What's the smartest thing a recent graduate can do with the money they earn from their first job/bonus?

Just curious what the brilliant minds of WSO have to say about this. Obviously it's a good idea to pay down debt and not spend your money on a sports car, but also given the current interest rate environment - maybe it makes sense to pay down school debt slowly and invest all disposable income into the market?
Should I save for a property right away?
Should I live at home for as long as possible?

What would you do if you could go back to being 22 right out of school to make yourself richer today?

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Comments (63)

Jun 4, 2018
whatsapitchbook:

Should I live at home for as long as possible?

What? No. Move out immediately. Be your own man/woman.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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Jun 4, 2018

False. If you're working a very high paying job directly out of school (banking) and have the opportunity to live with your parents for your analyst years, absolutely do this. If your parents live conveniently close enough to your job, this will literally be ~100k after tax that you will pocketing, or 150k pre-tax. The majority of the income of any young person's first job will go towards rent, especially if you live in a big city. There is no shame in doing this financial no-brainer. You will have the rest of your life to wear the big boy pants and all the independence and responsibility the comes with it, but this way you will have a 2 year financial head start on your peers. Moreover, the money you save can put you on the path to property ownership in your mid twenties, which is one of the most proven avenues of wealth generation (if you plan on living in your home 5+ years). This is all of course assuming that you and your parents have a good relationship and both parties understand the nature of your job / schedule.

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Jun 4, 2018
iggs99988:

False. If you're working a very high paying job directly out of school (banking) and have the opportunity to live with your parents for your analyst years, absolutely do this. If your parents live conveniently close enough to your job, this will literally be ~100k after tax that you will pocketing, or 150k pre-tax. The majority of the income of any young person's first job will go towards rent, especially if you live in a big city. There is no shame in doing this financial no-brainer. You will have the rest of your life to wear the big boy pants and all the independence and responsibility the comes with it, but this way you will have a 2 year financial head start on your peers. Moreover, the money you save can put you on the path to property ownership in your mid twenties, which is one of the most proven avenues of wealth generation (if you plan on living in your home 5+ years). This is all of course assuming that you and your parents have a good relationship and both parties understand the nature of your job / schedule.

This isn't a monetary decision for me. To gain independence and spread your wings is to live.

To find your true self and true desires, you must detach from parental roles and free yourself to provide direction for the beginning of the rest of your life. Without this independence, you are living under their direction, under their wants/needs to a certain extent. You are saving money, but at what cost? What is the opportunity cost of making a misstep in the initial trajectory of your life?

True, you may go to work and perform well and come home to dinner with Mom and Dad and they will applaud you on your bonus and hard work. But, how long have you been listening to them? Is this path your true path? What if you want to do something that they do not approve?

The first couple years after graduation are an outstanding time to find your heart's desires and the direction you wish to travel for the rest of your life. So, choose these steps wisely.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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Funniest
Jun 4, 2018

Operating under the assumption that said young individual entering the workforce is intelligent, grounded, and has had the opportunity to live independently and find himself (whatever that means) during the four years spent on a college campus, I'm not sure how much "wing spreading" to "live" will be taking place for an overworked analyst coming back to his Hells Kitchen shithole studio at 2 am.

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Jun 4, 2018
iggs99988:

I'm not sure how much "wing spreading" to "live" will be taking place for an overworked analyst coming back to his Hells Kitchen shithole studio at 2 am.

You'd be surprised.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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Jun 4, 2018

Lmao this almost made me tear up man.

What concert costs 45 cents? 50 Cent feat. Nickelback.

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Jun 6, 2018

Sending all of my money to rent, student loans, and expenses for most of my 20s certainly didn't make me feel very free at all...

Don't live with your parents for ages, but if you swallow your pride for a year and put a $100K in the bank, you're going to be way better than off than a bunch of "free" people who are 5 years older than you.

Jun 7, 2018

Assuming that I only undertake lease (probably shared with a few bachelor buddies) and daily living expenses (food, transportation, etc.), would you recon I'd retain a modest amount of financial stability despite being worked to the bone at an IB firm?

Jun 10, 2018

Joseph Kennedy Sr, one of the richest Americans of the 20th century, intellectually independent and tough as nails, lived in his parents' home while being the president of a small Boston bank, running his own "tourist bus" enterprise with a friend and managing the books of a real estate company he ran with another friend. This was all in his mid to late twenties.

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Jun 6, 2018

$100k? Wtf? Even if you live in manhattan, unless you are a dumbass analyst, you shouldn't be paying more than $2k a month which is roughly $25k total x2=$50k + furniture of $5k tops=$55k

Yeah if you can live at home it's great to have $55k to put away but then again if your parents live in manhattan or in commuting distance money probably is not a concern for you lol

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Jun 15, 2018

I did a double take too and I think they're saying after tax, your base/bonus will be $100k a year as an analyst. You'll be working enough that expenses should be pretty minimal if rent is covered.

Jun 4, 2018

If someone knew the answer I doubt they would be on WSO.

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Jun 4, 2018

If you have 1-2 months off before you start work, travel the world. There's very few times in your life where you'll have a few months off like this again before retirement. This isn't an ROI decision with your money, but a life experiences decision.

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Jun 4, 2018
thexfactor336:

If you have 1-2 months off before you start work, travel the world. There's very few times in your life where you'll have a few months off like this again before retirement. This isn't an ROI decision with your money, but a life experiences decision.

Yeah, this is what I did. I highly recommend it.

I traveled for a couple months. I went back to Europe and also down to Africa. I surfed Jeffrey's Bay in South Africa and ran into Kelly Slater down there in a random bar when he was surfing the Billabong Pro. I even got a picture with him. Pretty surreal. He was playing the guitar in a bar. Anyway, yeah I went to Capetown and also sampled some wine in Stellenbosch, then flew back up to Europe to pick up some clothes in Milan and then back to the US to start working.

I actually went to the city I was moving to after graduation, lined up an apt a couple months in advance and then traveled, flew back to my old city, packed everything in my car and drove straight to my new apartment. It worked out really well.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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Jun 4, 2018
Isaiah_53_5:
thexfactor336:

If you have 1-2 months off before you start work, travel the world. There's very few times in your life where you'll have a few months off like this again before retirement. This isn't an ROI decision with your money, but a life experiences decision.

Yeah, this is what I did. I highly recommend it.

I traveled for a couple months. I went back to Europe and also down to Africa. I surfed Jeffrey's Bay in South Africa and ran into Kelly Slater down there in a random bar when he was surfing the Billabong Pro. I even got a picture with him. Pretty surreal. He was playing the guitar in a bar. Anyway, yeah I went to Capetown and also sampled some wine in Stellenbosch, then flew back up to Europe to pick up some clothes in Milan and then back to the US to start working.

I actually went to the city I was moving to after graduation, lined up an apt a couple months in advance and then traveled, flew back to my old city, packed everything in my car and drove straight to my new apartment. It worked out really well.

How much can travelling like this cost though? My parents are middle-low class income and can't support me through travels, buying a car, rent, or helping me pay down school in any way. Is travelling going to be a good investment for me still?

Jun 5, 2018

A lot, but that doesn't mean you can travel for cheap. Backpack through Eastern Europe/Southeastern Asia, Airbnb/hostel with friends, take buses between cities or rickety trains, fly budget airlines, hit up Aldi or Lidl or whatever else is local. You'd still be paying but overall the trip would cost a lot less.

Jun 6, 2018

My same thoughts here....sounds like someone with tons of cash to travel the world and get an apartment months in advance is giving the OP advice on whether to save money or not.....maybe if you have a silver spoon in your month, this isn't your post to opine on.

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Jun 12, 2018

I was having lunch with a couple VP's and I asked them for advice regarding what I should do with the couple months of down-time I have before I begin work. They told me to travel, even if I had to take out a small loan.

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Jun 4, 2018

I disagree with the 'move out immediately' comment. If you can live there for even an extra year, you're talking between most likely 12-20K of extra money to be able to put towards an investment/down payment on a house, etc. I don't think you should live at home that long, but it's definitely acceptable until you're 23. It gets really depressing watching the rent check go out the window every month for 5+ years.

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Jun 4, 2018
MonkeyWrench:

I disagree with the 'move out immediately' comment. If you can live there for even an extra year, you're talking between most likely 12-20K of extra money to be able to put towards an investment/down payment on a house, etc. I don't think you should live at home that long, but it's definitely acceptable until you're 23. It gets really depressing watching the rent check go out the window every month for 5+ years.

Yeah, good luck dating.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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Jun 4, 2018

Most girls I dated from 22-27 lived with their parents - it's not like the majority of people are trust fund babies with a loft all to themselves. If you spend one year being disciplined and saving some $, you can buy your own place much quicker. Much easier to date/bring women home to a place you own outright rather than to a one bedroom apartment that you've partitioned and are living in with 3 of your closest friends and 200+ rats living in your ceiling HVAC.

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Jun 4, 2018
MonkeyWrench:

Most girls I dated from 22-27 lived with their parents

So you mainly dated 18 year olds when you were 22 - 27?

Kind of a crazy 5 years right...

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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Jun 4, 2018
Isaiah_53_5:
MonkeyWrench:

Most girls I dated from 22-27 lived with their parents

So you mainly dated 18 year olds when you were 22 - 27?

Kind of a crazy 5 years right...

https://media.giphy.com/media/Q18yWRHG4dx2E/giphy.gif

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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Jun 4, 2018

Can't tell if you're trolling but if not, to clarify I was dating 22-27 year olds who were living with their parents. But I respect the movie reference.

Jun 6, 2018

Once you start dating women who can handle their own rent, you will enter a new stratosphere. A whole new world awaits my friend.

Jun 4, 2018

Maybe not the "smartest," but I plan to donate $10K to my Catholic high school. They'll probably make me a junior board member.

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Jun 4, 2018

that display name and this decision, good on u

What concert costs 45 cents? 50 Cent feat. Nickelback.

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Jun 8, 2018

Ben Kim is that you?

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Jun 4, 2018

I'm not even investing in a 401k so I don't have room to talk but I'm billing the firm for every meal i consume as an analyst so thats that.

What concert costs 45 cents? 50 Cent feat. Nickelback.

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Jun 4, 2018

lmao you're losing out on hundreds of thousands of dollars over time... even the opportunity to become HNW, or even very HNW

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Jun 4, 2018

well im only about a year into my analyst gig maybe i should turn a new leaf and invest

What concert costs 45 cents? 50 Cent feat. Nickelback.

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Jun 4, 2018

Yeah dude working 70-90+ hour work weeks can't be too great I imagine if you don't have much money saved to show for it at least.

Jun 4, 2018
Jamie_Diamond:

well im only about a year into my analyst gig maybe i should turn a new leaf and invest

At the very least invest the amount your company matches.

Christ, you're throwing away free money.

Jun 6, 2018

what firms in finance match? lol i clearly worked at all the wrong places

Jun 8, 2018

what the fuck? Pretty much all of them dude. Who have you been working for?

Jun 8, 2018

The two pe funds I worked at: 1) established in the 90s and had a match up to $2k total per year 2) first time fund, we didn't have a 401k until this year (it's like year 3 of investing) with 0 match

when I was in banking (shitty elite boutique that wso nuts over) i know they had a 401k but I don't think they matched that much. I was also a fucking broke boi at the time who was trying to pay back my parents and loans for shit so needed that money asap/didn't contribute to 401k

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Jun 8, 2018

damn dude. that's really shitty... :/

Jun 4, 2018

I mean you are and you aren't. If you're not investing the money in anything else then yes, but if you are not investing in a 401k but then use the after tax proceeds to invest in something else like an after tax account/IRA or real estate, it's probably a 50/50 shot which would be more profitable over time. You are going to get taxed on the 401k eventually. There's a high likelihood that the tax rate only increases with time as opposed to decreases, so you may take a bigger hit to value later while you get the tax benefit today. If you avoid a 30% payment today but it's 40% in the future it's not really beneficial unless you hit a period where your returns are absurdly out sized over the term your 401k is active.

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Jun 4, 2018

If his company does 401k match up to a certain %, then he's foolishly missing out on free money. Always contribute to at least earn the full amount of the company match

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Jun 4, 2018

Yeah 100% agree with that, I'm just saying beyond that point you could make an argument either way.

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Jun 4, 2018

Yep agreed.

I think the main thing that 401k vs. after-tax comes down to is the financial discipline an individual has. If you have the discipline to aggressively invest money you take after-tax, then that would work and it might be the better play long term. But for someone who lacks financial discipline and spends most of their take home pay, they're better off maxing that 401k so that it gets cut out before they can spend it in their paycheck.

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Jun 4, 2018

You can convert over time to a Roth tho (e.g. multiple decades) to reduce the tax liability over time. Property is an illiquid investment; even in markets in SF, LA, and NY, an asset is only worth what someone else is WILLING to pay for it. Most would be better off investing in REITs if they want to have real estate holdings.

Jun 4, 2018

You can reduce the tax liability but you can't make the uncertainty go away. The sad reality is that in most societies the tax burden (% wise) goes up, not down, over time. Real estate is illiquid, true, but the returns/yields are commensurate with the illiquidity risk. With regard to the price being what someone is willing to pay for, you could say that for literally any asset, including the underlying securities baked into a 401k, so not sure that has a whole lot of relevance here. In a lot of cases, the NAV of REIT's don't accurately reflect/mirror the value of the underlying assets, and in some cases it's dilutive vs. ownership outright in those assets.

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Jun 4, 2018

Yes, I understand what you are saying regarding pricing accuracy, but my point is that liquidity is everything. Unless you are buying investment real estate AND generating appropriate monthly cash flow from it through renting it out, you should not view residential real estate as an asset. Also, adjusted for inflation, equity markets have still returned closer to 7% in real terms. Real estate has barely kept up with inflation over the last 70-80+ years. I personally believe that, even in areas like NY and California, relying on primary residence appreciation before selling it off to generate significant money (7 figures+) is a fool's game. You are much better off steadily investing in U.S. and developed global equity markets from a very young age (10-15 years old is a preferable starting point; 5-10years old is even better) and simply waiting over time.

Jun 4, 2018

Good point. For my 5 y/o cousin's birthday I am going to give him the password to his new Vanguard account that only holds Index Funds. I'm sure he'll be ecstatic

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Jun 4, 2018

That's honestly a wonderful thing you are trying to do. If I ever had a child, I would try to give him/her an absolute minimum 5-6+ figure investment account, and highlight the importances of time, compounding, and separate asset classes (honestly think now that due to advancing technologies and improvements in life expectancies, many individuals should consider a 70/30 equity to fixed income allocation minimum throughout life). I also think that index funds are best for most, but certain actively-managed funds have been able to outperform index funds for sizable amounts of time (min. 30-40+ years).

Jun 4, 2018

I think we can both agree that money that is not liquid, or cannot be relatively quickly liquidated, is largely useless. You can have 5+ houses, but unless you are renting them out to generate actual cash flow, the property and land itself are useless unless someone is actually willing to buy it from you. The chances of that are much less than having a multimillion dollar portfolio and exchanging holdings within a market that contains MILLIONS of buyers and sellers every second. In my humble opinion, someone is not HNW or truly well-off unless they can quickly liquidate their assets, should they require it, and not have to attempt to sell illiquid assets, which may not even possibly sell. Also literally no inherent, or even good way in my opinion, to reasonably value real estate in many areas, particularly NY, SF, LA, London, HK, etc.

Jun 4, 2018

I think that you are missing my point that I'm talking about commercial real estate. Obviously if someone tries to buy 5 SFRH in the priciest markets in the world that you mentioned at the top of the market, it's not going to end well.

Given your comments, it doesn't appear that you are in-tune with the commercial real estate market at the moment, as cap rates, even as compressed as they are, are still seeing a healthy spread in a lot of markets compared with other securitized assets. If one is making +/- 5-7% return on their money, even if it's 'illiquid', the returns/annualized yield is not. The comment about not being able to value real estate in a good/inherent way is a non-starter for me, there are several very well documented ways to value commercial, let alone residential real estate.

I don't disagree with you on the comments on the other asset classes.

Also, food for thought, there's a reason that the quote re: 97% of millionaires owning real estate is a thing.

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Jun 4, 2018
MonkeyWrench:

Also, food for thought, there's a reason that the quote re: 97% of millionaires owning real estate is a thing.

There is a difference, a large one, between real estate leading to one becoming a millionaire and a millionaire merely using real estate as a means to provide adequate diversification.

Jun 4, 2018

There is, but this is a straw man as that doesn't mean that one precludes the other. Even with SFR, not even including the income streams/rents from the commercial/multifamily space (or the fact that institutions are able to transact much quicker than you are most likely aware of which mitigates the liquidity argument), one is able to build equity much more quickly with a 15/30 year fixed amortization on a normal mortgage than the -100% investment that constitutes rent. This is further pronounced when you take the interest write-off into consideration. There's also an assumption that needs to be made with respect to a rational actor being invested in SFR. A rational person who doesn't over-leverage is simply going to decide to not sell in a time where they are upside down on their valuation. They will just wait until the values swing the other way. As long as you don't go BK you can choose when to sell/list the property. Same principle as with a stock.

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Jun 6, 2018
WACCC:

I think we can both agree that money that is not liquid, or cannot be relatively quickly liquidated, is largely useless. You can have 5+ houses, but unless you are renting them out to generate actual cash flow, the property and land itself are useless unless someone is actually willing to buy it from you. The chances of that are much less than having a multimillion dollar portfolio and exchanging holdings within a market that contains MILLIONS of buyers and sellers every second. In my humble opinion, someone is not HNW or truly well-off unless they can quickly liquidate their assets, should they require it, and not have to attempt to sell illiquid assets, which may not even possibly sell. Also literally no inherent, or even good way in my opinion, to reasonably value real estate in many areas, particularly NY, SF, LA, London, HK, etc.

You speaking in such absolutes is retarded. Who the fuck owns 5 empty houses? Just bc the stock is liquid doesn't mean the time you need to sell won't be during a nasty recession: see retirees circa 2009 and ask them how great their liquidity was.

It all depends on; risk tolerance, time horizon, and objective.

If the glove don't fit, you must acquit!

Jun 6, 2018

Well obviously risk tolerance, time horizon, and investment objective are all important. The underlying assumption is that one will not choose to spend everything before he/she dies, therefore, the risk tolerance, objective, and time horizon will all extend beyond merely his/her life on to the kids, other family members, charity, etc. In that sense, the stock market is not only fairly liquid, but a fairly safe investment over sustained periods of time. Lmao even during the 2008-2009 recession, you do realize that someone smart who merely held was back even in just under 5 years right? 5 years after that, the initial value right before 2008/2009 would have still doubled. In the last 20 years, we have literally had the tech bubble, a major terrorist attack, a recovery from 2003-2007, the GFC, and a 9 year bull market. Even through all of this, your money would have quadrupled if you literally just let it sit and did not add a penny to it. Most people are undisciplined enough though to be patient and defer gratification. Why do you think that is very easy to make money, but much more difficult to sustain and preserve it over time?

Jun 4, 2018

live at home if you can without question.

be careful where you spend your money. buy HIGH QUALITY things - furniture, backpacks, clothes, electronics, etc whatever it is. Go with more is less and higher quality over cheap.

The $30 backpack isn't better than the $130 of high quality given how much use you get out of it for example.

obviously invest money, we are on a finance website...

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Jun 6, 2018

I spent half my money on gambling, alcohol and wild women. The other half I wasted

If the glove don't fit, you must acquit!

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Jun 6, 2018

I am more or less in the same position as you. My thinking is sock away as much $$$ as possible in your analyst years. Assuming your family lives in or near the city where you work it makes sense to bite the bullet socially considering your hours might be prohibitively long - so why shell out so much money on rent? Additionally, it makes sense to at the very minimum take the 401K company match since that's free money after it fully vests. I would dice up the rest for your expenses and invest the remainder according to your risk appetite. Main takeaway: hedge against unpredictable events in the future (getting laid off, bootstrapping a startup, etc.) by saving as much money as possible until things stabilize.

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Jun 7, 2018

Take your time live at home for <12 months to find a decent place and save up some cash. If you rent out a room in an existing setup you wont have to buy much furniture and the costs would be minimal monthly while affording you full flexibility of an adult. In the meantime, save up your cash and do something "good" with it, use it to travel, invest a portion of excess, buy decent clothes for your new job, etc. Enjoy these next few years.

Jun 7, 2018

I invest my money on poker tournaments. Will revert back when I win the WSOP this year

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Jun 11, 2018
whatsapitchbook:

... invest all disposable income into the market?...

Short the VIX

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Jun 11, 2018
HermitFromThePH:
whatsapitchbook:

... invest all disposable income into the market?...

Short the VIX

Thanks arbitrage andy

Jun 11, 2018
Jun 12, 2018
Jun 16, 2018