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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?

Bob Baerker
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Patel Parth
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2 Answers2

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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.

Dugan
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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.

S Spring
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