19 and wondering about investing

[Karnavas5]

This is my first post on this forum. I recently discovered MMM's blog and I've decided I want to start investing. I've had previous interest but never really found anything in the way of how to start until now. I'm 19, and in the U.S. Navy, and I'm finding myself saving about a thousand dollars a month. I read the article (as well as a few others from other sites) about Betterment, and I've chosen that as the site I'm going to use. My real question here is, is it too early to start investing? I talked to my father about it and before I brought up my idea he opened with "I'll admit I've been investing poorly" but then recommends I get more money saved before I begin (Willing to put $2000 in to start, and $100 per month after the initial deposit) as I only have about $5500 available to invest at the moment. Is this a good idea, if not: why, and what do you recommend? Any help appreciated.

[Retire-Canada]

There is no better time to start investing than today. $1K/month is a fine place to start. I wish I had been that smart at 19yrs old.

[prognastat]

If you have money available that is not earmarked for anything else there is no better time to start investing.

I would look in to your options though. An after tax account is probably the worst place to put your money for investing though. it is better than it sitting in a bank, but something like a 401k or IRA would be much better since you will get tax advantaged growth. Not sure, but I suspect the U.S. Navy offers some kind of 401k like retirement option.

[DK]

roth ira would be great at your age. sounds like you could max out for 2016 (until this april at least) and then start out for 2017 contributions.

[Heroes821]

This is my first post on this forum. I recently discovered MMM's blog and I've decided I want to start investing. I've had previous interest but never really found anything in the way of how to start until now. I'm 19, and in the U.S. Navy, and I'm finding myself saving about a thousand dollars a month. I read the article (as well as a few others from other sites) about Betterment, and I've chosen that as the site I'm going to use. My real question here is, is it too early to start investing? I talked to my father about it and before I brought up my idea he opened with "I'll admit I've been investing poorly" but then recommends I get more money saved before I begin (Willing to put $2000 in to start, and $100 per month after the initial deposit) as I only have about $5500 available to invest at the moment. Is this a good idea, if not: why, and what do you recommend? Any help appreciated.

That is awesome, I so wish I did that when I joined.  You have discovered a gold mine of information in MMM and this forum. Please check out this thread for important information first: http://forum.mrmoneymustache.com/investor-alley/investment-order-65299/

Relevant info:

This ordering is appropriate for investors in the US.
      
WHAT            
0. Establish an emergency fund to your satisfaction            
1. Contribute to your 401k up to any company match            
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.            
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level            
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)            
6. Fund mega backdoor Roth if applicable            
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.            
8. Invest in a taxable account with any extra.            
            
WHY            
0. Give yourself at least enough buffer to avoid worries about bouncing checks            
1. Company match rates are likely the highest percent return you can get on your money            
2. When the guaranteed return is this high, take it.            
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.            
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between. See also Traditional versus Roth.
   See Credits can make Traditional better than Roth for lower incomes and other posts in that thread about some exceptions to the rule.
   The 'Calculations' tab in the Case Study Spreadsheet can show marginal rates for savings or withdrawals.
5. See #4 for choice of traditional or Roth for 401k            
6. Applicability depends on the rules for the specific 401k            
7. Again, take the risk-free return if high enough            
8. Because earnings, even if taxed, are beneficial            

Also the New TSP options and MATCHING from the DOD is awesome! When I joined they weren't doing any matching.  Replace all 401k mumbo jumbo with TSP for Navy purposes.

[Mr. Green]

Start now! The power of compounding is so powerful. At your age I was already saving money but I wish I had known to invest it. It may not seem like much but if you develop good investing habits now you are absolutely setting yourself up for a great life financially.

[Cwadda]

roth ira would be great at your age. sounds like you could max out for 2016 (until this april at least) and then start out for 2017 contributions.

Roth is what you want. You have until April 15th to put $5500 in it for 2016, then you can put another $5500 in it for 2017.
It only takes a few minutes to set up on Vanguard.

Also, never contribute more than your claimable income.

[RangerOne]

If you are saving $1000 a month and in the military you have a couple of things going for you:

- You probably have no debt, unless you bought a car
- You have very stable employment baring injury or doing something terrible to get discharged so your job security is extremely high.

The good thing about the security is you are probably in no rush to establish a big emergency fund. And if you are saving $12,000 a year with no major debts, you can easily fully fund a Roth IRA at $5500. The Roth is more flexible and your taxes are probably very low so the savings of the traditional IRA are less meaningful. You do half cash half invest every month if it makes you feel better.

Beyond that you will still have another $6500 saved a year. Plenty to start a cash emergency fund given your lack of likely high dollar emergencies. In the following years you could even consider opening a taxable account in addition to your IRA's to invest money beyond your emergency fund.

Or you could save for a house and throw the money in a conservative investment or high yield savings/CDs. If home ownership is something you are interested in. Owning property young could be a big boon too since you as it could be a nice asset in mid adult hood or even a rental income source.

If you max your retirements now you will be in a really great position compared to most people by your early 30's. At which point other retirement vehicles will open up to you. If you stick with the Navy long term I assume they probably also have pensions for lifers.

[human]

Just chiming in to say investing now is a great idea but even better is keep it up every year. If you're planning to do 20 years in imagine how far ahead you'll be when you get out with a pension and bunch of money invested.

[Aggie1999]

+1 to what everyone else has said about an IRA. Traditional if it will save you money on taxes, Roth otherwise. Earlier the better on investment.

One big thing I haven't seen someone mention is forget Betterment. They will be charging you an extra 0.25% on your money for no benefit in a tax advantaged account (i.e. IRA). Even if it was a taxable account, the benefit of the automatic tax loss harvesting is debatable. Put you money into Vanguard funds. Look at the below 3 fund portfolio link:

https://www.bogleheads.org/wiki/Three-fund_portfolio

IMO, forget the bond portion and just go into Vanguard Total Stock Market and Total International Stock Market. With pretty much guaranteed employment, retirement a long way off and a nice pension on retirement (assuming you stay in the military) bonds will just be a drag on your earnings.

[Hargrove]

FYI, your dad may remember when it was so expensive to invest, investing "small" amounts like 500 dollars or 1k could have been pretty foolish.

That is no longer the case, as you can get Admiral Shares at Vanguard for just a 10k account, or buy the same thing, basically, under stock tickers like VTI and VTSAX at discount brokers for between free (Robin Hood, Loyal 3) to 9.99 (TD Ameritrade) a trade.

[One Noisy Cat]

You are in the Navy (I assume the American navy). You guys still can invest the the TSP, right? Then do so ASAP. You may have other obligations but you are guaranteed a paycheck twice a month so you may not need a large emergency fund for now, save the dreaded three weekend paydays. Go for 60% C Fund, 20% each to I and S funds. Maximize if you can.
      You have time, the strongest force in the universe, on your side. Do it, keep doing it every paycheck/year (adding IRA if you have money leftover) and someday you will pat yourself on the back for your wisdom. No, I will not guarantee the results but I wish I had done something similar.

[LadySilic]

Hi! I wish I had started investing at 19, great job planning ahead. Also, kudos for not buying an expensive car after joining the military. My husband is Navy too and we have seen so many people make that mistake.

Are you investing in your TSP? Start doing that now if you're not already. You can contribute up to $18k in the TSP Roth for 2017. As far as the cash on hand, I would invest that in a Roth IRA. Or you can invest it in a regular brokerage account if you want easy access to it. You don't need a huge savings cushion with your steady paycheck.

Side note, are you aware of SCRA, service-member civil relief act? It has a lot of financial benefits, you may not need them now, but in the future they come in handy. If you serve in a combat zone there's also the SDP, savings deposit program that offers a guaranteed 10% return, compounded quarterly.

[Guide2003]

Congrats on finding this thinking so early in life! This will stand you in good stead and put you way ahead of most as everyone is saying.

As another military member and current Betterment investor, I'm recently being turned on to some of the advantages TSP has over Betterment. I did a lot of research and was pretty sold on Betterment at first. It is a great service and I still think it is worth even the increased fees, but all of my research focused on how to get into the market the easiest and how to stay in for the long haul, and I did not properly research the implications of ending Betterment's services or switching investment strategies.

TSP is great because it is the lowest possible fees in decent funds, with all the tax advantages. Its not great in that you can't touch that money (yeah I know you can take a loan, but don't ever plan on that) like you could with a Roth in an emergency. Betterment is great in that it takes the thinking out of allocation and rebalancing and their customer service reps are friendly. I don't count TLH as a benefit because it is only temporary and will only take effect in the first year or so of opening your account. Betterment is not great because for those of us that buy-and-hold (and you will for a very long time) you will have a ton of capital gains if you move out of Betterment, and your portfolio will be unnecessarily complex (20 funds instead of 3 or 4).

Fortunately for military folks, you will be in tax brackets where capital gains aren't taxed for a while so you can make that decision later, but I wish I had known the stuff that Interest Compound went over in the thread linked below. Had I not focused my research on getting into the market and had put two more hours of research into allocation and rebalancing, I would have done it myself with Vanguard or Fidelity in a three or four fund portfolio. As someone who is in Betterment now, I'd advocate doing a little more research on it before you commit. Either way, best of luck with whatever you pick, and you'll be so much better for learning this stuff at the beginning of your career!

http://forum.mrmoneymustache.com/index.php?topic=67853.0

[teen persuasion]

Sign up for contributions to TSP going forward.

Since you haven't contributed anything yet in 2016, you can still open and contribute to an IRA for 2016 (and possibly decrease your taxes) up to the tax  filing deadline in April.  Mock up your tax return several differ ways to choose the best option (Roth or traditional IRA) - there's two components to consider.  If your AGI falls in range, you could be eligible for the Retirement Saver's credit of up to 50% of your contributions (up to $2k considered, but you can contribute to $5500) to either Roth or tIRA.  Also, contributions to a tIRA reduce your AGI, and thus taxable income.

Roth has no tax deferral up front, but is tax free at withdrawal later.
Traditional has a tax deferral on contributions up front, but all withdrawals are taxed as ordinary income later.
So if there is little to no tax cost, prefer Roth.  If tax avoidance is more important (especially at higher tax rates), prefer traditional.  Since most people start off in low income (low tax brackets) and income rises later, the early years are often the best time to go Roth, and shift more to traditional later.  Of course, it's not all or nothing - you can do proportions of each, too.