Author Topic: I'm 20 years old and want to start investing  (Read 3400 times)

righteouspotionswizard

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I'm 20 years old and want to start investing
« on: January 26, 2016, 08:37:10 PM »
I wanted to invest in Vanguard Admiral shares as they have the lowest cost, but I only have $1,000 right now and don't plan on getting to the $10,000 minimum for that kind of fund until two or three years later.

I've recently been hearing about robo-advisers Betterment and Wealthfront.I've already read the article where MMM talks about why he invested with Betterment. Betterment's fees for my amount of money would be pretty expensive. But Wealthfront claims that the first $10,000 has no annual fees.

So would it be a good idea to put $1,000 in Wealthfront, let it grow a little bit, wait until I have $10,000 saved (from a job and the little interest I would gain) and then switch to just the Admiral Shares and leave Wealthfront completely? How easy would it be to do that? Or would I eventually have to pay a fee for Wealthfront?

I posted this in /r/investing (on reddit)  already and two people said not to worry about it too much. Somebody brought up capital gains taxes and whether I would have to pay them once I try to transfer the funds. Does anybody know about this for certain?

Here's the link to an article comparing the two: https://investorjunkie.com/36355/betterment-wealthfront-compare/

Urchina

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Re: I'm 20 years old and want to start investing
« Reply #1 on: January 26, 2016, 09:02:06 PM »
I have no experience with Betterment or Wealthfront, so won't comment on that.

However, I'm a fan of taking the easiest route. So, assuming you have earned income, why not open a Vanguard IRA account (a Roth if you are eligible) and deposit money into that on a monthly basis? They will convert you to Admiral shares automatically once you're eligible; you don't pay trading fees; the fee ratios for their non-Admiral shares are still really low; you don't need to worry about taxes because it's a retirement account and withdrawals from a Roth are tax-free once you meet the minimum age requirements.

Plus, you'll get all the benefit of a lovely long amount of compounding, and you won't have to do a lot of managing of your money, leaving you with time to do other fun things, which your 20s are going to be full of.

letired

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Re: I'm 20 years old and want to start investing
« Reply #2 on: January 26, 2016, 09:05:05 PM »
You don't need to have the entire $10k. If you buy the 'Investor shares' version of the Vanguard fund you are interested in, the minimum to open/buy is usually $3000. If you continue to add to your account, they will automatically convert your shares to the Admiral class once your balance has reached $10,000. It's what I did with three different funds in my IRA.  It is also significantly simpler than dicking around with Wealthfront and dealing with whatever fees they charge to close out your account once you have enough money.

Since I'm assuming Wealthfront doesn't put all your money in a single fund, you would probably have to deal with capital gains since you'll be selling something. (Even if they let you transfer shares, which I don't think is a thing, but I could be wrong).

The real thing I would do is read more about investing (Boggle heads forum, that stock series that everyone recommends). Then, I would compare the expense ratios of the Vanguard fund I am interested in vs what would happen with Wealthfront (I have no idea how their system works). I would also scour the Wealthfront site for info about fees for closing the account and whatever else they charge you to make money. Then I would use that information to decide.

Personally, I think you'd be best off getting the initial $3k together (using a basic savings account till you've got it) and just starting with Vanguard, but I haven't done any research on Wealthfront.

MDM

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Re: I'm 20 years old and want to start investing
« Reply #3 on: January 26, 2016, 11:32:46 PM »
I wanted to invest in Vanguard Admiral shares as they have the lowest cost, but I only have $1,000 right now and don't plan on getting to the $10,000 minimum for that kind of fund until two or three years later.
Vanguard's Target Date retirement funds have a $1,000 minimum.  There are many worse choices than putting $1K into VTTSX (or another one if you prefer a different stock/bond allocation.

Nickels Dimes Quarters

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Re: I'm 20 years old and want to start investing
« Reply #4 on: January 27, 2016, 05:04:16 AM »
Good for you, 20-yr-old Mustachian! I feel better about your generation already.

NDQ

arebelspy

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Re: I'm 20 years old and want to start investing
« Reply #5 on: January 27, 2016, 05:32:09 AM »
I agree with the "skip both of those, invest directly" suggestions. 

More reading here: http://jlcollinsnh.com/stock-series

Good luck!
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hyla

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Re: I'm 20 years old and want to start investing
« Reply #6 on: January 27, 2016, 02:28:58 PM »
I wanted to invest in Vanguard Admiral shares as they have the lowest cost, but I only have $1,000 right now and don't plan on getting to the $10,000 minimum for that kind of fund until two or three years later.
Vanguard's Target Date retirement funds have a $1,000 minimum.  There are many worse choices than putting $1K into VTTSX (or another one if you prefer a different stock/bond allocation.

Agree.  Vanguard target date funds are what I started with, and still have.  It's good that you are thinking about low cost funds, but the difference between 0.05% (admiral) and 0.15% (target date) expense ratios on an account with less than 10k in it pretty minimal.  Even the higher expanse ratios  on vanguard's investor shares and target funds are extremely low compared to most of the industry.  If you invest in a vanguard target date fund, you will pay lower fees than you would with wealthfront or betterment, AND still have an account that is diversified and automatically rebalancing (similar to what robo-advisors do). 

Eric

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Re: I'm 20 years old and want to start investing
« Reply #7 on: January 27, 2016, 03:23:38 PM »
How about buying the comparable ETFs?  Same low fees as admiral, and no minimums I believe.

JZinCO

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Re: I'm 20 years old and want to start investing
« Reply #8 on: January 27, 2016, 03:42:52 PM »
How about buying the comparable ETFs?  Same low fees as admiral, and no minimums I believe.
IIRC, I needed 3,000 in my IRA to open the brokerage option.

monstermonster

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Re: I'm 20 years old and want to start investing
« Reply #9 on: January 27, 2016, 04:08:21 PM »
I have commented only to say that your screenname has me simply picturing a young Snape hanging out on the MMM forums.

righteouspotionswizard

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Re: I'm 20 years old and want to start investing
« Reply #10 on: January 28, 2016, 05:17:29 PM »
Thank you all for the replies. I was not aware that Vanguard had its own IRAs or that they automatically roll your funds over. Posting on this forum has definitely been a good idea as it has generated more fruitful answers than on those on Reddit. Thank you once again.

EarlyStart

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Re: I'm 20 years old and want to start investing
« Reply #11 on: January 28, 2016, 05:53:18 PM »
How about buying the comparable ETFs?  Same low fees as admiral, and no minimums I believe.

This is what I would do. I'm basically your age (23), and I'll tell you the exact efficiency of your first $1,000 doesn't really matter. Even if the ETFs or non-admiral funds have slightly higher expenses it will hardly change your bottom line. .05% of 1000 is $0.50, and .25% is only $2.50. So the difference in expenses is half a latte.

It's awesome you're starting early. Congrats.