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I am in the last year of university and got myself a well paid part-time job. My expenses are negligible for now. Since I was 18 I was always making money here and there, so I managed to gather over 400k of local currency,CZK (200 on my personal account, 200 on "building savings"(?)).

Now I've been doing a little research for the last couple of days so I've got an idea what I could do with the situation, but the world of finance is absolutely alien to me, big and scary so I would seriously appreciate a feedback and some advice.

My idea would be to take most of the saved money and put it into ETF as a long-term investment, such as VOO or SPY, which might be a less dangerous option. From this point I'd like to regularly, monthly, save up.

My question is: is this a smart idea, or are there any flaws I don't see. I'd like to see this as a passive, long term investment. Right now I am sitting on two chairs at once and I don't have the time to learn enough and watch enough the world of finance to start actively working with money. I am aware of generally known risks about ETF, that it is a bit more risky than other options etc. Another question: what would be the procedure, is it really that easy to create an account with a broker (xtb,etoro), put the money there and immediately buy? Is this reliable?

Now for some this probably is the very basic question, but I really have got no one to ask around and as well as I know that it is the better the sooner you start with saving, I am also aware that it might be a bad idea to rush into things and regret in a week or two after finding out and realizing mistakes I don't see.

Edit: naturally I am curious about another suggestions that would you see as a better option

JTP - Apologise to Monica
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Nuwanda
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  • Do you know when you will want to use these savings? If you know you need the money in 6 months so you can buy a car / flat / rent deposit or whatever, then you shouldn't accept any risk. If you won't need it for 40 years, risk of the stock market should be fine. If you need it some time in between, then it depends. – Grade 'Eh' Bacon May 10 '21 at 17:14
  • For now I am definitely inclining for a long term investment and I must say from my few days research and discussion over the internet on different platforms I think the perfect start will be going after ETF only (easiest, laziest option), OR get a bit more aggresive with robo-advisors OR building a three-fund portfolio – Nuwanda May 10 '21 at 20:59
  • Just so people don't have to look it up themselves, in case it makes a difference to the advice, 400K CZK is ~$19K USD, ~13.5K GBP, or ~15.5K EUR. – ShadowRanger May 13 '21 at 23:23

2 Answers2

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More or less standard answer for this type of question. If you have some extra money, you should (in that order)

  1. Pay off any high interest debts
  2. Build up an emergency fund of 3-6 months of minimum living expenses. Put it in a savings account or something with easy access.
  3. Pay off any low interest debts
  4. Maximize tax advantaged savings vehicle (retirement plans, health savings plans, education plans, etc.) if they exist in your local legislation
  5. Invest: low fee ETFs are the best option for most personal investors. Create a mix of high volatility and low volatility options, where the balance is based on the time frame of your goals for the money.

If you go with broad ETFs there is really no need to track this in great details. You should look at it once a quarter and re-balance maybe once a year.

Hilmar
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  • Very nice and compact answer that correlates with my idea of the start, thank you @Hilmar, very useful! – Nuwanda May 10 '21 at 15:36
  • Good answer - given the asker's newness I would suggest to bold point 5, highlighting that very short-term needs for the money would want no risk at all. – Grade 'Eh' Bacon May 10 '21 at 17:15
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To feed off of @Hilmar's solution, it also depends on your situation. The steps are roughly in the order he describes. However, it can be a little more dynamic than that. For example, you can work on two steps at once (paying high interest debt over time - building up your credit score - whilst building up your emergency fund over time).

These are basically the two realities though, before you start investing. In the interim, it doesn't hurt to research "How to invest" - (1) this means understanding, separating, and creating the responsibilities of various financial accounts (savings, checkings, emergency fund, long term savings, retirement funds, investment accounts) (2) creating plans, timeframes and goals for your portfolios, (3) researching how to evaluate investments and structure your portfolios.

The work is endless...