How to Invest my Money... (19 Years Old)

[Reincarnated]

Hey all!

Currently, I am a full time worker and have been fortunate enough to save most of my earnings over the course of at least a year, and I'm planning to keep it that way until I start college in October. I currently have a net worth at around $25K all from saving up.

I was looking into Managed Portfolios by Merrill Edge. Info can be found here: http://www.merrilledge.com/investment-products/managed-portfolios

What do you think? Should I put in $20K to a Managed Portfolio? My goal is to just have my money preferrably grow over the course of 4-5+ years (I like to think far ahead and would like to own a house one day), and I don't really mind losing money considering it's all a risk. If you think I should go for it, what investment strategy would you suggest for me? Conservative or Risky?

I've also looked into Roth IRAs, but I don't think it interests me at this point in my life.

Thanks!

[mongstradamus]

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@Reincarnated wrote:

Hey all!

Currently, I am a full time worker and have been fortunate enough to save most of my earnings over the course of at least a year, and I'm planning to keep it that way until I start college in October. I currently have a net worth at around $25K all from saving up.

I was looking into Managed Portfolios by Merrill Edge. Info can be found here: http://www.merrilledge.com/investment-products/managed-portfolios

What do you think? Should I put in $20K to a Managed Portfolio? My goal is to just have my money preferrably grow over the course of 4-5+ years (I like to think far ahead and would like to own a house one day), and I don't really mind losing money considering it's all a risk. If you think I should go for it, what investment strategy would you suggest for me? Conservative or Risky?

I've also looked into Roth IRAs, but I don't think it interests me at this point in my life.

Thanks!

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I would stay away from merrill edge if it were me, I would rather use vanguard or fidelity for cheaper option. If you are really really hands off you could try an robo advisor like betterment or wealth front. 

Also for something soo short term, something safer like high yield cds or savings may be better choice. you can get do 5 year cd or something they have rates an bit over 2%. 

[nightglider]

I'll concur with mong, though only on the managed portfolio bit. I like to manage my own money, and currently use Vanguard to do it.

For <5 years, I again agree that a CD, savings account and/or bond fund would be best. If nothing else it would be a place to park your money while you read and learn. I recommend Charles Schwab's New Guide to Financial Independence for starters. It's about the places you can put your money (from savings accounts, to bonds, to funds), and the how they can have a place in your financial life.

While you may be fine with losing money, there's no reason to lose any more than necessary. I say this in the context of management fees for various investment funds, and in the types of funds you invest in. In a broader sense, if you're not investing to make money, you're investing to lose it. That said, at 19, you should be mostly in stocks (90-95%, less emergency funds), provided it lets you sleep at night. Most of my money is currently in index funds/etf's.

As far as a Roth IRA, it may not be of interest to you now, but compound returns are a beautiful thing, and moreso when they're tax-free. I strongly recommend starting one and contributing in every year you can.

[disdreamin]

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@nightglider wrote:

As far as a Roth IRA, it may not be of interest to you now, but compound returns are a beautiful thing, and moreso when they're tax-free. I strongly recommend starting one and contributing in every year you can.

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+1 on the Roth.  The beauty of a Roth, besides what is mentioned above, is that the original investments (direct contributions, not conversions) are available for withdrawal without penalty pretty much at any time, I believe.  Thus, if you were to deposit money into a Roth and need to withdraw a portion of the principal down the road, that money (not any earnings, but the principal) would be available to you.  There are lots of details about this on the web...five year rules, etc...but I think the above idea makes a Roth a really nice investment opportunity.

(To those more in-the-know, please feel free to slap me and correct any misconceptionsI have about the above!  I certainly don't want to mislead anyone.)

[Anonymous]

do yourself a favor and check out a simple calculator like  http://www.bankrate.com/calculators/savings/bank-cd-calculator.aspx

based off of a high yield CD of 2.23% compounded daily for 5 years, you would be making ~$2,200.  And that's money that you cannot take out.  to me, CD's are awful for someone young like you. 

in my opinion, do some research.  take $5,000 and invest that into some exciting tech stock that you think is gonna be a big success.  take the rest of that money and hold it for 6 months.  trust me, you'll be heading to college and your whole life will be changing.  once that 6 months pass and you see what has happened to that $5,000 (could be good, could be bad) you will know how much risk you're willing to take.  until you experience that, you won't know how "risk averse" you really are. 

the rest of that $15,000 can then be invested in something VERY low risk like a CD, or you can continue investing in the stock market (higher risk, higher return).  if you want growth, a master limited partnership would be great nowadays.  very high dividends with the potential for growth (just do your research because there are different tax routines for those MLPs as opposed to normal stocks). 

EDIT:  one more thing... i'm not trying to sound too matter-of-fact or nonchalant about your money.  but, my first experience was with the stock market when i got out of college in 2008.  i had the benefit of getting in at the very bottom and making money without much effort at all.  i also had the experience later of losing my ASS on an investment and realizing that the stock market giveth and taketh if you get lazy and stop researching.  however, i know that at your age you probably have more adventure than a lot of people who will be posting on a credit score website.  so that's why i say take a small portion of that money and invest it in something exciting.  something that you will want to check every week and stay abreast of the latest news.  something you feel "invested" in.  not a stupid CD. 

[nightglider]

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@Anonymous wrote:

in my opinion, do some research.  take $5,000 and invest that into some exciting tech stock that you think is gonna be a big success.

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I heavily disagree, here, primarily with the exciting tech bit. Typically exciting stocks are ones that everyone is talking about, financial publications are touting it, TV hosts are talking about it, and you're probably going to overpay for it, particularly in tech.

As Warren Buffett has said before, the number one rule of investing is "Never lose money."

Consider this: If a company goes bankrupt, the line of people showing up to claim the liquidation of assets, in order, is creditors, bond holders, preferred stock holders, and common stock holders. You need to know if the company has enough assets that you'll be able to recoup your investment (or most of it) if this happens. This is what is meant by limiting risk.

Another rule is, never invest something you can't afford to lose. If you're putting your money somewhere a little riskier than you're used to (maybe a company whose balance sheet you're uncomfortable with), first ask yourself, "What would happen if I didn't get this money back?" If you can cut your losses and move on, try it out. If being wrong means you miss a car/mortgage payment, make the payment.

The indexes that index funds track are not simply a list of companies. They are an average of those companies (what that average is depends on how the companies are weighted). With this, being a successful investor doesn't have to be owning the best performing company(ies) in an index, but owning the ones that you believe will be better than average over time. These companies will probably have a solid customer base, with competent, honest management, and a product that can continue to sell.

Imagine that you are giving yourself a set number of companies to choose from (5, perhaps), and once a company is on your list, it cannot come off. Are you comfortable with your choice?

[Anonymous]

i agree with your assessment of tech stocks, for sure.  I guess my point was more proverbial than literal -- a 'tech' stock being something that potentially will excite you and engage you in the process of doing something which MOST people find insanely boring and painful.

yes, you could simply invest in Pepsi and call it a day, like my grandfather did for me years ago.  Back then, it seemed enough to simply own a blue chip stock that would always grow slow and steady.  however, that philosophy inspires people to simple invest and hold.  never investigating and never learning. 

that's why i proposed that the OP invest the "right" amount first:

-a sum of money that could potentially yield the same amount as a 5-year high-yield CD if the stock has huge returns

-a sum of money that will not lead to financial hardship if lost 100%

[Anonymous]

If you can, read some books and take an intro to finance class if you can. From there, you can assess your own risk aversion and what you would consider a desirable return and take measured steps to decide what kind of investments will excite you and get you the returns you want given your risk tolerance. If you decide to do stocks, definitely brush up on accounting skills so you can do some kickass technical analysis.

[Anonymous]

+1 for vanguard. If there's one thing financial research has shown it's that nobody can accurately predict the market. So picking a stock you think looks good tends to be a losing investment and allowing an actively managed mutual fund to pick stocks for you is an equally losing investment. 

I buy into the philosophy that market index funds are the way to go so they reduce your risk with diversification and catch the overall growth of the market. I am young like you and personally do 90% in stock index funds (60% of that in domestic stock indexes like vanguards SNP and small cap etc and 40% in vanguards total international index) and 10% in a bond index fund. Then let it do it's thing, making small contributions each month, and if it becomes too imbalanced I contribute or trade to rebalance it.

[mongstradamus]

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@Anonymous wrote:

+1 for vanguard. If there's one thing financial research has shown it's that nobody can accurately predict the market. So picking a stock you think looks good tends to be a losing investment and allowing an actively managed mutual fund to pick stocks for you is an equally losing investment. 

I buy into the philosophy that market index funds are the way to go so they reduce your risk with diversification and catch the overall growth of the market. I am young like you and personally do 90% in stock index funds (60% of that in domestic stock indexes like vanguards SNP and small cap etc and 40% in vanguards total international index) and 10% in a bond index fund. Then let it do it's thing, making small contributions each month, and if it becomes too imbalanced I contribute or trade to rebalance it.

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I do something pretty similar in my ira i am right now 55% domestic 35% international and 10% in intermediate bond fund. Domestic is broken up into total stock martket, small cap , and small value. Internationa ls broken up into total international and international small caps. It should hopefully give me an broadly diversefied portfolio for the long haul. 

I also agree with the premise that you don't know what the market is going to do , the only thing you can control is the fees you pay.