Starting out young

I'm planning to start putting money in funds in the near future. I'm 19. Right now , my parents contribute to a Roth IRA and I want to contribute to an additional fund.

For the Roth IRA I'm looking at a 40/60 moderate allocation (Fidelity Balanced, T Rowe Capital Appreciation, Vanguard Wellington in that order).

I'm a little more unsure on what to do on the other fund. I've looked into a simple Fidelity Sparten Total Stock Market Index to the Janus Contrarian fund. I think that I'm looking for the 5 to 10 year plan on this fund. I like the consistency and low taxes which may eventually become an issue on the index. I kind of like the risk on the Contrarian (and more the returns), but I doubt that it can continue the pace that it's on.

Anyway, I guess I don't really know what I'm doing besides a little reading here and there. I really have an aversion to high expense accounts. What would you do if you were in my position? Am I on the right track at all?

since you are asking for advice, i am happy to offer some. since you are new, i also want to caveat something UPFRONT that is also in my disclaimer below. even though you gave us some information on your situation ... we still dont know you. on top of this, your money is NOT our money. finally, my advice is free and as a result; you know the old saying: "you get what you pay for".

that said, i think it is crazy for someone as young as you to be using a 40/60 portfolio. the ONLY reason to do so is to learn while you play. while it may "ease" you into the market your relative youth offers you opportunities most investors dont have and that opportunity is time. generally speaking, someone your age should have amazing aggressiveness built into his or her portfolio. the drawback for someone young who is aggressive in the market is not to be overwhelmed by the gains nor dissapointed in the losses. you need to retain a LONG TERM view toward investing. if you can learn this, then you will have the market cornered.

i dont give specific advice on specific funds. for that, i would have to charge you and i promised you my advice was free. however, generally speaking, whoever got you on this "aversion to high expense accounts" is also doing you a disservice. neither is the most expensive fund the best but nor is the least expensive fund the best. in the end, lower expenses do not equate to higher returns. this debate on expenses is for juvenile investors who know very little of what they are talking about. it sounds good because the calculations are always done in an academic method as opposed to in real life with real (similar) investments and normed for time.

wow, to be 19 again and wise enough to be considering my financial future ... what would i do?

1. get debt free and stay that way (except for school loans or mortgage debt (a car is ok too AT YOUR AGE but not too much debt).
2. i would buy so much life insurance my friends and family would think i was off my rocker and consider committing me to a sanitarium.
3. i would have the most aggressive portfolio i could develop (based on a solid understanding of the investments and how they operate both independently and together)

note: i would hire an advisor. they are amazingly cheap for what they return and my personal portfolio never really really got cooking till i hired one myself. though an advisor is no guarantee you will be more successful, it is my personal and professional opinion the right one will give you the greatest opportunity for success.

good luck.

Why would you buy so much life insurance? Just wondering...

Opai,
I'm with Andy on this one. Why have any life insurance at all with no dependants?? In the case of his death, would your goal be for his hamster to maintain the life he is accustomed to?

Well, unless YoungInvestor wants to be put in Potter's Field, some relative of his is going to be at the expense of burying his corpse. At least some token amount of term life insurance should encourage the beneficiary to bury him/her according to his/her wishes!

The amount he saves from age 19-? on premiums alone could fund a lavish funeral and two armloads of wrasslin' videos.

Just kidding! :p

younginvestor,

awesome decision to start investing. I started when I was 17 and I have a $60,000 portfolio. I'm 22 now. Anyways, I would start with clearing your debt. Second, I would look into a target fund or freedom fund. You can find these with Fidelity, Vanguard (which I recommend), T. Rowe price and there are other well known companies, but I like these companies the best. I wouldn't worry so much about mutual funds until you have got your future secure. The great thing about target funds is that you can start investing aggressively and as you get older the fund will naturally get more conservative, so there's no work involved besides being a patient and commited investor.

qk

since you are asking for advice, i am happy to offer some. since you are new, i also want to caveat something UPFRONT that is also in my disclaimer below. even though you gave us some information on your situation ... we still dont know you. on top of this, your money is NOT our money. finally, my advice is free and as a result; you know the old saying: "you get what you pay for".

that said, i think it is crazy for someone as young as you to be using a 40/60 portfolio. the ONLY reason to do so is to learn while you play. while it may "ease" you into the market your relative youth offers you opportunities most investors dont have and that opportunity is time. generally speaking, someone your age should have amazing aggressiveness built into his or her portfolio. the drawback for someone young who is aggressive in the market is not to be overwhelmed by the gains nor dissapointed in the losses. you need to retain a LONG TERM view toward investing. if you can learn this, then you will have the market cornered.

i dont give specific advice on specific funds. for that, i would have to charge you and i promised you my advice was free. however, generally speaking, whoever got you on this "aversion to high expense accounts" is also doing you a disservice. neither is the most expensive fund the best but nor is the least expensive fund the best. in the end, lower expenses do not equate to higher returns. this debate on expenses is for juvenile investors who know very little of what they are talking about. it sounds good because the calculations are always done in an academic method as opposed to in real life with real (similar) investments and normed for time.

wow, to be 19 again and wise enough to be considering my financial future ... what would i do?

1. get debt free and stay that way (except for school loans or mortgage debt (a car is ok too AT YOUR AGE but not too much debt).
2. i would buy so much life insurance my friends and family would think i was off my rocker and consider committing me to a sanitarium.
3. i would have the most aggressive portfolio i could develop (based on a solid understanding of the investments and how they operate both independently and together)

note: i would hire an advisor. they are amazingly cheap for what they return and my personal portfolio never really really got cooking till i hired one myself. though an advisor is no guarantee you will be more successful, it is my personal and professional opinion the right one will give you the greatest opportunity for success.

good luck.

I read something in OP which suggested this money is not for retirement, so a 40-60 strategy made sense, but at same time, if that is true, then an IRA does not make sense.

If money is being put into an IRA, it should be for retirement. At age 19, I would suggest something more than 40-60. 80-20 maybe, 100% equity more likely. I am 34 yo and am 99% equity right now.

If money is being invested outside of an IRA, and to be used in 5-10 years, 40-60 makes sense to me. T Rowe Capital Appreciation is nowhere near 40-60, though. I own that fund (PRWCX) and it is closer to 80-20, and the 20% are convertibles, which are not the same as treasuries... where as the 40-60 allocation probably has treauries as the root of the bond position.

I don't see a need for life insurance! That is for when you have a familiy to provide for.

A Roth IRA is the best thing to start with, then a low cost trading account, places like TradeKing is one that I use. 4.95 a trade. Look around, there are alot of good brokers that are not on TV!

I am 21 and run www.college-investor.com its for young investors like you, if you have any questions for other young kids def check us out!

Thanks,
Tim

www.college-investor.com

Ok younginvestor here is what I would do. I would try an eliminate all debt you have except maybe student loans. Might want to start putting money away for a 20% down payment on a house in the future. As far as investing as young as you are there is no need to be investing in bonds. I would have my portfolio set up in this way.

10% balanced
25% large growth
25% large value
13% small value
12% small growth
15% international

If looking for some good funds check these out.

T Rowe Price Capital Appreciation
Marsico 21st Century
Excelsior Value and Restructuring Fund
Selected American Shares
FMI Large Cap
Royce Value Plus Fund
Third Avenue Value
Hodges Fund
Artisan International
Julius Baer International Equity II

Hope this helps. Good Luck

AndyP: Why would you buy so much life insurance? Just wondering...BJK: I'm with Andy on this one. Why have any life insurance at all with no dependants?? In the case of his death, would your goal be for his hamster to maintain the life he is accustomed to?sorry for taking so long to respond. i didnt review this thread after i posted, until today.

"intellectually" i understand why a young person just entering their career years would be hesitant to start up a lot of life insurance at the outset of their "financial planning". that said, if personal financial management was so simple and straight-forward and common-sensical, more than a paltry 12% of Americans would be retiring with dignity.

i PERSONALLY see life insurance as both a foundation, a linch-pin, and an indicator of someone who is a good manager of their personal finances. and of life insurance, permanent insurance is the truest indicator of all.

you say, "what the heck is this opai talking about?"

well, thanks for asking. allow me to elaborate.

while the OP is not in "need" today, i would hope that we can all agree that there is something morally deficient with a person who does not carry sufficient "cash reserves" to take care of their family in the event of untimely death. for ALMOST every family i have ever worked with, some amount of life insurance is NEEDED to fund those "cash reserves" needs. at this point, i dont care whether it is term, properly funded UL/VUL, or whole life. if you dont carry enough life insurance to take care of your family, you are a shameful individual.

ok, lets get back to the OP. he is young. he has (to the best of our knowledge) neither a wife nor children to provide for at this time. so why insurance and why permanent insurance?

simply put, it is tooooooo economical to pass up. permanent coverage will never be cheaper than it is today. on that, i guarantee! lets assume he got a $1MM policy today. if he did, his family and friends (who erroneously think they are savvy financially) would mock him to high-heaven. but if he got that same $1MM in 20 years, he would still pay MORE in cumulative premium (say to age 60) than if he got it now. on top of this, the cash value would also be less if he started 20 years from now even though he would have paid in TONS more money over a shorter period of time.

also, lets not forget that as we get older, we develop medical issues. not many 40 year olds are in as good a shape as when they were 20 ... and to assume otherwise is simple delusion. so, the cost, again, goes up. and of the changes that are MOST LIKELY to occur, he will be married and have a family by age 40. so he will be NEEDING the coverage then. so today, it is a smart decision in response to PLANNING for tomorrow.

yea yea yea, i hear you saying something like - "if he saves and invests now, he wont need any insurance later on."

POPPYCOCK!!! i have NEVER EVER EVER EVER met a single person who didnt wish they had more life insurance around the age of 60 and beyond. and the further beyond 60 they are ... the MORE they wish they had MORE.

remember, life doesnt always go the way we plan. and if your investments go crazy or if your spouse takes half in a divorce or if or if or if, then you end up with considerably less than you had planned.

but hey, this wont be you ... right?! i mean, the world bows at your comings and goings. you are the epitome of personal responsibility! and, YOU ARE LUCKY! i mean, look at your life! you have a beautiful wife! or the most handsome husband! your two kids are both brilliant AND good looking AND talented (their valedictorian speeches were published in US News and World Report and praised by the President of the United States). you have never had a car wreck. you have never had a sick day much less a major medical issue. heck, you dont even need glasses!

ok Mr(s) Wonderful, now what. now that you have accumulated so much wealth, what do you plan on doing with it? in the process of doing all the good things with your blessed life, we start passing it along to family or friends or charities. we start establishing trusts. and you know what, though you never ever need to put a single dollar in life insurance into those trusts, that is what wealthy people do. simply because of the GUARANTEED nature of the leverage opportunity.

and finally, why is it the "truest indicator of all"? i admit my bias here. i base it on what i have done and what i see others do. so it is not really empirical, but it has worked this way in almost ever case i have ever reviewed ... including my own.

when times get tough, what do we do? do we reduce our money we spend on living? nope, and if we do ... then by VERY VERY little. do we reduce our money we put in savings? nope, but if we do ... then by VERY VERY little. do we reduce the money going to our Roth or our 401K? nope, but if we do ... then by VERY VERY little. what we do ... is cancel our "expensive" permanent insurance.

i had a period where my income was SLASHED when i started in this industry (because of reinvestment into my business). for a bit over 2 years, i contributed not a dime to a 401k or to a Roth or any other investment. i did maintain my savings buffer, though it dwindled some during that time. but i continued almost $900 a month to life insurance.

doing this kept me COMMITTED to the long term nature of financial planning. i understood that a child wants a cookie and cannot delay gratification. but that an adult ... a mature adult ... can defer gratification. and usually, the greater the immediate pain the greater the long term gratification. is this not also what you understand? do you not teach your children to delay gratification ... to do what is necessary now so they can learn and grow and prosper in the future? do you let them eat cookies prior to dinner? stay up watching Hannah Montana until 1am each morning? wait until breakfast to start their homework? no, i dont think you do.

and i am not alone, the others who i have seen do this same thing with their insurance MORE than make up for it later, when times turn around. i have lived a blessed life. i have had my share of trials and tribulations and at times was not the best person i could have/should have been. but today, and in the years to come, i hope to pass the financial aspects of my blessings on to my children and my (to be born yet) grand and great grandchildren. i look forward to charitable giving leaving a legitimate impact on the world because i simply happened to live here for a while (and made some wise decisions). and in the end, it was the discipline and the leverage of life insurance providing me a strong foundation that will have made it happen.

thanks for the questions, hope i didnt sound tooo arrogant.

Thanks, 1_more_opai; this is the decision that I have made and I do not regret it. I am 21 years old (young) and prior to marriage purchased $500,000 of term insurance. After I got married I purchased an addition $500,000--$200,000 of which is permanent. So I have a total of $1MM of insurance on myself and $300,000 on my wife (who doesn't work). I have not yet started investing; I chose life insurance because it keeps me disciplined and is taken out every month. Another benefit is that if I become completely disabled, the company waives my premiums, converts my term to permanent (and still pays those premiums) and the cash value continues to grow. With my additional purchase benefits added, if I were to become completely disabled today-as long as my other living expenses were always paid--I could "retire" at age 65 with a yearly income of approximately $350,000. Of course I understand the present value of that is significantly less (around $90,000), but still...