Investing 101 For Newbs

Maddox

Woodpecker
I wanted to create a thread to ask super basic questions on investing.

Lately, I've been wanting to get started on investing to protect against rising inflation. What amount of savings do the experts on here recommend you put away for a rainy day before investing in something like precious metals?

Is there a percentage of yearly salary one should hold in cash first before going out and buying gold and silver?
 

Bitter End

Woodpecker
Orthodox
I think you can find older threads on that topic, a lot of them were so in-depth I personally did not finish reading everything.
 

C-Note

Hummingbird
Gold Member
I'm in my 50s and I have been a fairly big saver all my life. In fact, I saved so much that at times I was cash poor because I was socking so much away into investments.

I believe that the "experts" recommend that you try to put at least 10-20% of your income into retirement savings. My advice would be to save as much as you can. In past years I've put up to 50% of my income into savings in a given year.

You'll get differing advice on here about that, however. Some of the members here will tell you that instead of saving all that money, that you use at least some of it to buy a rental property or start or buy a small business. I think that's valid advice. But, unless your income is very high, you'll likely have to choose one of those two courses of action and run with it. Either save your money in passive investments (like stocks and bonds) or go the entrepreneurship route. I chose the former and so my advice will be in line with that course of action. The latter course of action has more risk, but also has a chance at much higher returns.

The numbers on passive investing are fairly solid and consistent. If you save around $30k a year for 30 years and average a 5% return on your investments (a fairly safe, conservative assumption), you will have $2 million in savings at the end of that time (if you average 10% a year you'll have 5 million, but that's less likely). If you want to have more than that and are willing to put in the work and accept the risks, then running a business may be the way you want to go.
 
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zoom

Kingfisher
Gold Member
Lately, I've been wanting to get started on investing to protect against rising inflation. What amount of savings do the experts on here recommend you put away for a rainy day before investing in something like precious metals?

Is there a percentage of yearly salary one should hold in cash first before going out and buying gold and silver?

How much you keep in cash is really a personal matter. It's good to hold cash for emergencies, and also because you can quickly take advantage of buying opportunities. By holding cash your purchasing power will decrease each month, but you can think of it as paying an option premium.
 

C-Note

Hummingbird
Gold Member
Oops, I just noticed that the specifics of your question was about buying precious metals. One of the problems with putting cash in gold or silver bullion is that it doesn't accrue interest. It may increase in value if the price of the commodity increases, but it's more uncertain than the rhythmic rise and fall of the economy.

If I understand correctly, one of the main purposes of putting cash in to bullion is to protect its value from inflation, which weakens the value of the dollar. In my 30 years of investing, I have not had much trouble with inflation weakening the value of my savings. My returns have been above the rate of inflation, especially because of the recent six year bull market.

If you really want to put some of your money into bullion, I would probably keep it at about 10% max. Keep in mind that I'm a very conservative investor. And, as Zoom said, you need to have some liquid cash handy. The experts say to keep six months salary in an emergency fund, if I remember correctly. Keeping cash in a taxable bond fund (or tax-free municipal bond fund) will keep it available to you to have in-hand within a day or two. Taking cash out of a taxable bond fund will give you some capital-gains taxes, but it shouldn't be too bad. I use a tax-free municipal bond fund with Vanguard as my emergency stash. I took cash out of it a few years ago to use as a down payment on my current house. It pays much higher interest than a savings account with a bank would pay, about 5% vs 1-2% with a bank.
 
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Lately, I've been wanting to get started on investing to protect against rising inflation. What amount of savings do the experts on here recommend you put away for a rainy day before investing in something like precious metals?

I'm the resident kook who believes we're headed for deflation (since it's all we've had for 20 years). I like to beat this dead horse. Hopefully you see though how your statement betrays your financial awareness and reliance on mainstream financial news (like most people).

Answer: 1 year total expenses in savings and cash flow of 4 times annual expenditures.

You don't invest in PM, you stack it for insurance.

I like @c-notes' suggestion of a business. It's the riskiest, especially in this environment, but the biggest bang for your buck long term.
 
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