Author Topic: How to start investing as an 18yo?  (Read 2654 times)

jonh

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How to start investing as an 18yo?
« on: August 29, 2016, 06:10:06 PM »
Hey mr. moneymustache readers,

I just recently turned 18 and after being motivated by a NPR Planet Money episode on index funds, the listen money matters podcasts, and this site, I decided that I want to start investing. As I am 18 and still in high school I don't have a very large income and can afford to invest between 70-100$ a month depending on how much work I get.

Now, the listen money matters podcast and an article on this site both recommend Betterment, but after reading about their fees (3/mo if I don't manage to invest 100$ a month and 0.35% if I do), I have become a little skeptical. These fees will compound and could cost me money that could have been invested. I have also heard about WiseBanyan but am skeptical of their business structure as they seem to only make money from charging for extras. I don't like the idea of the company managing my (relatively small but substantial to me) investments going under and me having to sell the ETFs, suffering the associated tax. (Also, I need whatever service I use to provide all the necessary tax forms as taxes will otherwise be irritating for me)

Vanguard seems like a great option, but their mutual funds have 3000$ minimums that I can't afford and buying single ETFs seems irritating as I don't believe they allow purchasing of fractional shares. This would make it much harder to invest, as I would also have to make sure my portfolio is well balanced and could only purchase one ETF whenever I have saved up enough to buy it.

Any recommendations will be well appreciated!

Big in Japan

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Re: How to start investing as an 18yo?
« Reply #1 on: August 29, 2016, 06:26:06 PM »
Why are you only making $70 - $100 a month? I bet you can make more if you tried.

Frankly, you're better off keeping it in cash until you hit the minimums for a mutual fund. You won't lose that much time.

jonh

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Re: How to start investing as an 18yo?
« Reply #2 on: August 29, 2016, 06:29:54 PM »
Making more money would be a matter of having time. Between a heavy school workload and extracurricular I don't have much free time. Either way, keeping the money in a checking account seems like a waste.

arebelspy

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Re: How to start investing as an 18yo?
« Reply #3 on: August 29, 2016, 06:40:37 PM »
That small of an amount (I.e. under 3k) is fine to keep in cash, liquid for emergencies.  Get in the habit of saving now, so when your income kicks in, you can save huge chunks of it.

Make your goal now to save up to that 3k Vanguard minimum.

(Or check if one of the reputable brokers--Schwab, Fidelity, etc.) will let you start a Roth with $100.
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erutio

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Re: How to start investing as an 18yo?
« Reply #4 on: August 29, 2016, 07:12:02 PM »
(Or check if one of the reputable brokers--Schwab, Fidelity, etc.) will let you start a Roth with $100.

+1.

First, congrats for having such a inclination for investing at such a young age.  You'll be fine.

Second, Fidelity has no minimum to open a Roth IRA (if that is the investment vehicle you're looking for).  It wouldn't be getting much interest over a regular checking however. 
I actually agree with some of the other advice already given.  Keep it liquid in a checking account. 
The only advantage I see in opening a couple hundred dollar Roth IRA now would be that it gets the 5 year clock started for penalty free withdrawals.  Maybe useful if you need money for a down payment or something after college. 




erutio

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Re: How to start investing as an 18yo?
« Reply #5 on: August 29, 2016, 07:20:19 PM »
Making more money would be a matter of having time. Between a heavy school workload and extracurricular I don't have much free time. Either way, keeping the money in a checking account seems like a waste.

You could put it in a high yield online savings account, such as allybank or discover.  It would technically be liquid, but takes an extra step to access, so that may temper any impulse spending.  You get better interest than most CDs or MM accounts.  And once you've saved 3k, you can open that vanguard Roth. 

Actually, the Vanguard target retirement funds only have a $1k minimum.  Expense ratio only 0.14-0.16%.  Your goal should be just $1k then if you really want to get that money into Vanguard early.

La Bibliotecaria Feroz

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Re: How to start investing as an 18yo?
« Reply #6 on: August 29, 2016, 07:20:27 PM »
Making more money would be a matter of having time. Between a heavy school workload and extracurricular I don't have much free time. Either way, keeping the money in a checking account seems like a waste.

First of all, it's not a waste. You might need $$$$ for a car repair or whatnot. Or college living expenses?

Also, I think you can actually open a Vanguard Roth with $1000, you just wouldn't be able to buy a mutual fund until you were at $3000.

BUT It's August, and the deadline to invest in an IRA for 2016 is not until April! So you have time to save and decide later.

Right now, you don't have enough to invest. So stash, stash, stash in an online savings account--I'm partial to Ally. See where you are in the early part of 2017 and make a decision then what to do.

MoonLiteNite

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Re: How to start investing as an 18yo?
« Reply #7 on: August 29, 2016, 08:07:26 PM »
1 penny at a time!

If you make 5$/hr or 20$/hr
Pay the LEAST you have to do to keep a roof over your head, and food.
Then no matter what, save at least the matching amount from a 401k.
If no 401k is involved, save at LEAST 10%.

After you start getting yourself setup in life, you want to slowly bring up that %, the higher the better.

edit:
To directly answer your question.
Throw the money into a savings account, and get that 3k saved up asap.

Also do not feel bad about buying 1 ETF at a time. If they are vangaurd ETFs, they are free. No limits on how often or how many you can buy. I am actually buying 2 shares each month of an REIT.
« Last Edit: August 29, 2016, 08:11:50 PM by MoonLiteNite »

Big in Japan

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Re: How to start investing as an 18yo?
« Reply #8 on: August 29, 2016, 08:21:44 PM »
Making more money would be a matter of having time. Between a heavy school workload and extracurricular I don't have much free time. Either way, keeping the money in a checking account seems like a waste.

I understand. When I was in HS I focused heavily on academics and test prep as well.

It is a waste, but it's a really small waste. Let's say you put $80 / month in the account and your money grows 6% annually over the next four years. You'll end up with about $4200 in the account. If you had just put it in checking, you'd have $3840. The difference is $360 dollars.

The benefits of having almost $4k liquid outweigh the $360, in my opinion (if you don't have an emergency fund yet). It's like insurance - sure, you're on average losing money when you insure your house or car - but does that make it a waste and/or bad decision? The downside of something happening to your house/car is so catastrophic that it's worth the small price. An emergency fund that's in a checking account is the same sort of thing.

Once you get out of college and start making $40k+, you can save thousands every month, and you won't have been held back by your lack of aggressive investing in your teens. You'll still be way ahead of nearly all your peers in savings habits and financial security.

BrickByBrick

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Re: How to start investing as an 18yo?
« Reply #9 on: August 29, 2016, 08:27:40 PM »
Correct me if I'm wrong but doesn't vanguard target retirement or STAR accounts only have a $1000 minimum?  That could be a fund to shoot for first then exchange once you get to $3000.

marty998

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Re: How to start investing as an 18yo?
« Reply #10 on: August 30, 2016, 02:51:57 AM »
Have a think about what you are saving/investing for (Don't say FIRE).

You're 18... you are going to have education expenses to fund. You are going to make decisions over the next few years regarding student loans/cars/housing/partners etc.

Flesh out your life choices first and then allocate your money towards those goals in savings accounts if they are short term (1-3 years). Investing "just cos FIRE" is getting a little ahead of the game.

Best of luck.

Dee18

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Re: How to start investing as an 18yo?
« Reply #11 on: August 30, 2016, 10:11:56 AM »
My daughter is 19.  At my urging she opened a $2000 Roth IRA with Fidelity this past March.  (She had  2015 earned income  greater than $2000.) She invested it in a total stock market index fund.  Fidelity walked her through the process.  She is planning on it being the beginning of her retirement fund.  She had tried to do it the year before, but it turns out that in our state you have to be 19, not 18, to legally enter into a contract.  Both Fidelity and Vanguard told her of that rule. 
« Last Edit: August 30, 2016, 01:43:50 PM by Dee18 »

erutio

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Re: How to start investing as an 18yo?
« Reply #12 on: August 30, 2016, 10:24:41 AM »
My daughter is 19.  At my urging she opened a $2000 Roth IRA with Fidelity this past March.  (She had  2015 earned income  greater than $2000.) She invested it in a total stock market index fund.  Fidelity walked her through the process.  She is planning on it being the beginning of her retirement fund.  She had tried to do it the year before, but it turns out that in our state you have to be 19, not 18, to legally enter into a contract.  Both Fidelity and Vanguard told her of that tule.

What state is this?  If you don't mind me asking.