facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external

How do I Start Investing?


"Hi, I'm 20 years old, working full time and attending college full time.  Live with parents who are funding college.  Have $15,000 saved up in a savings account, adding about $1000 per month, and would like to start investing.  Can you suggest how I can start making my money work for me?  Thanks."

Congratulations on a great start to a healthy financial future!  You are in a much better situation than most of your peers since it sounds as though you will not be graduating with any school loans and hopefully without any debt whatsoever.  Here are my recommendations given the information you have provided.  

First things first, if you have any debt, it probably makes the most sense to pay off any high interest debt that you may have especially credit cards.  I am guessing you do not but for other readers in a similar situation, I wanted to include this paragraph.

Since you are looking to invest, there are multiple factors to consider.  First, how much money of the $15,000 should you invest?  This depends a lot on what your immediate needs are and what your near future goals are (less than three years).  You should maintain at least 3-6 months worth of necessary expenses in your saving account.  Considering you live with your parents, your expenses are probably fairly minimal.  You should also consider major expenses after you graduate and what those may cost.  For instance, you may want to buy a car or perhaps you will have to move to another part of the country.  Long story short, make sure you have enough cash in your savings account to have at least 3-6 months worth of expenses AND enough to pay for whatever major expense you are anticipating.  Not everybody has this luxury at your age, but since you do, take advantage and prepare for it.

The rest of the money in your savings account can probably be earmarked for investing.  The next most important decision is what type of account should you put the money.  Knowing what little I know about you, a Roth IRA would make a lot of sense.  Provided you qualify, make a $5500 contribution for this year (2016).  You will still have money left over and this can be invested in a taxable account.

I am curious if you have access to a qualified retirement plan (401(k), 403(b), SIMPLE, etc) with your current employer.  If you do, it would probably make the most sense to take advantage of it and have the extra $1000 each month taken out of your paycheck and deposited into the retirement account.  If this is not a possibility, then you can contribute this money to your taxable account as well.

Now, it begins to get tricky when advising you what to do without having ever met you.  You need to choose appropriate investments for the different accounts mentioned above.  I cannot tell you what that should be without knowing how much risk you are willing to take or what sort of investment strategy you would like to implement.  I can speak only in generalities that suggest someone your age can generally be more aggressive than someone nearing retirement because you have many years of work ahead of you to recoup any losses should you experience a downturn in the market.  This suggests you could have more exposure to stocks.  How that looks is completely up to you.