Advice for younger friend

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satxdrummer
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Advice for younger friend

Post by satxdrummer » Thu May 21, 2015 9:09 am

Hello, I was recently asked by a friend of mine for some investment advice. I did tell him that the decisions would be his and that I could only provide my opinions and what I'm doing with my own money. I gave him my copy of The Elements of Investing as well as the link to Bogle Wiki, said we could have a chat after he's read it and I'd help get him setup/started. He's 19, doesn't make a lot, about 25k a yr I believe, but has a good head on his shoulders. He's got an emergency fund already and no debt. He's going to be starting with about 100$ and will probably add another 100 a month.

My advice to him was going to be to start an account with Vanguard and buy VTI, VXUS and BND ETF's with an allocation he feels comfortable with

What would you tell somebody in a similar situation?

closetoreality
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Re: Advice for younger friend

Post by closetoreality » Thu May 21, 2015 9:54 am

at 19 i would tell him to pound into VTI alone and not look back.

vanguard also has no trade fee's for their in house etf's. so your friend can buy as often as he wants.

myrrh
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Re: Advice for younger friend

Post by myrrh » Thu May 21, 2015 10:31 am

You told him to do this in a Roth IRA, not a taxable account, right?
While I tend to view Roths as "sacred" to retirement, in the event of an emergency he can pull out contributions without penalty so it can be viewed as a second tier emergency fund.

I think VTI would be fine until he can get to $3k and then move to a Target Retirement fund so he can get international and a small bond component as well.

Minot
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Re: Advice for younger friend

Post by Minot » Thu May 21, 2015 10:38 am

myrrh wrote:You told him to do this in a Roth IRA, not a taxable account, right?
Assuming he has earned income. Does he have access to a 401K, 403b, etc., and does it provide a match? If so, that should be his choice rather than the Roth, since the match is free money.

myrrh
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Re: Advice for younger friend

Post by myrrh » Thu May 21, 2015 10:40 am

Good point Minot.

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BL
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Re: Advice for younger friend

Post by BL » Thu May 21, 2015 10:49 am

He could buy the Total stock market ETF in a Roth at V until he has $1k, then buy a Target Retirement Date fund with the $1k and keep adding to that up to 5.5k/year. Sign up for e-statements to avoid charges. Roth earnings will have to stay to avoid penalty, but there should never be a plan to withdraw valuable Roth savings early even though it can be done.

Here is a booklet for beginners by Boglehead, William Bernstein,
http://www.etf.com/docs/IfYouCan.pdf
There is lots of good info for anyone.

ThisTimeItsDifferent
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Re: Advice for younger friend

Post by ThisTimeItsDifferent » Thu May 21, 2015 11:14 am

T Rowe Price does NOT have a minimum initial investment using the automatic asset builder scheduled investments. One could start with just $50/month e.g.

hyla
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Re: Advice for younger friend

Post by hyla » Thu May 21, 2015 12:58 pm

I'd suggest starting with VTI in a Roth IRA, then considering moving it to a vanguard target retirement fund when he hits $1000 (target fund minimums are $1000, not $3000 as a previous poster stated).

Also, tell him to look up the saver's credit on the IRS website. If his income is 25k, and he saves in a Roth, he might qualify for a nice tax credit next year.

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whatusername?
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Re: Advice for younger friend

Post by whatusername? » Thu May 21, 2015 1:52 pm

Minot wrote:
myrrh wrote:You told him to do this in a Roth IRA, not a taxable account, right?
Assuming he has earned income. Does he have access to a 401K, 403b, etc., and does it provide a match? If so, that should be his choice rather than the Roth, since the match is free money.
+1. It's great that he's starting so young - make sure to remind him how much his older self will thank him for even small sacrifices now!

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grabiner
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Re: Advice for younger friend

Post by grabiner » Thu May 21, 2015 6:34 pm

I would suggest waiting until he has $1000; while a Roth IRA is a great idea, managing a tiny brokerage account with ETFs is more work than is worthwhile.

When he has $1000, he can put it all into Vanguard Target Retirement 2060.

If he isn't a student, then he will get 10% back from the IRS on up to $2000 in Roth IRA contributions; see IRS Form 8880. He may even be able to get that in advance from the IRS by filing a new form W-4 with his employer, claiming one more withholding allowance.
Wiki David Grabiner

pkcrafter
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Re: Advice for younger friend

Post by pkcrafter » Thu May 21, 2015 7:03 pm

satxdrummer wrote:
My advice to him was going to be to start an account with Vanguard and buy VTI, VXUS and BND ETF's with an allocation he feels comfortable with
Choosing an allocation can be difficult for a new investor. Did your friend give any indication of his feelings on risk tolerance? If not, it's something you should discuss. For new investors who don't really have an idea, I suggest an AA of no more than 75/25. I agree with Grabinar that your friend should save up 1k and invest in a TR fund. I would suggest TR 2030, which is 75/25.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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grabiner
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Re: Advice for younger friend

Post by grabiner » Thu May 21, 2015 9:41 pm

pkcrafter wrote:Choosing an allocation can be difficult for a new investor. Did your friend give any indication of his feelings on risk tolerance? If not, it's something you should discuss. For new investors who don't really have an idea, I suggest an AA of no more than 75/25. I agree with Grabinar that your friend should save up 1k and invest in a TR fund. I would suggest TR 2030, which is 75/25.
While I also recommend no more than 80% stock for investors who haven't been through a bear market, this is more important for investors who hold the individual funds, and can thus directly see a substantial part of their portfolio surviving a market crash. For getting started with a single fund, Target Retirement 2060 is fine.
Wiki David Grabiner

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