Just graduated high school! $5,000 to invest.

[mwmnj]

Hello all,

I am 19 and just graduated from high school this week. I currently have $5,000 saved that i plan on investing.

The advice in this Forbes article seems pretty sound: (Cant post link until I have made 15 posts. google "$5,000 portfolio" and it is the first result.)

A summary of the advice provided:
-$3,000 to index fund like Vanguard Total Stock Market Fund
-$1,500 to ETF that holds bonds like Vanguard Total Bond Market
-$500 into an international stock ETF like Vanguard Total World Stock
-put it in a roth IRA
(They gave other examples besides vanguard. I only listed Vanguard because it is seeming like the best choice for me at the moment and i would like to keep all my eggs in one basket.)

I plan on making this $5,000 investment and letting it grow for as long as possible. I may make future contributions but for now lets say i plan on just letting it sit. Since this is extra money I have saved from a part time job this year and I have zero living expenses due to the generosity of my parents I would say I have a moderately high risk tolerance.

Any advice for me or input on the advice provided in the Forbes article?

I am completely new to all of this and have no where else to look for assistance besides the internet so hopefully the members here can answer some of the questions I am bound to have along the way and point me in the right direction towards making the best decision.

[jpg7n16]

Hello all,

I am 19 and just graduated from high school this week. I currently have $5,000 saved that i plan on investing.

The advice in this Forbes article seems pretty sound: (Cant post link until I have made 15 posts. google "$5,000 portfolio" and it is the first result.)

A summary of the advice provided:
-$3,000 to index fund like Vanguard Total Stock Market Fund
-$1,500 to ETF that holds bonds like Vanguard Total Bond Market
-$500 into an international stock ETF like Vanguard Total World Stock
-put it in a roth IRA
(They gave other examples besides vanguard. I only listed Vanguard because it is seeming like the best choice for me at the moment and i would like to keep all my eggs in one basket.)

I plan on making this $5,000 investment and letting it grow for as long as possible. I may make future contributions but for now lets say i plan on just letting it sit. Since this is extra money I have saved from a part time job this year and I have zero living expenses due to the generosity of my parents I would say I have a moderately high risk tolerance.

Any advice for me or input on the advice provided in the Forbes article?

I am completely new to all of this and have no where else to look for assistance besides the internet so hopefully the members here can answer some of the questions I am bound to have along the way and point me in the right direction towards making the best decision.

Well hey welcome! If you're investing for a very long term with this cash - like retirement - the advice is very reasonable.

You can open a Roth virtually anywhere, but since all the items you listed are Vanguard funds - just open a Roth with Vanguard. Fund it with your $5k, then put it in like you have listed above. (You could also open one at Fidelity or T Rowe Price or Charles Schwab - and just choose all Vanguard funds. You don't have to have a Vanguard account to have a Vanguard fund - likewise you can hold non Vanguard funds in a Vanguard account... I think you get my point )

Oh but one thing - did you earn over $5000 this year? You can't contribute more than you earned. Probably not an issue, but if you only made $3000 this year - you can only put 3k in the Roth.

[mwmnj]

Yep, the 5k in the roth would be from this years income. Is there anything special i should be aware of tax wise before i purchase these funds and open a roth?

[jpg7n16]

Yep, the 5k in the roth would be from this years income. Is there anything special i should be aware of tax wise before i purchase these funds and open a roth?

1st off - open the Roth IRA 1st, purchase the funds in the Roth 2nd

Tax wise: there shouldn't be any tax implications at all unless you try to withdraw early.

But you are only taxed/penalized on earnings. So if you invest your $5k and are forced through life circumstances to prematurely withdraw the money when it's grown to $8k, then you will be taxed on $8k-5k = $3k, at your marginal tax rate plus a 10% penalty.


From Withdrawal Rules: Roth IRAs :

Earnings are removed last and are subject to a penalty unless one of the following penalty exceptions applies:

• First-time home purchase
• Age 59 ½
• Qualified education
• Death
• Unreimbursed medical expenses
• Disability
• Health insurance if you’re unemployed
• Substantially equal periodic payments

[swanson719]

What JPG means is that you can withdraw the principal you invest at any time with no penalty. You cannot withdraw the interest on the investment without paying a penalty of 10% of whatever that interest is plus counting that withdrawal as income.

[sm808]

I think its great that you're looking to invest these funds, but to play devil's advocate - what are your plans post graduation? If you're looking at going to college, I might suggest putting this $5k (or a portion of it) into a shorter term vehicle (savings, a 6 month CD, etc.) for school expenses. This $5k can help with living expenses or tuition or simply to reduce the need for loans, etc. The return will be lower, for sure, but I'd hate for you to "lock" this money up in a Roth and not be able to access if you need it while you're in college, etc.

I would suggest putting in in an online savings account and making automatic transfers of some smaller amount to the Roth each month. This way, you are still saving long term but you have a cushion for current expenses, etc.

[mwmnj]

This thought has crossed my mind. Would $3k in roth and $2k in cd be a good compromise? What are the best short term places to put it? I am going to a community college next year so I know I def. will be able to leave it be for at least the two years I am there. After those 2 years however, my future is a bit more uncertain. thanks

[sm808]

Whatever is a "good compromise" depends on how comfortable you are that you may, at any time, need this money. I think putting a smaller initial deposit into a Roth (even as small at 1k)and leaving the rest in an account like ING savings or a series of $1k CDs (short term, to get some leverage on interest rates - you can look up CD laddering on this site or on the internet.) At your age, even a small deposit to a Roth can add up towards retirement, but having some cash available (or earning a small amount of interest until you need it) might be really wise. Have you budgeted for books, fees, expenses, etc. The little things you never think about add up while at college and I'd rather see you use some of these funds to pay them, rather than charge them or take out loans.

[jIM_Ohio]

1st off - open the Roth IRA 1st, purchase the funds in the Roth 2nd

Tax wise: there shouldn't be any tax implications at all unless you try to withdraw early.

But you are only taxed/penalized on earnings. So if you invest your $5k and are forced through life circumstances to prematurely withdraw the money when it's grown to $8k, then you will be taxed on $8k-5k = $3k, at your marginal tax rate plus a 10% penalty.


From Withdrawal Rules: Roth IRAs :

Earnings are removed last and are subject to a penalty unless one of the following penalty exceptions applies:

• First-time home purchase
• Age 59 ½
• Qualified education
• Death
• Unreimbursed medical expenses
• Disability
• Health insurance if you’re unemployed
• Substantially equal periodic payments

all good information

I will add that the only thing I would change from the forbes article is put $2000 into world index and $3000 into total index, and skip the bonds entirely. You are young, and bonds should not be put into a Roth IRA unless that's the only place you can put them.

Before you invest in anything, please check the risks out. Nothing is risk free, what I suggested has "more risk" to it than what the forbes site suggested, but at same time the rewards from my suggestion should (might?) be higher.

The best way to learn about risk is to answer various questionaires on sites like Vanguard or ask about them on forums like this.

[tdls17]

Hi,

This will help you. "The Little Book of Common Sense" by John Bogle; founder of Vanguard and index funds - a great start. I'd also suggest the Warren Buffet books based on your investment strategy..

I've benefited over the years from frugal investing as have these two very successful gentleman. Hope this helps.

Denise
Frugal Investing, How To Invest My Money And Conservative Stock Market Tips

[Stuartthomas]

Hi,

This will help you. "The Little Book of Common Sense" by John Bogle; founder of Vanguard and index funds - a great start. I'd also suggest the Warren Buffet books based on your investment strategy..

I've benefited over the years from frugal investing as have these two very successful gentleman. Hope this helps.

Denise
Frugal Investing, How To Invest My Money And Conservative Stock Market Tips

i dont know about the others ..but its a good help for me..thanks for this...