20 year old starting out investing

[kinney2315]

I am twenty years old, and I would like to start saving for my future. I only work part time because I am still in school, so money is tight. But i know my early 20's is a critical time to start saving for my future. I figured saving small amounts now is potentially better than saving larger amounts as I get older. I am new to the investment world and I am just looking for some guidence/resources, on where I should start. I would really appreciate your insights.

 

[urn2bfree]

Anything you can save might be best put in a Roth IRA ( stick with low low cost index funds- generally stocks given your long time frame right now)

 

[RISP]

Welcome to the board kinney, and congratulations to your smart decision. You are definitely right that starting early will pay off. I suggest you take a look at the recommended reading list here: http://www.early-retirement.org/for...reading-list-with-a-military-twist-46732.html
Read two or three of these books and get a solid understanding of investing before you actually invest in anything. My personal favourites are "The Intelligent Asset Allocator" by William Bernstein and "A Random Walk Down Wall Street" by Burton Malkiel, but there are other good options. This board is a treasure trove of information, too.
Some other good advice:
- Live below your means (LBYM). Save & invest something out of every paycheck. Make sure "lifestyle creep" doesn't eat up all of your salary increases.
- Manage your life, and your finances, yourself. Don't trust banks or advisors.
- Pride yourself in being different from the mainstream. Most people will not understand why you don't get the newest smartphone, the fanciest car, the biggest house you can afford.
- If at all possible, find something that you enjoy doing for a career. Having a job you like is MUCH better than slaving away at a job you hate, just because it pays well.
- Live life to the fullest. It's meant to be enjoyed.

 

[kinney2315]

I appreciate your replies. This may be a stupid question. But in your opinion would it be beneficial for me to take a bit more out in student loans, and have a little more money in a roth IRA? Or should I not trade the debt for the possible benefits down the road. I know the earlier you start the more interest can build. Just a thought. Let me know what you think.
Thanks

 

[RISP]

That would be leveraging. I personally would avoid debt at all costs, with the exception of a modest mortgage for your primary residence. YMMV.

 

[pb4uski]

I know this may be blasphemy on this forum, but for someone like you at 20 years old, while it is great for you to save some, a more important priority is to obtain a skill and a job and experience to build a career and a reliable income stream. Concentrate on that and building an emergency fund of 3-6 months of living expenses in a taxable account and then worry about retirement savings. Then, if you have access to a 401k through your employer that provides matching funds take full advantage of that.

With respect to your question, if you have fully funded your emergency fund and have extra cash flow then use it for your education to minimize the amount of student loan debt that you will have. Less debt will give you more flexibility later in your 20s.

While in theory your investment return should exceed what you pay in student loan interest, there is a risk that it might not and the base that it would be applied to is likely to be small so it won't make much of a difference.

 

[meekie]

I've never kept a 3-6 month emergency fund in a taxable account, I'd rather have as much money as possible working for me. I like having a month or so of expenses in your checking account (overdrafts fees are a waste of money). Then put as much as you can in your Roth. You can always take out the contributions for the Roth if you have a real emergency. (Of course I also have family that I know I could hit up for a few months if needed as well, ymmv).
If I were you, I'd try to get at least $100 a month into the Roth, and if the student loans were cheap enough, I'd use them to make sure I got that much.

It doesn't make much sense to pay 8% in a student loan to make 2-5% in gains, so just be careful what you're paying for.