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Investment strategy for an 18 year old

Howdy folks,

I could use your help. My grandson is an 18 yo senior in high school. He has a part time job and probably a few thousand in his savings account. At Christmas he asked me how he could start investing. Seems he's taking a Personal Finance elective in school. He stated that he wanted to be able to retire both early and well financially. His parents and grandparents have saved for his college and his parents are both only children. His other grandpa was in investment banker and his mom is currently a bank VP. I'm the dumb one of the bunch. He and his dad and I have already discussed starting with an Emergency Fund. How do you discount that for a kid living at home?!? Otherwise, he was good with having $1,000 to start some sort of investment.

What are your thoughts and suggestions? Roth? Where? How?

And realize that I plan to share this discussion link with him.

Thanks so much,

And so it goes,

Peace and wear the damn mask,

rono

Comments

  • edited December 2021
    He should open a brokerage account(s) at Fido or Schwab.

    With earned income, he should start Roth IRA.

    In taxable account, he can use a total stock market fund (OEF or ETF) for now. He may also want to buy some stocks that he may be familiar with (GOOGL, DIS, MSFT, etc).

    He can put some money into I-Bonds so long as the rates remain high (current 7.12% until May 1). A Treasury Direct account would be required.

    Smart kid taking personal finance elective.

  • I got a couple of my kids started when they were young, using UGTMs. They are adults now, so they have the accounts. With a relatively small pie to start with, I found it necessary to find MFs with low initial investment limits. If your grandson is ready to have a brokerage account and learns how to trade, the idea from yogi to use ETFs is perfect. One of my kids still has VIG that has appreciated nicely over the years. My inclination is towards a global growth fund, or at least a fund that has some international exposure. APFDX ($1K min) or BWBFX ($100 min) for global growth, AKREX for primarily US exposure. Many funds lower the starting minimum if the holder uses an Automatic Investment Plan. That strikes me as a good option for a new investor.
  • edited December 2021
    If this money is for retirement and not for a home or family in the next 10 years, the Roth is the best idea hands down.

    I think if I was starting out and had 1 investment to start with, I would just buy QQQ and don't worry about diversification at that young age. Technology was a great investment 40 years ago, 20 years ago, 10 years ago and no reason to think differently in the future.

    And I can't for the life of me think why a senior in high school whose only obligation for the next 4-5 years is to concentrate on a college degree, and being an only child with parents having good jobs as you described would ever need an emergency fund. It's not like he has to worry about losing his job and have to pay the families bills. This may be the best time of his life to invest as much as possible for the future without having other life-obligations that will certainly come in the future.

    I'm very impressed with this young man wanting to understand finance at this young age.
  • +1 to what @MikeM said. The emergency fund is not necessary unless for the sole purpose of teaching him a good principal. This also assumes that college is paid for as the best investment he can make is in himself and his future earning potential.
  • While I have a slight personal preference for Fidelity, Schwab is an excellent brokerage and currently shows 3,164 funds there that are open to new investors with a min of $100 or less. Good for starting out.

    Though a good approach might also be to select one or two core funds and watch them for awhile to get a feel for markets. It's okay to lose some money. Markets don't always go your way.

    Schwab Fund Screener
    Click on the Advanced Screener tab.
    Uncheck all the basic criteria except "open to new investors"
    Under Portfolio Mgmt and Fees, check "minimum investment"
    Then select "$100 or less" for the min investment range, and view results.
  • Hi Ron, Nice to read what you have written about the desires of this young man.

    I've pushed Roth IRA's for minors and +18 year olds with our extended family and friends for years. Sadly, few takers for follow up information.

    I'm biased towards Fidelity and their quality operation. (wife and I since 1978 with T-IRA's). The online set up is clean and easy, and there are no minimum $ for the vast number of offerings, including active managed Fido funds.
    I hand held two mid 30's relatives 2 years ago starting a Roth. They were both a bit more motivated as their mother provided them "seed" money to get their arse's in gear. They have 401k and 403b plans they contribute some money to, but the Roth is a nice extra. They are able to be aggressive (and should be at their age); so all money is invested in QQQ etf.

    He has until April 15, 2022 to qualify for a 2021 tax year deposit. The money contribution does not have to be his, so others may help him fund the account.
    What we did: We funded (minor Roth, account activation) and still fund our daughters Roth; as she continues with her full time university studies and some part time employment. The Roth is linked to a credit union acct. for easy access; and also includes a taxable brokerage acct. for future use.
    The current Roth (Fido acct:) holdings are: FTEC (Fido tech. etf), FBCG (Fido blue chip growth etf) and FSMEX. Additionally, IRS Pub. 590-A should offer info about who may provide funding of a Roth.

    I personally remain U.S. centric for our investments, but ACWI is global large cap equity etf at about 60/40, U.S./Global of about 2,200 holdings, if one wants that exposure. There are many other choices in this area for a global spread, if desired.
    ACWI holdings

    Remain curious,
    Catch
  • @rono: one item slipped my mind. No "junior silver miners" for the kid. LOL
  • BenWP +1
  • Just put everything into VONG unless an own 'emergency' fund is really important, in which case something less than 100%.
  • Hi @davidrmoran et al
    Being curious........
    A chart of VONG v QQQ v FTEC v FSMEX starting at Oct. 2013 to date. The chart begin is limited to the inception date of FTEC.

    Remain curious,
    Catch
  • The portion of value for the below link, is the calculator link near the end of the discussion (from a prior MFO discussion).
    Compounding of the growth over time, being the item of value.



    Calculator link, MFO
  • edited December 2021
    catch22 said:

    Hi @davidrmoran et al
    Being curious........
    A chart of VONG v QQQ v FTEC v FSMEX starting at Oct. 2013 to date. The chart begin is limited to the inception date of FTEC.

    Catch

    Sure. Why not put it all in Apple and Pfizer, then? Or go w Cathie W.

    He's 18. I would want my son or grandson to be in something over the many decades ahead way more diversified (sector-diversified, that is, including nontech) than what you graphed for the last 9y. VONE and VONG will do that, I am thinking.
  • @rono,

    Your Grandson is lucky to have someone humble like you as a Grandparent. And good on him to be thinking of his future while he's young.

    Some thoughts to consider (some mirror what was already stated in other comments):

    Start with reading a book like WSJ book of investing. After each chapter is read discuss topic and learnings with Parents or you etc. I found when talking to many young(er) folks at work etc, most don't know how to open a brokerage account, what at Roth IRA is etc.

    Open Roth IRA Schwab account. I'd think first about asset allocation. I can virtually guarnatee you that many will advise a young man/person to "be very aggressive when investing at a young age." I say bunk to that. I can virtually gurantee that the first large drawdown, they will sell, go to cash and then avoid the markets if they are too agressive.

    I'd start with a 65-35 stocks - cash mix to start with. Get a good education, work hard, get a decent job, stay within your means, don't worry about keeping up with the Jones' and he'll do just fine over time. Stay away from the get rich quick quacks (ARK etc)

    I'd consider going with one fund to start with, ARTTX, Artisan Partners Focus Fund. The fund is process oriented, risk aware, can vary between growth/value/blend styles, generally invests in US stocks, fund mgr is very experienced but on the younger side, likely won't be retiring any time soon. ARTTX with the 65% of initial investment, then I bonds with the 35%. Do that over the next 5 years etc. Stay with it.

    Also. Young man should stay the F away from any kind of drugs, be careful with the folks he runs with and who his friends are. Think for yourself, don't be brainwashed by social media or what the other Tik Tik sheeple are doing/thinking. Don't gamble. Only have a cocktail on "non-school" evenings. Choose a career path that will be viable, not be able to be automated away, oursourced overseas and that is not locked into a certain geographical area. Choose the right girls to date and the right girl to marry. Choose well.

    Only buy a home in a good school district. Never buy a home where in the closest park the basketball rims are bent or missing the nets.

    Donate to the local food bank once a quarter. Wouldn't hurt to donate your time a few days a year as well to help others less fortunate.

    Good Luck, Good Health to you and your Grandson,

    Baseball Fan
  • Howdy folks,

    Thanks so much for your advice and kind words.

    I'm having him read all of your comments, but I'm leaning in the direction of starting a Roth IRA with one of the better families. We've got long standing accounts at both Price and Fido, so that's pretty straight forward. Have him open with $1000 and contribute $50 a month and invest it for now in a Target Date or Allocation type fund until he builds the principal and learns more.

    again, thanks much,

    and wear the damn mask,

    rono
  • +1 rono & grandson
  • Good plan. I was going to suggest a plain vanilla S&P 500 fund but you already knew that. Then he could paper test active funds against that should mo-mo fund chasing or his knowledge of growth v. value, LC v. SC, etc., etc. give him the itch to explore. He's got plenty of time to learn the game. Best of luck to him.
  • @rono,

    I would suggest - for your grandson to read - anyone young investor can benefit from these words of wisdom.

    If You Can - How Millennials Can Get Rich Slowly - By William J. Bernstein
  • Definitely invest in a Roth IRA to get lifetime tax free growth, plus he could make a penalty free withdrawal for down payment on first home. I would keep it simple an invest a total market index fund, either domestic or global — such as FZROX or FFNOX. FFNOX provides worldwide stock exposure plus 15-20% in bonds. A comparable active fund is TRSGX.
  • edited December 2021
    Good plan @rono.

    Automatic investment plan (AIP) is a great way to learn and get in the habit of saving. I started AIP with the workplace plan in the 70s and than later for non-retirement investing in the 90s. Still use it today for efficient budget management. TRP has some great funds to use for the purpose. If you’ve been reading the board, some of us have soured on their service. Fido might be my choice today.
  • +1 hank Setting up a Fidelity brokerage account is the best way to go, in my opinion. You can access TRP funds plus buy Fidelity funds with no minimum required !
  • edited January 16
    Not a strategy. But I’ve uncovered a link to a trove of old Wall Street Week - With Louis Rukeyser shows which, of course, aired on PBS from some time in the 70s until the 90s. We all learn in different ways. For me this was the best “primer” I ever had in finance. What’s fascinating is that many of the programs seem as relevant to investors today as they were 30, 40, 50 years ago. I guess that’s because the basic principals underlying financial markets and good investing practices really don’t change much with time. Your grandson could do worse than to sit back and enjoy a few of these shows.

    Best wishes to you and grandson

    https://americanarchive.org/catalog?f[special_collections][]=wall-street-week&sort=asset_date+asc&f[access_types][]=online
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