21 Year Old With Good Amount of Savings Seeking Advice

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prestigiousboy
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21 Year Old With Good Amount of Savings Seeking Advice

Post by prestigiousboy » Tue Aug 14, 2012 2:38 am

Hello everybody.

My name is Bill and I am 21 year old college student in the US that is seeking some advice on what strategically would be smart to do with my money. I have saved every penny through the years and also have done fairly well with my online marketing business (no financial handouts anywhere)

My total savings right now is $89,000 with 0 debt. I plan to hit $100,000 (by the time I turn 22 in 3 months) My total assets add up to around $7,000 (including a car, phone, computers, etc..) Thankfully my college is paid for as well through scholarships.

All of my savings are in my business saving and checking accounts which are earning less than half a percent. I am also aware the inflation is beating me and I am losing money with it just sitting there.

My father, who owns his own business, recommend that I put a good amount into a GE Money Market account and the rest perhaps in bonds.

I really am a beginner to investing, however I really feel I could be doing so much more right now then just having it all sitting there in one lump sum earning basically nothing.

I would like to have around 30k in my business account for expenses and what not. I also plan on selling my car right now (worth around $4k) and buying a $10k car which is $6k out of pocket. So, conservatively I would say I have a good $60-$65 to work with right now.

I don't expect anyone to write something elaborate, but some basic tips/recommendations would be HUGE. I'd like to stay on the conservative end as I am still pretty young.

I am not trying to sound cocky or arrogant in anyway, but my plans are to be a millionaire in my 20s and I really think I'm on a good start.

Thanks a LOT, really appreciate the help.

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Abe
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by Abe » Tue Aug 14, 2012 5:17 pm

If you are 21 years old now and have $89,000, you would have to get almost 31% annual return in order to have 1 million in 9 years, which is not likely to happen. But if you saved almost $66,000. per year along with your $89,000 and you get 8% on it, you would have 1 million in 9 years.
Slow and steady wins the race.

livesoft
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by livesoft » Tue Aug 14, 2012 5:23 pm

I'd put $50 into a few books from the reading list and then read them. Maybe you already have though. If so, what did you learn from the books?
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winterescape
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by winterescape » Tue Aug 14, 2012 5:38 pm

livesoft wrote:I'd put $50 into a few books from the reading list and then read them. Maybe you already have though. If so, what did you learn from the books?
Bill,
Welcome. You might consider FDIC insured CD’s, the interest rate is better than the MM funds, but not by a lot. I would agree with livesoft that some books from the reading list would be a good start, you can check them out from the library, the wiki here is great too…

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BL
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by BL » Tue Aug 14, 2012 6:34 pm

If you have self-employment income, you could open up a Roth IRA at Vanguard with $5000 each year. I would suggest parking it in a Target Retirement Income (30% equities/70% bond-type) mutual fund. This would be a good start on retirement funds and the amount put in could be withdrawn penalty-free if you really needed it. Choosing low-cost funds such as Vanguard has (or Fidelity's Spartan funds) could save a lot over the years, compared to paying an adviser and going with high-expense ratio funds.

You could study those recommended books and go up in equities if you should choose after studying it. It would be valuable to set up a plan for your investing, so you are not as likely to jump in and out, usually at the wrong time.

Also, besides CDs, you could put up to $10,000 per year in I-Bonds at treasurydirect.gov which would be unavailable for one year, but could be used as either short or long-term savings.

MachAF
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by MachAF » Tue Aug 14, 2012 9:36 pm

While your at an excellent start, as you get older you take on more responsibility, expenses increase (family, housing, insurance, bills, ect) and saving becomes more of a challenge. $1 million in your 20's is a lofty goal.
Are you currently financially independent? Do you pay your phone, internet, housing, gas, insurance, credit card, food, ect?

Do you save in tax deferred accounts (IRA and Individual 401k since you have your own business)?

Check out the Wiki.

Best of luck!

thebogledude
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by thebogledude » Tue Aug 14, 2012 10:21 pm

I think the proper asset allocation is your age in bonds (80% equity/20% bonds). I would do the Tradition IRA and the rest keep liquid for your business.
So a combination of I-Bonds, CD Ladders, and MM.

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Watty
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by Watty » Tue Aug 14, 2012 11:06 pm

With running your own business you may be able to put a lot of the money you don't need for your business into retirement accounts. There are retirement accounts other than the Roth or IRA that you can use to put away a lot more money than just the Roth or IRA.

If you do make a million by the time you are 30 then you will be getting into some pretty high tax brackets along the way so the more you can get into tax preferred accounts the better.

Within the retirement account a simple low cost three fund portfolio of Total (US) Stock, Total International, and total bond would be fine.

For the business account the interest rates are so low everywhere so you might as well just use the money market account so you have as much flexibility as possible. Giving up any flexibility to make another $100 or so after taxes likely is not worth it.

For the money you can't get into a retirement account and that you don't need for the business, the best way to invest it depends on what the most likely use of it is.

prestigiousboy
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by prestigiousboy » Fri Aug 24, 2012 1:40 am

MachAF wrote:While your at an excellent start, as you get older you take on more responsibility, expenses increase (family, housing, insurance, bills, ect) and saving becomes more of a challenge. $1 million in your 20's is a lofty goal.
Are you currently financially independent? Do you pay your phone, internet, housing, gas, insurance, credit card, food, ect?

Do you save in tax deferred accounts (IRA and Individual 401k since you have your own business)?

Check out the Wiki.

Best of luck!
Thanks for the info! I know its a lofty goal, but I know/seen some guys hit some big home runs especially in the online industry and I truly believe i'm on the right road. And yeah I hear you on the bills. I'm living at home right now and its awesome to be able to save (grant you I still pay gas, insurance, phone, credit card etc..)

And yes, I set up an IRA with $5k. First year owning the business was last year and I grossed $90k.

NYBoglehead
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by NYBoglehead » Fri Aug 24, 2012 6:51 am

Bill,

It looks like you are off to a good start on the savings end. I'd max out a Roth IRA every year. Not sure what your plans are after college as far as employment goes, but it looks like you've got enough of a cushion in savings to max out a 401k plan as well. That's 22,000 allowed in tax-advantaged space every year.

One observation, if I may: You said that you'd like to remain somewhat conservative because you are young. The time to be aggressive is when you are young. You have about 38 years before you can start taking distributions from any IRA or 401k, there will be many market cycles in the meantime and you'll need to become gradually more conservative as you get older. I'm not advocating anything incredibly risky, but having a mostly stock index fund portfolio would not be overly risky given your age. Not taking enough risk is a risk itself.

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Slick8503
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by Slick8503 » Fri Aug 24, 2012 2:28 pm

Echoing what other posters have said, max tax advantaged space. One thing I think would work well for you would be a rewards checking account. You have to jump through a few hoops(minium # of debit swipes ect.) but I make 3% up to 15000. I'm sure there are even better deals than that if you shop around. This is a much better option than CD's or MM up to the limit.

retiredjg
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Re: 21 Year Old With Good Amount of Savings Seeking Advice

Post by retiredjg » Fri Aug 24, 2012 5:09 pm

The first thing you need is an emergency fund - enough money to pay your expenses for at least 3 months (preferably 6 months or more) if you lose income. This needs to be in investments that won't make much money. The purpose of an emergency fund is to be there, not to make money. High yield savings, money market, CDs, etc. are appropriate for this money.


After that, you need to divide your money into what you want to save for short term goals and long term goals and invest each appropriately for the goals. For example, if you want a house in 2 years, don't invest that money in stocks or bonds. Instead, save money in the same vehicles as above.

For your retirement, what you do right now depends on how much money you have to save. If you have less than $5k a year to save for retirement, an IRA (traditional or Roth) is probably the best type of container to put that money in. If you have more than $5k to save for retirement, you'd want to look into opening an individual 401k for your business and contribute to that, possibly in addition to an IRA.

This is a good place to start learning. Wiki article link: Getting Started Be sure to check out the book list as well.

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