Author Topic: Teenager wants to invest. Where to start?  (Read 1518 times)

kofasetic

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Teenager wants to invest. Where to start?
« on: April 06, 2018, 12:07:47 PM »
My step-daughter, 17, has a great part time paying job in NYC and wants to begin investing.
She does plan on going to 4 year college but may begin at community college to earn her required credits and explore her interests.
She has $2000 saved up and can contribute up to $300/month.
Suggestions on where to start for her.
Thanks in advance.

NoStacheOhio

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Re: Teenager wants to invest. Where to start?
« Reply #1 on: April 06, 2018, 12:49:26 PM »

MDM

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Re: Teenager wants to invest. Where to start?
« Reply #2 on: April 06, 2018, 01:16:58 PM »
Is the money for the long term (e.g., withdrawing it in ~30 or more years) or the short term (e.g., withdrawing it to pay for college)?

nereo

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Re: Teenager wants to invest. Where to start?
« Reply #3 on: April 06, 2018, 01:23:54 PM »
Is the money for the long term (e.g., withdrawing it in ~30 or more years) or the short term (e.g., withdrawing it to pay for college)?

This is the first question.
If it is for the long term, I'd strongly recommend she invest in an IRA.
If she plans on using this money in college (i.e. this fall) I would suggest she keep it in a boring savings account for easy access (not in 'the market').

Even more important than 'where to invest' at her age is making sure she has a solid understanding of investing and compound interest.  At 17, if she were to max out her IRA every year and do nothing else she can count on having enough to retire in her 50s. Very few understand this (even adults approaching that life-milestone).

K-12FI

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Re: Teenager wants to invest. Where to start?
« Reply #4 on: April 06, 2018, 01:46:51 PM »
Vanguard Roth IRA if seriously looking to buy and hold. I'd look up Paul Merriman's stuff on Small Cap Value and Emerging Markets.

kofasetic

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Re: Teenager wants to invest. Where to start?
« Reply #5 on: April 07, 2018, 03:43:29 AM »
Thanks for all the suggestions.
The goal is for the long haul, retirement.
We have educated her on the principles of investing so she can have a grasp on how it all works and especially how compounding interest works over time.
Now being 17, like most teens, the concept of retirement is quite abstract. But it is interesting to see her face glow when plugging a few numbers into a retirement calculator and seeing how starting as early as possible has a profound effect on future funds.


nereo

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Re: Teenager wants to invest. Where to start?
« Reply #6 on: April 07, 2018, 06:31:49 AM »
Thanks for all the suggestions.
The goal is for the long haul, retirement.
We have educated her on the principles of investing so she can have a grasp on how it all works and especially how compounding interest works over time.
Now being 17, like most teens, the concept of retirement is quite abstract. But it is interesting to see her face glow when plugging a few numbers into a retirement calculator and seeing how starting as early as possible has a profound effect on future funds.
Well then! Analytically speaking the IRA is her choice, and presuming her income is low (part time, 17yo) she'd be well served with a Roth IRA.

As for education, the most notable lesson which stuck with me as a teenager was when my dad showed me "the graph" of how compounding at different ages worked. I had older siblings and I remember him showing me how if we all started saving today I'd almost certainly become a millionaire but they would need to save a lot more if they ever hoped to do the same. He also introduced me to the concept of 'FU' money (but didn't use that exact phrase) - telling me if I socked away money in my teens it would give me enormous flexibility in choosing only the jobs I wanted in my 30s - and he was right!

Anyway, I applaud you and your step-daughter for getting an early edge in financial security. If more people took this approach a lot of our societal problems would melt away...

COEE

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Re: Teenager wants to invest. Where to start?
« Reply #7 on: April 07, 2018, 07:08:25 AM »
Anyway, I applaud you and your step-daughter for getting an early edge in financial security. If more people took this approach a lot of our societal problems would melt away...

Agreed!  Job well done!

Just a note of caution - she can only contribute $5500/yr to an IRA, and her income must exceed that of her contribution.  $300/mo + $2000 may exceed this limit.

Her company may also offer 401k... which is another avenue of long-term savings.  It is also specifically for retirement, but it also has a much higher contribution limit.

If your DIL maxes out her IRA for just 5 years now then never invests another dime the rest of her life then she will have about half a million in the bank at 62 (adjusted for inflation).  That is usually enough to satisfy a single person's retirement without any social security benefits (assuming a paid off house).  Early investment is king when talking about retirement.  The more she puts in now the better off she'll be in the future.

abhe8

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Re: Teenager wants to invest. Where to start?
« Reply #8 on: April 07, 2018, 07:49:43 AM »
How would an IRA affect her FAFSA and options for paying for colleg

nereo

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Re: Teenager wants to invest. Where to start?
« Reply #9 on: April 07, 2018, 08:26:26 AM »
How would an IRA affect her FAFSA and options for paying for colleg

It would help, though its unlikely to be significant either way.  Assets held in an IRA, 401(k) or other tax-deferred account is not reported on your FAFSA, while money held in a generic savings account it.  However, given the amounts (maximum $5500 before entering college) it shouldn't change anything either way.

wienerdog

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