up making you some huge additional amount, never begrudge your earlier self's selldown of what apparently could have made you at least that much again. For starters you could not possibly have known that it would do so, and for seconds that kind of resentment amounts to looking a gift horse in the mouth.
This is an extreme application of the investing principle that the most you can lose on any (non-leveraged!) investment is what you paid for it, but there is no upper limit on what you could possibly gain. Which asymmetry, with a little thought, can be seen to be the entire justification for having as much diversity in your investment portfolio as you can be bothered to arrange for.
If you invest in a wide variety of organizations that are doing work you think ought to be done and impress your financial adviser with how well run they are, you can pretty safely assume that about half of those investments are going to keep growing over time while the other half tanks (if you achieve two-thirds growing and one-third tanking, you've had exceptionally good financial advice). Neither you nor anybody else is ever going to be able to predict which half is going to be which, but give it a good ten years and you'll find that the growth of the good ones will pay for the shrinkage of the duds and then some.
And there's really very little point selling off the duds. Some of them might just turn out to be sleepers, and some of your good ones could eventually go bad. Just maintain diversity in a stock portfolio is the thing, and keep on collecting dividends.
But for heaven's sake stay away from leveraged investing. That's how people lose houses.
posted by flabdablet at 4:42 AM on November 10, 2021 [1 favorite]
Well except for you know, houses.
posted by JPD at 4:44 AM on November 10, 2021 [1 favorite]
posted by JPD at 4:44 AM on November 10, 2021 [1 favorite]
Not really an exception though, surely?
posted by flabdablet at 4:48 AM on November 10, 2021
posted by flabdablet at 4:48 AM on November 10, 2021
I think the most important thing to realise is that over the long term, inflation erodes the value of your money and that very few people end up living a long life and being able to work until they die. The second of these is why we have government social safety nets like old age pensions. If you want to supplement what the government offers, then the first of these means that you need to invest money to use in retirement, rather than saving it in a low or zero interest bank account.
For these purposes, property is an investment; stocks and shares are investments; government bonds are investments; wine, fine art, bitcoin, gold, corn futures etc are investments. Each of those things offers different levels of risk and return. Generally speaking, the higher the risk the higher the potential return but the higher the potential loss. You can to a certain extent reduce your risk by diversifying. Property is something most people understand and are comfortable with, but is hard to diversify and so can go badly wrong if you fail to predict the property market accurately. Stocks and shares are easy to diversify, and have high, medium and low risk options within that. Government bonds are low risk if the government concerned remains stable and solvent. Learning about investing is not that hard and people have given you good links above.
The only other thing to say is that no one should invest in something where they fundamentally do not understand how it makes money. This can mean that you miss out on opportunities that would have genuinely made money, but it also means that you are less susceptible to outright scams, and less likely to invest in something that is in a bubble.
posted by plonkee at 4:48 AM on November 10, 2021 [4 favorites]
For these purposes, property is an investment; stocks and shares are investments; government bonds are investments; wine, fine art, bitcoin, gold, corn futures etc are investments. Each of those things offers different levels of risk and return. Generally speaking, the higher the risk the higher the potential return but the higher the potential loss. You can to a certain extent reduce your risk by diversifying. Property is something most people understand and are comfortable with, but is hard to diversify and so can go badly wrong if you fail to predict the property market accurately. Stocks and shares are easy to diversify, and have high, medium and low risk options within that. Government bonds are low risk if the government concerned remains stable and solvent. Learning about investing is not that hard and people have given you good links above.
The only other thing to say is that no one should invest in something where they fundamentally do not understand how it makes money. This can mean that you miss out on opportunities that would have genuinely made money, but it also means that you are less susceptible to outright scams, and less likely to invest in something that is in a bubble.
posted by plonkee at 4:48 AM on November 10, 2021 [4 favorites]
By the way: easiest way to establish a diverse portfolio is never to buy into the same thing twice until you've got at least 25 different holdings, and make your first ten holdings index funds.
posted by flabdablet at 4:50 AM on November 10, 2021
posted by flabdablet at 4:50 AM on November 10, 2021
Best answer: 1. Save up an emergency fund. 6-18 months of expenses. Might be more or less depending on your situation and risk tolerance.
2. Pay off your high interest debt
3. Save for necessary repairs / health things / automobile replacement / education (necessary big ticket items)
4. Max out your retirement funds
5. Save for: renos, holidays, big purchases, more investments (discretionary items)
Start at 1, keep going til you run out of money. For investments, look at broad based index funds.
posted by lemur at 5:17 AM on November 10, 2021 [7 favorites]
2. Pay off your high interest debt
3. Save for necessary repairs / health things / automobile replacement / education (necessary big ticket items)
4. Max out your retirement funds
5. Save for: renos, holidays, big purchases, more investments (discretionary items)
Start at 1, keep going til you run out of money. For investments, look at broad based index funds.
posted by lemur at 5:17 AM on November 10, 2021 [7 favorites]
Best answer: I'd put a little time into finding a financial advisor who supports Socially Responsible investing. Many advisors disparage it; you might make a little less, but my Socially Responsible funds have done fine, and weathered the Great recession in the US pretty well. Financial advisors vary, find one who's aligned with your goals. Bitcoin is usually devastating to the environment, and often enables crime, including large organized crime groups. But people who invested in Tesla electric cars have done well.
You need a plan, you need financial goals, like owning a home or vacation home, protecting assets for kids, having retirement savings. You need to know any retirement implications of earning money in Germany and in Canada or elsewhere. Setting the goals makes it much easier to make decisions.
posted by theora55 at 6:00 AM on November 10, 2021 [3 favorites]
You need a plan, you need financial goals, like owning a home or vacation home, protecting assets for kids, having retirement savings. You need to know any retirement implications of earning money in Germany and in Canada or elsewhere. Setting the goals makes it much easier to make decisions.
posted by theora55 at 6:00 AM on November 10, 2021 [3 favorites]
Response by poster: Hi everyone, I just want to say I really appreciate this discussion. Maybe just as a bit more context: I do machine learning and probability theory, so (I think) there's a certain base numeracy I have which makes certain aspects of this sort of clear and obvious. Like, from an optimization standpoint, the value of my money is naturally decaying over time, and there's various trade offs in terms of short- vs long-term, and low vs high risk, that I can tune in order to control how my money evolves. And given how competitive this space is, there is absolutely no such thing as free money.
What I lack is a basic vocabulary, and an understanding of what the mechanisms are (I mean, I'm sure I lack many other things too...). Paying for proper financial advice seems obvious, but then being told "make sure it's a fee and not commissioned" is the kind of obvious that I really need to hear.
Your list is very helpful lemur, and I think we're getting close to 5, but I'm going to double check how much were actually putting into our pensions. I'm definitely going to spend some time going through these various links, but I guess to try and summarize (and everyone is saying this a bit), broad based index funds are the next step, once all the simple stuff is covered (i.e. paying off debts, emergency savings, maxing out retirement funds)?
Just to reiterate, I'm deeply uninterested in *thinking* about money. It's not that I don't want to spend time on it. I want to be responsible, make phone calls, set up accounts, and make sure I'm not wasting it. But I don't want to devote a part of my brain to it, and wake up every morning thinking "oh and how's my money doing?" But I guess there's probably things like ethical index funds, where I can at least hope the return exceeds inflation, and hopefully it's put to work for good causes?
Umm, also, what's tax planning? Like, isn't it bad enough that I need to do it once a year?
posted by Alex404 at 6:08 AM on November 10, 2021
What I lack is a basic vocabulary, and an understanding of what the mechanisms are (I mean, I'm sure I lack many other things too...). Paying for proper financial advice seems obvious, but then being told "make sure it's a fee and not commissioned" is the kind of obvious that I really need to hear.
Your list is very helpful lemur, and I think we're getting close to 5, but I'm going to double check how much were actually putting into our pensions. I'm definitely going to spend some time going through these various links, but I guess to try and summarize (and everyone is saying this a bit), broad based index funds are the next step, once all the simple stuff is covered (i.e. paying off debts, emergency savings, maxing out retirement funds)?
Just to reiterate, I'm deeply uninterested in *thinking* about money. It's not that I don't want to spend time on it. I want to be responsible, make phone calls, set up accounts, and make sure I'm not wasting it. But I don't want to devote a part of my brain to it, and wake up every morning thinking "oh and how's my money doing?" But I guess there's probably things like ethical index funds, where I can at least hope the return exceeds inflation, and hopefully it's put to work for good causes?
Umm, also, what's tax planning? Like, isn't it bad enough that I need to do it once a year?
posted by Alex404 at 6:08 AM on November 10, 2021
The one thing I wish I'd learned when I was younger was that if you're squeamish about money and its management, you are guaranteed to forever be subject to its problems.
The book Your Money Or Your Life by Vicki Robin and Joe Dominguez was a really big turnaround point in making me reassess the way I'd dealt with money (regarding it as an icky subject to be best avoided) so that I wasn't just chucking mine senselessly down a plughole. I don't follow all of what they proposed, but just learning to treat money as an exchange of life hours for benefits was major. YMMV, but it's worth a read, IMHO.
posted by sonascope at 6:16 AM on November 10, 2021 [3 favorites]
The book Your Money Or Your Life by Vicki Robin and Joe Dominguez was a really big turnaround point in making me reassess the way I'd dealt with money (regarding it as an icky subject to be best avoided) so that I wasn't just chucking mine senselessly down a plughole. I don't follow all of what they proposed, but just learning to treat money as an exchange of life hours for benefits was major. YMMV, but it's worth a read, IMHO.
posted by sonascope at 6:16 AM on November 10, 2021 [3 favorites]
I'm similarly wired, and have found that the easiest thing to do is use a Roth IRA and my work's 403(b) option to do limited annual investing + having a set amount of $ taken off the top of my paycheck w/no regular intervention by me. I have no knowledge of the German equivalents, but assume they are available and very likely better than the US versions. The funds are all moderate risk index funds that tick along + generate an OK return (I do have some $ in a slightly higher risk one w/a green energy focus).
I also have a very safe + stable money market account that I put cash into as I can afford to (this was at one point my "fuck you" fund - now that I have a family, it's a liquid hedge against disasters of various kinds, and I'm focusing on trying to expand it).
All stock investments are definitely akin to gambling, and mine have absolutely been smacked by the '08 and '20 market shocks. That said, while I have no idea if I will ever be able to afford to retire in the conventional sense, I'm almost certainly better off in my current position as a result, and spend very little actual time thinking about any of it.
I could probably do better if I did, but I'm the kind of person that would rather end up living in a van than be one that talks about estate planning or Bitcoin over dinner, so this is what I settled on as a middle ground.
posted by ryanshepard at 6:20 AM on November 10, 2021 [1 favorite]
I also have a very safe + stable money market account that I put cash into as I can afford to (this was at one point my "fuck you" fund - now that I have a family, it's a liquid hedge against disasters of various kinds, and I'm focusing on trying to expand it).
All stock investments are definitely akin to gambling, and mine have absolutely been smacked by the '08 and '20 market shocks. That said, while I have no idea if I will ever be able to afford to retire in the conventional sense, I'm almost certainly better off in my current position as a result, and spend very little actual time thinking about any of it.
I could probably do better if I did, but I'm the kind of person that would rather end up living in a van than be one that talks about estate planning or Bitcoin over dinner, so this is what I settled on as a middle ground.
posted by ryanshepard at 6:20 AM on November 10, 2021 [1 favorite]
Ha .. tax planning and investment strategy go hand in hand.
“Not thinking about money” is actually a form of privilege that attaches to being financially safe, for the long term. To get there you have to think about money a fair bit for quite a while. Not thinking about it enough comes at a significant opportunity cost in what money buys you later on: safety and freedom.
Even if I planned on retiring in Germany or Canada in more than a decade from now — and most assuredly in the US — there’s no way i would count on “government safety net” support being close to sufficient for my needs or desires.
The thing about thinking about money now — the younger you are the better — is that it makes it possible to think a LOT less about it much later in life. Trust me on this, that’s a good feeling.
posted by spitbull at 6:24 AM on November 10, 2021
“Not thinking about money” is actually a form of privilege that attaches to being financially safe, for the long term. To get there you have to think about money a fair bit for quite a while. Not thinking about it enough comes at a significant opportunity cost in what money buys you later on: safety and freedom.
Even if I planned on retiring in Germany or Canada in more than a decade from now — and most assuredly in the US — there’s no way i would count on “government safety net” support being close to sufficient for my needs or desires.
The thing about thinking about money now — the younger you are the better — is that it makes it possible to think a LOT less about it much later in life. Trust me on this, that’s a good feeling.
posted by spitbull at 6:24 AM on November 10, 2021
I have a similar disposition to money as you do. I put a predetermined chunk of the household's monthly income into index funds every month. First, I max out our kids education account. Then i start funding our registered savings accounts. This strategy is generally sound and backed by some folks who think a lot about money (check out bogleheads). You want funds that are well-diversified, match your risk tolerance, and have low to very low expenses. For my context that means XGRO and VGRO ETFs. See if you can find similar funds for yours.
This is a (relatively) safe way to build wealth while managing risk. Real estate can also be a good way to build wealth, but comes with some downsides (generally you need more capital, you will need to go into debt, and your investment is not as liquid, landlording can be a continual headache and comes with some ethical quandaries).
You will need to learn more and think more about this stuff before you get into set and forget mode. Best do it ASAP so your money isnt decaying.
posted by lemur at 6:59 AM on November 10, 2021 [1 favorite]
This is a (relatively) safe way to build wealth while managing risk. Real estate can also be a good way to build wealth, but comes with some downsides (generally you need more capital, you will need to go into debt, and your investment is not as liquid, landlording can be a continual headache and comes with some ethical quandaries).
You will need to learn more and think more about this stuff before you get into set and forget mode. Best do it ASAP so your money isnt decaying.
posted by lemur at 6:59 AM on November 10, 2021 [1 favorite]
Actually not thinking about your money on a weekly or monthly basis is almost certainly the best way to get the outcomes you desire. But the first thing you need to do is set up the scaffold that allows you not to think about it .
Also I don't think any of us know what the prevalent business for financial planning in Germany is. Anecdotally it's more bank driven than the US/Canada/UK and I believe it will be harder for you to find the kind of low cost providers that are thick on the ground in those countries so I think outside of the tax advice you might need to roll your own.
MeFi loves the "fee-only" planner advice but it's a bit facile. A good wealth manager could still charge you on an AUM basis in a fair way and put you in low cost products. What you don't want is an FA who puts you into high cost products they earn a trail on - which is really the thinking behind fee-only advice.
posted by JPD at 8:01 AM on November 10, 2021 [2 favorites]
Also I don't think any of us know what the prevalent business for financial planning in Germany is. Anecdotally it's more bank driven than the US/Canada/UK and I believe it will be harder for you to find the kind of low cost providers that are thick on the ground in those countries so I think outside of the tax advice you might need to roll your own.
MeFi loves the "fee-only" planner advice but it's a bit facile. A good wealth manager could still charge you on an AUM basis in a fair way and put you in low cost products. What you don't want is an FA who puts you into high cost products they earn a trail on - which is really the thinking behind fee-only advice.
posted by JPD at 8:01 AM on November 10, 2021 [2 favorites]
By the way: easiest way to establish a diverse portfolio is never to buy into the same thing twice until you've got at least 25 different holdings, and make your first ten holdings index funds.
25 might be a good idea for individual stocks, but 10 different index funds is entirely too many, and investing in individual stocks should not be done by people who are not interested in 'thinking about money'. If you have 10 different index funds, the amount you are paying in management fees is going to be a solid 1% of your investment, even if each individually has low fees.
You only need one or two index funds. Maybe more if you have various tax-related thinking to do. But you can have multiple accounts with the exact same funds, if your index funds are well-diversified and have low expense ratios.
posted by The_Vegetables at 8:10 AM on November 10, 2021 [2 favorites]
25 might be a good idea for individual stocks, but 10 different index funds is entirely too many, and investing in individual stocks should not be done by people who are not interested in 'thinking about money'. If you have 10 different index funds, the amount you are paying in management fees is going to be a solid 1% of your investment, even if each individually has low fees.
You only need one or two index funds. Maybe more if you have various tax-related thinking to do. But you can have multiple accounts with the exact same funds, if your index funds are well-diversified and have low expense ratios.
posted by The_Vegetables at 8:10 AM on November 10, 2021 [2 favorites]
We're you, only old. I received this great recommendation on Mefi for a fee-only financial advisor. After filling out a simple form ahead of time, we met with Michelle Waymire for one hour on Facetime after which she spent at least another hour putting together recommendations in bullet form, which she sent to us several days later.
The two-hour consult, literally about a month ago, cost around $325, which we've made back multiple times over by following her recommendations for low-risk investments, funding a grand kiddo's college fund, setting up monthly transfer into Schwab. (We already had investments there if you can call keeping an absurd amount of money at Schwab in cash. I was deeply regretful and ashamed of this dumb non-financial planning, and she totally energized me and made me feel like Warren Buffet.) She's younger than any of our three adult children.
YMMV. After years of fear and inertia we've done everything she advised, and it's worked out very well so far. It got us on a clear path.
posted by Elsie at 8:55 AM on November 10, 2021 [2 favorites]
The two-hour consult, literally about a month ago, cost around $325, which we've made back multiple times over by following her recommendations for low-risk investments, funding a grand kiddo's college fund, setting up monthly transfer into Schwab. (We already had investments there if you can call keeping an absurd amount of money at Schwab in cash. I was deeply regretful and ashamed of this dumb non-financial planning, and she totally energized me and made me feel like Warren Buffet.) She's younger than any of our three adult children.
YMMV. After years of fear and inertia we've done everything she advised, and it's worked out very well so far. It got us on a clear path.
posted by Elsie at 8:55 AM on November 10, 2021 [2 favorites]
Just to reiterate, I'm deeply uninterested in *thinking* about money. It's not that I don't want to spend time on it. I want to be responsible, make phone calls, set up accounts, and make sure I'm not wasting it. But I don't want to devote a part of my brain to it, and wake up every morning thinking "oh and how's my money doing?" But I guess there's probably things like ethical index funds, where I can at least hope the return exceeds inflation, and hopefully it's put to work for good causes?
If you have found the right financial structure, I promise that you never need to think about money more than necessary. And your money will just grow exponentially. But you do need to do some upfront work to make that financial structure happen.
Yes, no-fee financial advisors are good. But I find that they are a little unnecessary if your finances are not that complicated in the first place, and you take some time to understand investing and finances. The subreddit (UKPersonalFinance) and the flowchart above is a great starting point.
To summarise in a basic format what you need to do to start investing:
1) Pay off any short-term loans (pay day loans, etc) and credit card balances.
2) Pay off any long-term loans like education loans, but NOT mortgages.
3) Start building an emergency CASH savings fund, up to 6-12 months of salary / expenses. This is your 'shock' buffer, i.e. if the markets go down by 30%, or you lose your job, or you incur a high expense, you don't panic and immediately liquidate your financial portfolio ata loss. Personally, we have about twelve months of salary to feel 'safe'.
4) Maximise any matched pension contributions (i.e. your employer contributes 5% if you contribute 5%).
5) THEN ONLY should you start considering putting your money to work by investing. Your money will grow exponentially. In practical terms, this means that while you may not see any progress in the first few years, it really compounds in your later years. I love the charts from this post here.
Another way to think about this is the rule of 72. If the stock market goes up an average of 7% (perfectly good estimate of the average returns of developed world stock markets) every year, your money doubles in 72 / 7 = 10.2 years. So if you invest €20,000 at age 30 and don't touch it, here's what it will look like in your future:
40 years: €40,000
50 years: €80,000
60 years: €160,000
70 years: €320,000
Like Covid R rate, but better.
How to invest? Open an investment account at a broker. Think of brokers are like 'shoe shop' website, and the 'shoes' are the financial products (funds, savings accounts, stocks and shares). There are certain famous 'brands' of 'shoes', which you will come across, like Vanguard and iShares (think of Nike shoes for example).
Among the 'shoe shop' websites, in the UK, we have discount brokers like interactive investor, AJ Bell, iWeb, or there are more expensive brokers like HSBC, Hargreaves Lansdown, Halifax. It will be different in Germany. Also, in the UK, we have tax-shielded investment accounts until a certain limit every year. The money in these accounts is shielded from income and capital gain taxes. Think of this like a VIP account in the shoe shop website.
These 'shoe shop' websites will stock different brands and different lines. Among the famous 'brands' of financial products, Vanguard is known for boring index (passive/ tracker) funds with low costs. For example, VWRL, which is a world tracker fund.
iShares is another well-known brand for index funds and ETFs. Take a look at the iShares 'catalogue' here.
There are even fancier 'shoes' (which can include ethical funds), but they come with higher costs with uncertain risks, which will eat into your profits.
Also Vanguard is also a broker in the UK and sells its own 'brand' (like Decathlon selling its in-house shoes for example).
These 'shoe websites' used to take a secret commision from selling certain products, but they have stopped doing so due to an EU law I believe. All trading costs must be stated and upfront.
Hope this shoe shop analogy helps!
posted by moiraine at 9:14 AM on November 10, 2021 [3 favorites]
If you have found the right financial structure, I promise that you never need to think about money more than necessary. And your money will just grow exponentially. But you do need to do some upfront work to make that financial structure happen.
Yes, no-fee financial advisors are good. But I find that they are a little unnecessary if your finances are not that complicated in the first place, and you take some time to understand investing and finances. The subreddit (UKPersonalFinance) and the flowchart above is a great starting point.
To summarise in a basic format what you need to do to start investing:
1) Pay off any short-term loans (pay day loans, etc) and credit card balances.
2) Pay off any long-term loans like education loans, but NOT mortgages.
3) Start building an emergency CASH savings fund, up to 6-12 months of salary / expenses. This is your 'shock' buffer, i.e. if the markets go down by 30%, or you lose your job, or you incur a high expense, you don't panic and immediately liquidate your financial portfolio ata loss. Personally, we have about twelve months of salary to feel 'safe'.
4) Maximise any matched pension contributions (i.e. your employer contributes 5% if you contribute 5%).
5) THEN ONLY should you start considering putting your money to work by investing. Your money will grow exponentially. In practical terms, this means that while you may not see any progress in the first few years, it really compounds in your later years. I love the charts from this post here.
Another way to think about this is the rule of 72. If the stock market goes up an average of 7% (perfectly good estimate of the average returns of developed world stock markets) every year, your money doubles in 72 / 7 = 10.2 years. So if you invest €20,000 at age 30 and don't touch it, here's what it will look like in your future:
40 years: €40,000
50 years: €80,000
60 years: €160,000
70 years: €320,000
Like Covid R rate, but better.
How to invest? Open an investment account at a broker. Think of brokers are like 'shoe shop' website, and the 'shoes' are the financial products (funds, savings accounts, stocks and shares). There are certain famous 'brands' of 'shoes', which you will come across, like Vanguard and iShares (think of Nike shoes for example).
Among the 'shoe shop' websites, in the UK, we have discount brokers like interactive investor, AJ Bell, iWeb, or there are more expensive brokers like HSBC, Hargreaves Lansdown, Halifax. It will be different in Germany. Also, in the UK, we have tax-shielded investment accounts until a certain limit every year. The money in these accounts is shielded from income and capital gain taxes. Think of this like a VIP account in the shoe shop website.
These 'shoe shop' websites will stock different brands and different lines. Among the famous 'brands' of financial products, Vanguard is known for boring index (passive/ tracker) funds with low costs. For example, VWRL, which is a world tracker fund.
iShares is another well-known brand for index funds and ETFs. Take a look at the iShares 'catalogue' here.
There are even fancier 'shoes' (which can include ethical funds), but they come with higher costs with uncertain risks, which will eat into your profits.
Also Vanguard is also a broker in the UK and sells its own 'brand' (like Decathlon selling its in-house shoes for example).
These 'shoe websites' used to take a secret commision from selling certain products, but they have stopped doing so due to an EU law I believe. All trading costs must be stated and upfront.
Hope this shoe shop analogy helps!
posted by moiraine at 9:14 AM on November 10, 2021 [3 favorites]
The thing that is complicating this a little, is that your options are dependent on what is available in Germany. What people are suggesting is very common advice in the UK and the US, but which is apparently unusual in Germany [FT]. Fidelity offers the kinds of low cost investment funds people are referring to and has a full offering in Germany.
posted by plonkee at 9:30 AM on November 10, 2021 [1 favorite]
posted by plonkee at 9:30 AM on November 10, 2021 [1 favorite]
Just to reiterate, I'm deeply uninterested in *thinking* about money. It's not that I don't want to spend time on it. I want to be responsible, make phone calls, set up accounts, and make sure I'm not wasting it. But I don't want to devote a part of my brain to it, and wake up every morning thinking "oh and how's my money doing?"
The single most reliable way to make money in the stock market is to keep on buying new investments and then sit on them forever. Buy things and then forget about them. Waking up every morning thinking "oh and how's my money doing" is the single most reliable way to get panicked by every market downturn and fret about what you need to sell to keep from Losing Everything. Don't do that. As long as businesses can find useful stuff to do then investments in those businesses will grow. Markets reliably but unpredictably boom and crash on a timescale of months to years; zoom your thinking out to a timescale of multiple decades and stop worrying.
So I recommend overcoming your aversion to thinking about money but only to the extent that you get used to thinking regularly and deeply though infrequently and briefly about what you intend to buy next. Quarterly would be fine. Reduce the amount of thinking required by setting aside some fixed percentage of your discretionary income in a bank account you're always going to use all of to acquire one new investment on that regular basis. It's unpleasant but really you need to devote only the tiniest part of your life to it to get good results. Think of it like flossing your financial teeth.
Part of making that work will be talking to a financial advisor about the kinds of things it would make sense for you to buy and hold, and part of it will be educating yourself about how to understand a company or index fund's basic financials and interpret its announcements. All kind of a pain, sure, but no more so than any of the other things you didn't like doing but did anyway because you knew they were good for you.
posted by flabdablet at 9:51 AM on November 10, 2021 [2 favorites]
The single most reliable way to make money in the stock market is to keep on buying new investments and then sit on them forever. Buy things and then forget about them. Waking up every morning thinking "oh and how's my money doing" is the single most reliable way to get panicked by every market downturn and fret about what you need to sell to keep from Losing Everything. Don't do that. As long as businesses can find useful stuff to do then investments in those businesses will grow. Markets reliably but unpredictably boom and crash on a timescale of months to years; zoom your thinking out to a timescale of multiple decades and stop worrying.
So I recommend overcoming your aversion to thinking about money but only to the extent that you get used to thinking regularly and deeply though infrequently and briefly about what you intend to buy next. Quarterly would be fine. Reduce the amount of thinking required by setting aside some fixed percentage of your discretionary income in a bank account you're always going to use all of to acquire one new investment on that regular basis. It's unpleasant but really you need to devote only the tiniest part of your life to it to get good results. Think of it like flossing your financial teeth.
Part of making that work will be talking to a financial advisor about the kinds of things it would make sense for you to buy and hold, and part of it will be educating yourself about how to understand a company or index fund's basic financials and interpret its announcements. All kind of a pain, sure, but no more so than any of the other things you didn't like doing but did anyway because you knew they were good for you.
posted by flabdablet at 9:51 AM on November 10, 2021 [2 favorites]
My strategy is just index funds. I want my savings & investments to work for me not for me to work for them. If you are comfortable where you are now financially I'd focus on living the best life you can within your financial plan instead. Invest your efforts into maximizing your life. Save for retirement, buy a home, look after your kids school and then invest in living a good life. You can't take it with you.
posted by srboisvert at 9:57 AM on November 10, 2021 [3 favorites]
posted by srboisvert at 9:57 AM on November 10, 2021 [3 favorites]
When I've asked people I know they tend to give me advice along the lines of "stocks" or "bitcoin", but I'm somehow repelled by... I guess what I see as essentially gambling.
Ok, ok, so I manage a finance team at work, and this is literally the exact opposite of what investment is about. Investments, derivatives, all these scary words, are designed to REDUCE risk, not increase it.
The main thing to note is that not doing anything with money - putting it all into a savings account - is actually very deliberately gambling on a risky investment position - it's an "all eggs in one basket" situation where you are betting 100% into a position that one specific currency will maintain its value and return good annual interest yields over the long term.
You are exposed to unpredictable risks: you don't know if inflation will erode the value of your money by 2% or 5% in a single year. You don't know if currency fluctuations of the Euro against the Chinese Yuan or US Dollar will erode the value of your money by 20% in the medium to long term. You certainly don't know what will happen if the EU breaks up. And people years ago who retired assuming they would continue earning interest on their savings.... are now screwed because interest rates dropped to effectively zero, which few could have predicted.
The aim of conservative investing isn't to gamble by picking a winner and earn a huge return.
The real aim is to have a look at all the parts of the economy around the world, then hitch your wealth to the most significant parts of it which commits you to "following" that wealth upwards or downwards.
I suppose it's like, instead of each person farming their own plot of land and feasting / starving depending on luck, you have 10 people sharing 10 plots of land growing 10 different crops and sharing the food, averaging it out.
For example, most people would want to have some level of wealth in property - this is the matching principle, you want to match your future income stream and assets against your future expenses. So if property and rent prices shoot up, well, you pay more for rent, but your investments will increase in value, so they offset each other. If the opposite occurs, well, you're sad that your investments fall in value, but it's offset by the fact that your rent also falls. See? That's a reduction in risk. If you had put everything in cash savings, you're 100% exposed to the risk that your rent doubles in the next 5 years, there's no offset for that.
A theoretical mix would be, say, 30% in local property linked assets, 30% in local stock market, 30% in international stocks (US, say), and 10% cash, assuming you plan to live in your current locale.
Oh, one last note: local tax laws distort EVERYTHING, and drive a lot of investment decisions.
posted by xdvesper at 2:08 PM on November 10, 2021 [4 favorites]
Ok, ok, so I manage a finance team at work, and this is literally the exact opposite of what investment is about. Investments, derivatives, all these scary words, are designed to REDUCE risk, not increase it.
The main thing to note is that not doing anything with money - putting it all into a savings account - is actually very deliberately gambling on a risky investment position - it's an "all eggs in one basket" situation where you are betting 100% into a position that one specific currency will maintain its value and return good annual interest yields over the long term.
You are exposed to unpredictable risks: you don't know if inflation will erode the value of your money by 2% or 5% in a single year. You don't know if currency fluctuations of the Euro against the Chinese Yuan or US Dollar will erode the value of your money by 20% in the medium to long term. You certainly don't know what will happen if the EU breaks up. And people years ago who retired assuming they would continue earning interest on their savings.... are now screwed because interest rates dropped to effectively zero, which few could have predicted.
The aim of conservative investing isn't to gamble by picking a winner and earn a huge return.
The real aim is to have a look at all the parts of the economy around the world, then hitch your wealth to the most significant parts of it which commits you to "following" that wealth upwards or downwards.
I suppose it's like, instead of each person farming their own plot of land and feasting / starving depending on luck, you have 10 people sharing 10 plots of land growing 10 different crops and sharing the food, averaging it out.
For example, most people would want to have some level of wealth in property - this is the matching principle, you want to match your future income stream and assets against your future expenses. So if property and rent prices shoot up, well, you pay more for rent, but your investments will increase in value, so they offset each other. If the opposite occurs, well, you're sad that your investments fall in value, but it's offset by the fact that your rent also falls. See? That's a reduction in risk. If you had put everything in cash savings, you're 100% exposed to the risk that your rent doubles in the next 5 years, there's no offset for that.
A theoretical mix would be, say, 30% in local property linked assets, 30% in local stock market, 30% in international stocks (US, say), and 10% cash, assuming you plan to live in your current locale.
Oh, one last note: local tax laws distort EVERYTHING, and drive a lot of investment decisions.
posted by xdvesper at 2:08 PM on November 10, 2021 [4 favorites]
Response by poster: Thanks again everyone, this is all really great, and I really appreciate it. I've stopped marking answers as "best answers" because the whole thread together just feels like a good place to start if you're someone like me in my position. I don't have a strict financial plan yet, but I have a plan to make a plan, which is a lot further than I've made it before.
I'm always open to more advice, and in any case I'm hoping to move forward with things quickly. I'll provide updates once I've taken some concrete steps, especially since some people might be interested in how financial planning looks outside of the Anglosphere.
posted by Alex404 at 12:25 AM on November 11, 2021 [1 favorite]
I'm always open to more advice, and in any case I'm hoping to move forward with things quickly. I'll provide updates once I've taken some concrete steps, especially since some people might be interested in how financial planning looks outside of the Anglosphere.
posted by Alex404 at 12:25 AM on November 11, 2021 [1 favorite]
Best answer: I am a German and simply put a fixed amount each month into an ETF covering the "MSCI World" which includes the 1600 biggest companies of the world. I do this via a "Sparplan" at Consorsbank, which is free.
The only thing I concern myself money-managment wise is to sometimes pause the Sparplan if the savings in my checking account go below 5000€.
Taxes for this are quite straightforward, I get a yearly summary from my bank, which I then copy onto my tax forms. This is the only investment I do, which is OK for me because I intend to keep doing this until I retire (or REALLY need money), so I do not care about volatility at all.
Done!
Oh, and sometimes banks change which ETFs are available for a free Sparplan, so you have to watch out for that.
posted by SweetLiesOfBokonon at 5:02 AM on November 11, 2021 [1 favorite]
The only thing I concern myself money-managment wise is to sometimes pause the Sparplan if the savings in my checking account go below 5000€.
Taxes for this are quite straightforward, I get a yearly summary from my bank, which I then copy onto my tax forms. This is the only investment I do, which is OK for me because I intend to keep doing this until I retire (or REALLY need money), so I do not care about volatility at all.
Done!
Oh, and sometimes banks change which ETFs are available for a free Sparplan, so you have to watch out for that.
posted by SweetLiesOfBokonon at 5:02 AM on November 11, 2021 [1 favorite]
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Don't invest in crypto unless you are very comfortable with losing your investment. All investing has risk but crypto has A LOT of risk.
Real estate investing is not a terrible idea but make sure you look at the actual numbers - how much you will spend on tax, maintenance, loan interest, etc. vs. how much will you bring in in rents.
Also you don't mention what your citizenship is - this can also have an impact on what investments are available to you/best for you, mostly for tax reasons.
posted by mskyle at 3:08 AM on November 10, 2021 [4 favorites]