How to invest at 21?
Hey All,
Wanted to seek guidance from some of the older users, or just individuals who have been investing for a long period of time. I am just starting off investing. Did a BB summer internship and made some good money (going to be going there FT). How should I start investing? I max outed roth IRA and have put the money into index funds through fidelity.
I also hold numerous index funds through vangaurd. Are there other ways I should start investing that may benefit me later in life? Thanks much.
bump
bump.
Not necessarily investing but put money into your HSA if your company matches at all (believe it depends on health insurance plans). I toss in about $50 a month and company puts in about $1k.
good investment in long term to have a good hsa fund once you get older. My HSA account is already ~$3k though with US hospital charges thats still probably nothing
+1 Tax advantaged accounts will = far more return overtime than timing the market. Use these to your advantage.
What is commonly overlooked is that you can stay on your parent's healthcare until age 26. If they are on a High Deductible and you are not a dependent the law is written so that you can max out an HSA at $7k a year (2x what you can as an individual). This and then max out your Roth's (401K and IRA) your first year, then transition your Roth IRA to a regular IRA once you make too much the year after you start. This combined with a $7k HSA allows you to tax advantage $31.6k of your income.
Then once you need to start putting more money away and doding the tax man (typically when you make associate) get married.
Bump
At 21 your risk tolerance should be pretty significant-- I think index funds are great, but don't be afraid to grab some riskier assets like tech ETFs or shares of individual companies you believe have serious growth potential. I'm your age and also just finished an internship and I have S&P index, tech etfs, and individual holdings in AAPL MSFT AMD as well as a speculative investment in Biogen.
In my opinion, since you are young and heading into a career path with significant future earnings you should be seeking risk and market-beating returns since at this point in life the downside is pretty insignificant, relatively speaking.
I am of the opinion that one should hold quite a bit of risk for a significant portion of their life (45+). Do you think this is reasonable for most people?
Probably the older you get the more your risk tolerance becomes tied to your individual situation and can no longer be thought of as a simple function of age-- but assuming a retirement age of 65, I definitely see myself continuing to seek strong returns when I am 45. However as you get older you also accumulate substantial personal savings, emergency funds, valuable real assets...so imo there is really no way a 45 year old could (should?) hold a portfolio with a beta even remotely close to a risk-seeking 21 year old.
You can add into Roth IRA with earnings from SA even if you are now unemployed for the next year and also if your next year total income will likely be above the threshold? Just asking because I was looking to put my earnings into a Roth IRA but wasn't sure if I could?
would also like to know this, how did you put money into a Roth IRA in college?
You can setup a Roth IRA yourself through any of the major brokerages and the max you can add for a year is your earned income in a year or $6,000, whichever is less.
You need earned income in a year to contribute to a Roth IRA for that year. If you make 15k in a summer 2020 internship, you can contribute to a Roth IRA for the 2020 year, but even if you have money leftover for 2021, if you have no earned income in 2021, you cannot contribute for 2021.
*The IRS would like to send you a message
Kinda cliche here, but truthfully just invest in yourself and spend the money. When you're 70 years old you won't wish you had an extra $100k in the bank from saving and investing at a young age, you'll wish you had lived a fuller life, spent that money on experiences that form who you are. Frankly, even just from a raw returns perspective, if you spend money and formulate these experiences now, they pay dividends later on in life as you're not one of those boring-ass banker kids who never did anything with their life/money. In the scheme of things, being an interesting, life-worth-having-lived person will carry you forward and allow you to reach high places.
Name checks out. Thanks for the advice, I really needed a reminder like this. Not OP but I'm considering graduating early and traveling or starting work early. Think I might be leaning more towards traveling now...
Traveling to where though, the end of your street? #corona
Max our your Roth while you can, then your 401k, and start feeding a regular brokerage account after. Focus on high-growth (/beta) MFs and ETFs with low expense ratios and don’t look at the balances more than once every few months — it’ll be a bumpy, but ultimately fruitful, ride.
And don’t forget to live a little.
Shouldn't you do the opposite since the Roth is taxed as soon as you put money in whereas traditional 401k you're taxed later on?
Depends on what tax bracket you’re planning on being in during retirement, but typically the answer is “higher” and thus, paying taxes now (Roth) is better. IRAs also have more flexible investment options. But you’re likely going to earn too much during your first full year of being an analyst to contribute to a Roth.
I would invest in 1) startups through equity crowdfunding platforms and 2) Index funds To hedge those startups investments, preferably at a time where the markets are depressed/have growth potential. 3) You might also want to consider investing in real estate if you can afford it/are ready to borrow
Hop on Wall Street Bets, on reddit. They will show you how to lose it all overnight!
In all seriousness, I'm in a fairly similar boat. Interested to hear what people say.
I’m putting all my savings in $CORN and $HTZ call options. This is a good move, right?
I see no way in which those don't absolutely print.
A little different advice from everyone else here.....
This is a good time to lose money and learn about the market......not kidding.
Around your age, I invested a thousand dollars here and a thousand dollars there on usually pretty high risk stuff. I bombed on almost all of it. However, in hindsight, it was an extremely useful experience. You can read all the finance books in the world, but until you're 40% down on an investment and feeling stressed, you don't know jack about investing. This is a good time to get your feet wet.
One of the biggest lessons was learning to overcome the most common bias of letting your losses run and cutting your profits early. Sure, we've all read about it in textbooks, but it's a lot harder to overcome when your whole screen is red. I'm glad to have overcome this bias playing with $1K on a stock versus now when I'm putting in $30K on a stock. In the long run, those early investments paid off huge from the perpsective of lessons learned.
Play the market. Make some mistakes. Hopefully make some money. In my opinion, you almost can't go wrong at this point with little money on the table. It's more a learning experience than a strategic allocation to plan your retirement 40 years from now.
Can you elaborate more on what you mean the "bias of letting your losses run and cutting your profits early?" Like I understand why taking profits doesn't really make sense if you're investing in the long run, but letting losses run seems like its obviously selling low, right?
He's saying people tend to see a stock be profitable and sell it to secure gains rather than let it keep going if it is good company long-term. Conversely, people will continue holding loser stocks in the hopes that it rebounds. Rather, we should be letting our good stocks continue to grow over time and cutting off the loser stocks but psychology makes us do the opposite.
If this person's in IB, how is this possible? Aren't most bankers not allowed to trade stocks?
Different banks have different rules. I've seen everything from no trading at all to trading on any names that weren't on the corporate watchlist. When I worked in equity research, I couldn't trade individual stocks but I could buy index funds.
Just buy QQQ calls can't go tits up
Stocks are a smart chioce (albeit a little boring for your early twenties), don't forget to put a little towards sports cars, nice apartments, and fast women. You've got the rest of your life to collect points but only a few years to be careless.
I beg to differ.
Okay
As a whole, I’d say stick to ETFs.
That said, when I was 13 or so my dad took me to meet his stock broker buddy, who was his good friend and someone I knew well. He was a former CBOT trader turned money manager in his later years. I got to go to his office over Christmas break, which I thought was awesome. They gave me a whole talk on money and how to manage it, and several things from that day and successive conversations have influenced me throughout my career.
His advice was to buy a couple of stocks (literally hundreds of dollars worth) so you have some skin in the game and a reason to care and then track them over time. Watch why they go up and down. I asked what stocks, and he said it doesn’t matter pick two companies that you like. Obviously since this was the late ‘80s, and I grew up in IL as a Bulls fan, Nike was an easy one. I also picked Ford. I checked them nearly every day in the WSJ.
He also talked about linking cost of living expenditures to a dividend or fixed income portfolio as a lens to thinking about savings and investments goals. That grounding and early education taught me a lot.
depends on how much you have. if not so much, i would stick with etf. otherwise, i would diversify index etf and tech stocks. (tech might be more volatile close to the election though)
A heavy weight towards real estate and infrastructure right now would be a pretty good bet a lot of REITs are still below February highs
No one has mentioned this yet, but if you're planning to eventually go to grad school/get a MBA, look into opening a 529 account. There's probably some tax benefits depending on the state you live in, and you don't get taxed on earnings when using them for education-related expenses which were expanded with the tax bill and it'll be pretty fucked if Biden undoes those changes if he's elected. You can get other people like family to invest in it too, I think they get a tax deduction of some kind as well. If you don't end up going to grad school, you can change the beneficiary to your kids or whomever.
If you want some good advice, go look at reddit/r/wallstreetbets
You will make bank bro
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