Have heard this phrase pretty often, and it seems pretty feasible even for analysts. My question was, do people just sock away their bonus in a separate savings account or are they investing it? At first it seemed a bit strange to figure out how to invest a once a year lump sum, especially given compliance restrictions etc., so wanted to see what people meant by this phrase and what generally people do.
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Save as much as possible, especially if you're single and don't have kids yet. Harder to say no to a wife/kids than it is to yourself.
.
Obviously throw it in 401k and brokerage dude?
Give it to me, I can save it for you.
Retard gang rise up!!
I put 80% into an S&P 500 ETF and about 20% into cryptos. I think you're kind of stupid if you just sit on cash. I've had to pre-clear all my trades, etc. but I'm up pretty big.. like ~20%+ this year.
that's what I figured but when people say bank it or save it, it makes me think of just sitting on cash.
That's not what saving means at all.
Lol I hope you don't sell when you are done next year or the year after that. Agreed that sitting on cash is a bad idea, but saying you are 20% this year as a reason to go all-in on equities and bitcoin is a tough sell. I've extended 5-10% in BlockFi, 30% cash waiting for a downturn, and am looking into going in on a hometown property deal (20-30%). The real estate deal would be a mid-teens IRR in an attractive market and the team has prior experience doing this sort of thing.
Downturn when the fed balance sheet keeps getting way bigger and bigger? No way 100% invested all day
do you have to pre clear ETF's not just equities? how is that process?
I’ve never heard of having to clear etfs
Read your bank's compliance policy, this will be different for everyone. At my previous firm, we had to preclear everything except for a list of exempt ETFs.
What's your industry exposures like?
Been riding QQQ and a few other positions all year. Been pretty conservative in all my other positions + lost a bit on some random short term speculative plays.
Still up a beautiful 35% this year.
I don't think "spend salary bank bonus" means DON'T dollar cost average and actually burn your entire monthly salary... different strokes for different folks but buy a bit and buy regularly
For those anti-cash... I'm in a position (due to previous risk appetite) where I'm pretty much all cash after few years of working (100-200K range) however want to increase my exposure to the market quite aggressively. What would you recommend? Investing like 10K a month over 2021?
Depends, I'd leave some for a cash cushion and then do you plan to buy real estate?
You should have a 3-6 month emergency fund that will get you through a period of looking for another job. That should ideally be in a high yield savings account or something very safe. The rest can be invested.
Personally I don't like the "spend your salary, bank bonus" mindset. For one, you may not make it to next year's bonus, and if you don't you have no savings. Also, it makes you very dependent on the lifestyle that your full salary can provide. I think you should aim to save 25% of your salary and 75% of your bonus. That way you can developed disciplined spending habits and have a monthly savings to dollar-cost-average into your investment accounts, and also have a little fun buying something extra come bonus season.
Blah blah not an investment advisor don't represent my firm etc. just my opinion
thanks for the disclaimer haha. Since you brought up the DCA, how do you think about putting more into 401k vs taking the same money after tax and putting it into a brokerage to dca (assuming both are index funds/etfs)
It kind of depends. I don't think you necessarily need to max out your 401(k) before investing in other accounts, but there is probably a split that makes sense. I think definitely contribute up to the maximum match your firm provides. The 401(k) contribution limit is $19,500 so if you put 10% of your salary in 401(k) it will be about half of that. Then you could save another 10-15%+ on top of that in a regular investment account. Higher weight to 401(k) is more tax advantaged --- if you wait until retirement. In reality you probably don't want all of those eggs in one basket.
This is what I do basically - I'm closer to a 20 / 80 split for my base, and then when the bonus comes I tend to invest that over time and not all at once. Ended up being a great move this year otherwise I would've dumped all my $ in like mid-Jan right before COVID hit.
What % are you guys contributing to your 401k monthly
Personally I contribute the max though I don't think you can afford to do that as an Analyst. As Analyst I would maybe contribute up to the company match.
what % does the max come out to for you
Kind of crazy how many new analysts working in ~high finance~ haven't a clue on how to manage their personal finances
It’s not just new analysts. I know someone who worked in compensation accounting for a large broker dealer. He has had multiple traders who clear $1M+ annually come to his office and ask for advances on their next paycheck or bonus.
Don’t know why you’re throwing shade. Why is it looked down upon for someone who’s never worked a real job and likely never had to make any substantial investments to ask for advice from professionals in the industry?
Sorry not all of us have been groomed for this
I’m glad that new analysts are asking questions about how to save for their future instead of waiting until it’s too late.
General life advice, but don't be afraid to ask questions or ask for guidance on things that are important. This is one of them so kudos to you for realizing the significance of you asking the question.
I didn't take it as shade, but just the general state of personal finance understanding in our youth which needs to be improved.
High finance doesn't necessarily mean wealth management, consumer banking, or retail trading...
Too busy learning how to walk through a DCF and account for changes of $10 of depreciation...
Wait till they change it to $11 dollars. That one will throw you through the ringer.
Tell me if I am a complete idiot here, but in an ideal world I would first open an Interactive Brokers account with margin. Their margin rates are relatively low compared to other brokers, so if I could get a minimum of 2x leverage (up to 4x) on a margin loan for say a 2% fee, and then if invest the entire exposure in SPY, I could realistically expect a 7-8% average CAGR (excluding fees). Obviously the leverage would severely eat into my equity on down years, so I would keep enough liquidity on the side to post margin.
For compliance reasons I can't do this, and likely most people on this site can't either, but this seems like a great way to expand my wealth base with relatively predictable risks. Albeit aggressive, I'd love to try it out. Would this work? Am I missing something?
You typically need to have a very very significant sum of cash/assets with a brokerage to get access to their lowest margin rates offered
True but not with IBKR
Your main goal should be to save as much money as possible and not having a mindset of playing % numbers in your salary. Dispersed your savings in a diverse portfolio from all types of markets whether it’s equities, crypto, etc. It’s not bad to treat yourself here and there, but save while you’re young if you’re planning to have kids my guy.
You aren't guaranteed a bonus, ever. A majority of your MD's are replaceable. The middle managers even more so. What makes you think you as an analyst aren't the exception to the rule?
shut up
Does hearing the truth suck? lol
Is the 401k considered saving? I was thinking of maxing it out and using the rest of the money I save into ETFs on a separate trading account.
Yeah I consider it saving. You’re putting money away in an investment vehicle for a later date
Nah, it's spending. I've seen too many young professionals blow their earnings on their 401K. It's kind of sad; they had to go to rehab to overcome their addiction.
Question for you folks. Do you think someone early on in there career (22-30) can be too concentrated in equities through 401k, Roth, personal account, assuming you have >6 months expenses in cash.
I would say no. You can diversify through a myriad of etf's in today's world. If at some point having so much "paper" wealth begins to make you nervous, you can easily liquidate some of your personal accounts and get into RE, direct lending, etc.
just make sure you diversify properly. Don't put all money in US stocks for example.
What's the best/easiest way to get exposure to international and EM?
why would I want to earn lower rates? Just keep your money in the US
Bank everything
how does your portfolio distribution look if you dont mind me asking
20 different stocks in different sectors, some growth some value, balanced geos
You kinda have no choice whether to spend the salary or the bonus, right? Like, you can't eat off your bonus because it's a lump sum at the end of the year, and it's discretionary. That statement is just practical. There's really no two ways about it though.
Use it all up on Farmville ... you'll have one crazy farm dude, fully fortified and lots of special perks. Lots of people will be jealous
Does this rule apply to Associates? Assuming no kids, would be hard to spend through $150k
lifestyle creep is real
It is very easy to spend through $150k pre-tax.
Try getting married bro
I invest my bonus in some combination of single family rentals, coinvesting in firm funds, and index funds
are you saving/investing portions of your salary as well outside of retirement accounts
Yep, I usually max out 401k with salary
Since I started my career I've invested all bonus and probably around 10-20% of my take-home monthly salary.
Originally almost all went into equities but I realised when shit went down earlier this year that I hadn't considered the correlation between my personal portfolio performance and work stress levels/job security enough. To be dealing with extreme pressure at work while seeing a not insignificant part of everything you ever saved up being wiped out day after day was tough mentally. So my advice is to also think about your risk profile in the context of your job security, bonus expectation etc.
I currently have about 5 months worth of living expenses in the bank, and the rest roughly allocated in;
70% equities (25% US, 25% Asia, 20% EU, 15% UK, 15% other)
15% corporate bonds
10% commodities and some real estate
5% government bonds
All of this is in cheap index funds or similar and invested in ways that wouldn't incur any capital gains tax (e.g. UK ISA). Pension portfolios are basically 100% equities.
For context in early 30s and no family.
Great comment. People fail to realize that when the markets tank is when you need money/liquidity the most. Hopefully you've not only recovered by now, but are up on the year.
Being on WSO afterall...what's your total portfolio size? Curious to know how saving 100% bonus and 20% of salary has worked out. Also, how do you invest in foreign equities/markets?
Incoming FT but currently have ~45k invested through either index funds(Roth IRA) or small portions in a few longer term speculation plays in EVs, marijuana, etc . Not sure what's realistic after starting FT. My first goal was 100k by 25 but I think more like 150k would be a realistic goal as well. Got my current money through a few internships and grew it through some lucky options trades this year, and college is nearly free after financial aid so most of it gets saved. After doing very high level budgeting calculations, I don't see why saving at least ~10k/year from base isn't possible.
I personally like the save 25% of base and 75% of bonus.
The first part is supposed to prevent lifestyle creep. The increase in base can cause you to start spending outside of what you need quickly. Additionally, in a world where you do need your savings, you don’t burn your cash so quickly.
Second part let’s you treat yourself once a year. I personally buy one nice/expensive thing and it sets my budget for a vacation. Typically bank in a high yield account that budget until I use it.
i like this, never thought about stashing away certain life event budgets to accrue some nice interest income, as low as it will be for a while at that haha
Haha, it was a great idea when I banked away a Europe vacation (in between IB -> PE) in a high yield for close to 2.0% last year....
It used to make me feel like I wasn't wasting the money, but this year I've been tempted.
The saying spend the salary and bank the bonus comes from pre-crisis 2008 days. It still probably applies for analysts because their comp structure hasn't changed that much relative to other titles. But for associates and up that doesn't apply anymore. For example pre-2008, an associate 1 got around 100-125 base + 200 bonus. But today associates get 150-200k bases but smaller bonuses. As a single associate, you should not be spending your entire 200k base salary even in NYC.
Save 1000 EUR/month from your base and the bonus (in Germany)
What is the match policy like for a typical bank 401k?
Incoming analyst at top mm. Bank matches 4% but 3 year vesting period. Trying to figure out if I should just put in the 4% or go up to like 13-14% to max out.
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