Brand New Investor Help

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
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William6801
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Brand New Investor Help

Post by William6801 » Thu Apr 20, 2017 9:16 am

Hey I just turned 18 and have been wanting to invest for awhile. I've been doing some research around and was thinking about investing my $3000 into a portfolio with Vanguard. I was thinking 80/20 Stocks to bonds.

With 50% in VTI, 20% in VXUS, 20% in BND and 10% in VOT.

I'm not very knowledgeable and would like to kind of have a passive investing style. Is this a good portfolio? Any input would be appreciated.

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ruralavalon
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Re: Brand New Investor Help

Post by ruralavalon » Thu Apr 20, 2017 10:02 am

Welcome to the forum :) .

It's great that you are starting young at saving and investing.

William6801 wrote:Hey I just turned 18 and have been wanting to invest for awhile. I've been doing some research around and was thinking about investing my $3000 into a portfolio with Vanguard. I was thinking 80/20 Stocks to bonds.

With 50% in VTI, 20% in VXUS, 20% in BND and 10% in VOT.

I'm not very knowledgeable and would like to kind of have a passive investing style. Is this a good portfolio? Any input would be appreciated.


Are you employed? If you have employment income you can a use an IRA, and invest up to $5k if you have that much income this year. I suggest using a Roth IRA at Vanguard, and investing your $3k in Vanguard LifeStrategy Growth Fund (VASGX), ER 0.15%, which has an 80/20 asset allocation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

alex_686
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Re: Brand New Investor Help

Post by alex_686 » Thu Apr 20, 2017 10:39 am

William6801 wrote:Hey I just turned 18 and have been wanting to invest for awhile. I've been doing some research around and was thinking about investing my $3000 into a portfolio with Vanguard. I was thinking 80/20 Stocks to bonds.

With 50% in VTI, 20% in VXUS, 20% in BND and 10% in VOT.

I'm not very knowledgeable and would like to kind of have a passive investing style. Is this a good portfolio? Any input would be appreciated.


What you are suggesting is a fine asset allocation. My only concern is the initial small amount spread across 4 funds. Each purchase will have a small fee, it will be hard to rebalance, etc. lots of small fiddly bits. 2 suggestions for you to look into.

Put everything in Vanguard Total World Stock ETF (VT) which combines both domestic and international equity. Not your exact asset allocation but it is close. Lower trading fees and it automatically re-balances for you. If you need 30% in fixed income put $900 in a CD. Let that build until you have 2 to 3 thousand to invest in fixed income.

Another option would be to use a target date fund. Vanguard's contain both equities and fixed income. They tend to be a little more aggressive than your AA. For example, Vanguard's 2020 fund is 85% equity / 15% bonds.

William6801
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Re: Brand New Investor Help

Post by William6801 » Thu Apr 20, 2017 12:10 pm

ruralavalon wrote:Welcome to the forum :) .

It's great that you are starting young at saving and investing.

William6801 wrote:Hey I just turned 18 and have been wanting to invest for awhile. I've been doing some research around and was thinking about investing my $3000 into a portfolio with Vanguard. I was thinking 80/20 Stocks to bonds.

With 50% in VTI, 20% in VXUS, 20% in BND and 10% in VOT.

I'm not very knowledgeable and would like to kind of have a passive investing style. Is this a good portfolio? Any input would be appreciated.


Are you employed? If you have employment income you can a use an IRA, and invest up to $5k if you have that much income this year. I suggest using a Roth IRA at Vanguard, and investing your $3k in Vanguard LifeStrategy Growth Fund (VASGX), ER 0.15%, which has an 80/20 asset allocation.


Thanks for the response! I do have a part time job. Do you think a Roth IRA would be ok at my age? Im not sure ill be able to invest up to that much every year yet.

pkcrafter
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Re: Brand New Investor Help

Post by pkcrafter » Thu Apr 20, 2017 12:59 pm

Thanks for the response! I do have a part time job.

OK, that's good. Would this be a retirement account, or do you just want to invest for something in the short term? If you thinking of just making some money, then it's not a good idea.

How much will you earn this year? I'm asking that because an IRA or Roth is an excellent retirement account, but it's limited to $5500/year, or the max of your income if less than that. Remember, if you commit to starting a retirement fund, once you invest some money it needs to stay there for decades.

You can withdraw contributions from a Roth, but that's not something you really want to do.

Your portfolio idea looks pretty good, but I would not add VOT. You can also use a target retirement fund which as a 1k minimum.


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.

William6801
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Re: Brand New Investor Help

Post by William6801 » Thu Apr 20, 2017 1:11 pm

I definitely want this account to be over a long-term, but I really don't know if I want to wait until 59 to be able to withdraw (isnt that the age for IRAs?) That just seems a little long to me, plus I feel like there could be a situation in the future where I would need some emergency funds, and wouldn't want 10% taken out of that. My only concern about putting all/most of my funds in one place such as VT or VASGX would be the lower return rates if im not mistaken.

Also for my age, I'm considering Vangaurd's target retirement 2060 fund (VTTSX)

alex_686
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Re: Brand New Investor Help

Post by alex_686 » Thu Apr 20, 2017 1:22 pm

William6801 wrote:I definitely want this account to be over a long-term, but I really don't know if I want to wait until 59 to be able to withdraw (isnt that the age for IRAs?) That just seems a little long to me, plus I feel like there could be a situation in the future where I would need some emergency funds, and wouldn't want 10% taken out of that. My only concern about putting all/most of my funds in one place such as VT or VASGX would be the lower return rates if im not mistaken.


For a IRA you can take an early withdraw for education, a first time home purchase, and a few other items. You would pay taxes but no penalties.

Or maybe a Roth instead? Any contributions made can be withdrawn with penalties or taxes for any reason. This would be the option I would advocate. Most people who fund a Roth never need to take out the funds. It is a good option for those who want the option.

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ruralavalon
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Re: Brand New Investor Help

Post by ruralavalon » Thu Apr 20, 2017 2:03 pm

William6801 wrote:
ruralavalon wrote:Welcome to the forum :) .

It's great that you are starting young at saving and investing.

William6801 wrote:Hey I just turned 18 and have been wanting to invest for awhile. I've been doing some research around and was thinking about investing my $3000 into a portfolio with Vanguard. I was thinking 80/20 Stocks to bonds.

With 50% in VTI, 20% in VXUS, 20% in BND and 10% in VOT.

I'm not very knowledgeable and would like to kind of have a passive investing style. Is this a good portfolio? Any input would be appreciated.


Are you employed? If you have employment income you can a use an IRA, and invest up to $5k if you have that much income this year. I suggest using a Roth IRA at Vanguard, and investing your $3k in Vanguard LifeStrategy Growth Fund (VASGX), ER 0.15%, which has an 80/20 asset allocation.


Thanks for the response! I do have a part time job. Do you think a Roth IRA would be ok at my age? Im not sure ill be able to invest up to that much every year yet.

I think that a Roth IRA is okay at your age.

You can contribute up to $5.5k per year, if you have that much income that year. You can contribute as little you want.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

pkcrafter
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Re: Brand New Investor Help

Post by pkcrafter » Thu Apr 20, 2017 4:26 pm

William6801 wrote:I definitely want this account to be over a long-term, but I really don't know if I want to wait until 59 to be able to withdraw (isnt that the age for IRAs?) That just seems a little long to me, plus I feel like there could be a situation in the future where I would need some emergency funds, and wouldn't want 10% taken out of that. My only concern about putting all/most of my funds in one place such as VT or VASGX would be the lower return rates if im not mistaken.

Also for my age, I'm considering Vangaurd's target retirement 2060 fund (VTTSX)

Well, you are young and you are here, so I'll make this suggestion for what it's worth. :happy Take what ever you can put together now and make one investment in a tax-deferred account for retirement. Could be 3k or up to 5.5k. I'm suggesting that so you can take advantage of the power of long-term compounding. If you add 5k and do nothing more than that, you will have about 46k at today's dollars in that account when you retire. And you can add more to this account in later years.

I know this is very much out of line for an 18 year old, but you now have the opportunity. We don't know how independent you are, but in the next 10-15 years a lot is going to happen that requires $$. So, after setting up the one time long term account, you can focus on current things. You mentioned an emergency fund, and that's another thing we recommend, so yes, it's a very good idea. Beyond these two suggestions, you can set up a taxable account to get some idea how investing works. The first thing to realize is your money will not just grow all the time. You will hit periods when things go down due to volatility and that's why it's not really a good idea to keep a lot of money is stocks if you are going to need it in the next 5 years. You are on the right track and way ahead of others your age.

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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dratkinson
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Re: Brand New Investor Help

Post by dratkinson » Thu Apr 20, 2017 4:53 pm

Tax-sheltered investing.

I believe a Roth IRA (rIRA) would be perfect for you. Why?
--You are in a low tax bracket so will pay the lowest tax for tax-free growth from now until forever. (A traditional IRA (tIRA) is tax deductible, but in a low tax bracket, that deduction is almost meaningless. So better to use a low tax bracket to get the rIRA advantage.)
--The rIRA principle can be removed for use during an emergency, so a rIRA can be a tier of your emergency funds (EFs). "Can", but should be avoided. Why? Your retired self doesn't what you stealing eggs from the golden goose sitting on your retirement nest egg.

See: https://www.bogleheads.org/wiki/Roth_IR ... gency_fund
See: https://www.bogleheads.org/wiki/Emergency_fund

Vanguard's all-in-one funds (STAR, LifeStrategy--fixed asset allocation (AA) as you age, Target Date Retirement--more conservative AA as you age,...) have a $1K minimum so are cheaper to buy than a selection of discrete funds. (Exception: Vanguards Exchange Traded Funds (ETFs) have lower minimums.)

Pick one all-in-one fund with 20% bonds, some exposure to international, and call it good. The fund managers will take can of any required rebalancing for you. And if you later decide to change your mind, then it's tax-free to do so inside an IRA.

Don't sweat the small stuff. As the perfect AA can only be known in hindsight, today just pick something with age-appropriate bonds and call it "good enough".



Emergency funds. My opinion is that all tiers of our EFs should be in taxable accounts. Why? So we don't harm the tax-sheltered growth in our tax-deferred accounts. And because there is no annual contribution limit with taxable investing, so all our EF tiers in taxable are refillable* after use. (* You can withdraw rIRA principle and redeem a US savings bond, but you can't put the money back after the emergency passes.)



Taxable investing.

Assuming you're going to college, don't worry about taxable investing at this time. Instead, keep your money in a taxable account and liquid (checking, savings, mmkt account, CDs,...) to use to pay your upcoming expenses (college, moving expenses to your first job after college, growing your EF,...).

You can worry about more formal investing (401k and taxable) after you are employed. Between now and your first job, use the time to read about financial management and investing so you are ready (and avoid serious mistakes) when your salary starts.



Suggested readings. (What I wish I'd known when I was 20.)

PDF: https://www.etf.com/docs/IfYouCan.pdf

Books:
The Only Investment Guide You'll Every Need, by Tobias. Covers a wide range of personal finance topics.
The Boglehead's Guide to Investing. Covers investing for retirement in more detail.
Date... or Soul Mate, by Warren. To avoid the emotional/financial expense of a bad marriage/divorce.

Wiki (link: screen top right): Read "Getting Started" and all else that interests you.

Find the Wiki topic on "books" (search term) and read several over the coming years to round out your investor eduction. Read one on bonds; it's boring stuff but necessary to avoid bad* bond funds. (* Bonds that also crash when the stock market crashes.)



Congratulations on your early start.

Welcome.
Last edited by dratkinson on Fri Apr 21, 2017 3:54 pm, edited 1 time in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

William6801
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Joined: Thu Apr 20, 2017 9:02 am

Re: Brand New Investor Help

Post by William6801 » Fri Apr 21, 2017 8:21 am

Thank you all for your replies! Things to think about. I really appreciate your responses and will be investing soon.

cjcerny
Posts: 179
Joined: Sat Sep 15, 2007 12:47 pm

Re: Brand New Investor Help

Post by cjcerny » Fri Apr 21, 2017 8:48 am

1) Keep it super simple.
2) Keep your costs super low.

No real need to consider a target date fund or ETFs. Those are just going to add to your costs in the long run. Don't worry about buying the bonds now if you can afford the $3k opening cost of buying Total Bond Market Index. Buy them next year when you have another $3000. By all means, this should be a regular or Roth IRA account. If you want to get crazy, buy some international stock market index at some point when you can afford another $3k but you'll still be pretty darn diversified if you never end up buying international stock, I suspect.

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