The Lovely Girlfriend’s college-age daughter has a fantastic summer job lined up, and it’s going to pay her very well. She’s a smart girl, and knows that she needs to be saving a chunk of her upcoming paychecks. That’s great, and I commend her on that, for I know I’ve made plenty of bad financial maneuvers in my lifetime. I’m just ecstatic that she knows she needs to do some serious saving, at this early point in her career.

That said, I’m wondering what’s a good way for a young person to invest well? I’m suggesting that she start herself at a 10% rate — that is, invest 10% of her gross pay — now, and increase that by a percentage point every 8 to 12 months. That timing aside, the bigger question is, “where does a young person put money to make money?”

Given that her summer job is just that — a 10-week job — I’m fairly certain there won’t be opportunity to get into a 401(k) plan or such. So what can a person invest in as an individual? I’ve probably got more questions than I realize right now, but here are a few:

1) Can this be as simple as going to her bank and opening up an IRA? She’d only be able to contribute for a couple of months, before the fall semester starts.

2) Several of the local wealth-management firms seem very happy to talk to potential clients who might bring $100 or more with them. Are there firms willing to help people just starting their careers and bringing essentially $0 when they start?

3) I’m sure there are a lot of online investment services… is that a good way to go? Mom always taught, “keep your banker and. your attorney within choking distance.” I know I’d be very reluctant to put money into an account not managed by someone I could actually call and meet with. But maybe I’m being too “old man” about that?

4) What have I not yet been smart enough to ask, or what other advice would you guys and gals offer?

She’s excited about her new job, being one of 150 or so hires selected from a pool of over 50k applicants. I’m excited for her, too, and want her to take every opportunity to not repeat any of the items on “Vthoky’s List of Stupid Financial Maneuvers.”

Thanks, all!


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Edited for bad spelling, though we did get a laugh out of it.

This message has been edited. Last edited by: vthoky,

Well, does she want short term savings, or long term retirement investments? (Or both?)


For savings, she can open a High Yield Savings Account earning ~4% interest from the various different options available out there. (I use Bask Bank.) And then transfer a portion of each paycheck into that savings account, to use as an emergency fund or to save up for a big future life expense. She can set up automatic transfers from her checking to her savings, so that the day her paycheck hits, a portion is automatically moved over to savings, and she doesn't even have to think about it.

This is the safest and most stable option compared to the ups and downs of investing in the stock market, and the easiest to access at any time, but it's not necessarily going to get her the best returns. Perfect for short term emergency fund savings. Not so much for long term retirement savings.


Whereas if she wants to get a start on retirement savings/investment, she wants to open an IRA. And while you could open an IRA with a bank like you suggest, the investment options banks offer in their IRA tends to be awful.

Instead, what she wants is an IRA with a low cost online investment brokerage, like Vanguard or Fidelity. She could do either a Traditional IRA or Roth IRA, and both have their pros and cons. For most folks a Roth IRA is the better option, and that's true for her as well. (Especially considering her minimal tax rate with just a part time summer job.)

She definitely doesn't need an investment advisor or a wealth management firm. Just open the online Roth IRA, and set up automatic contributions to contribute a portion of each paycheck, up to the maximum annual contribution limit of $7000. Then she can set it to invest those contributions within the Roth IRA into something simple like a low cost S&P 500 index fund, or a Target Date fund for the year closest to when she turns 65ish.

If she starts now, the power of compounding returns will turn a small investment at 20-something into a big retirement account at 60-something, even if she doesn't contribute a whole lot now. For example, if a 20 year old puts just $5000 into a Roth IRA and invests it in a S&P 500 Index Fund, then at the average market return they'll have $140,500 in that IRA when they turn 60. That's without contributing anything else besides the original $5000. (Every bit she contributes past that initial $5k over the following years only grows her retirement nest egg even that much further.)

Compounding is huge, and the earlier you start, the better. It's not hard to retire a multi-millionaire if you start your retirement investing in your late teens or early 20s.



So if it were my 20 year old daughter, here's what I'd advise... Do both. Figure out what portion of her pay she wants to set aside, then split it up between these two:

1) Find a bank online with a High Yield Savings Account offering ~4% and open one. Aim to save up at least a few grand in this as a "rainy day" emergency fund. (Or more, depending on how "very well paying" that job it.)

2) Open a Roth IRA with Fidelity or Vanguard. Contribute the rest to this, up to the $7000 cap. Invest that in either an in-house S&P 500 Index Fund (FXAIX for Fidelity, or VFAIX for Vanguard) or an in-house 2070 Target Date Fund (FRBVX for Fidelity, or VSVNX for Vanguard).

This way she'll end the summer with a nice little emergency fund for short term things like "my car broke down" or "my computer broke and I have a paper due", as well as a nice jump-start to her retirement that just by itself will turn into $150k+ between now and when she hits retirement age.

There is no age minimum to open a Roth. Just required to have earned income for tax year. She has till April 2026 to put 7k in for 2025. Assume her income will be nominal for 2025. Sub $150k. If she can scrape the 7k to fully fund it for 2025 when she is 60 she won’t regret it. Maybe her mom if she is able can even be nice and match it so she only needs to find 3500 and keep the rest for college.

Regardless, if she can even do a few hundred dollars she will be ahead of the game. I’d keep it simple and do an ultra low cost S&P fund.

Have her Open a taxable brokerage at the same time at same shop (Schwab, fidelity, vanguard etc) to get in the habit of saving and investing with every paycheck.

I have an acorns account and added my kids.
they are 17 and 15 and have been doing it for about 5 years.
It has a simple app, that direct withdraws from your checking account when you want or on auto.

They packed enough cash in their checking accounts that their allowance goes straight to investment accounts.

its kind of shocking was $20 week add up to over time. Birthday checks and such go in there.

Fees are minimal. I highly recommend it. They pick the purchase items for your portfolio based on a risk tolerance and goals. and you can change or withdraw at any time.

I’d start with a Roth IRA, her. The next is the investment choice. I’d want a lower cost/fee index fund at one of the large providers. I used to be a Vanguard fanboy but not as much anymore, they seem more interested in ‘wokeness’ in recent years.

Schwab has a few, Fidelity, an option, others.

The first order is to actually open the account, with a suitable investment choice. I’m working with my younger Son now. I’m being reminded that many need to be schooled up with the basics.

I'd agree with the recommendations above to invest in a Roth IRA. It's easy to do. Open an account in Fidelity, Vanguard, etc., select the "retirement" section, open the IRA, then select how you want the money to be invested, for example, into a mutual fund - such as FCNTX, which has had a lifetime (of the fund) return of 12.85%.

As others have said, start with a Roth IRA and also begin to build an emergency fund. Note: an emergency fund is not used to pay for vacations.

Have her start by going to Fidelity and Vanguard websites and read to learn about investing and setting herself up. Both have excellent information.
She needs to learn herself, about the subject first, not have people point her to specific investments they happen to think are "the one" for her situation.
She also needs to learn how to establish excellent credit, not to use it at this point, but because the score has an effect on other things like the insurance rates she will get.
She can also start by placing a credit freeze on herself to protect her and minimize the spam mail and calls she gets.

It's a lot, but I would probably be splitting the savings 3 ways.

Small percentage to start a retirement account- she's young enough it can basically all be high risk.

Small percentage toward longer short-term savings- like for a house down payment.

Biggest portion into establishing an emergency fund. She's young so her expenses aren't high- 5k could probably float her for a while, and she can adjust that amount upward as her circumstances change. When she gets that funded adequately, she can move that percentage to one of the other purposes.

You can withdraw up to $10k from a ROTH for a first time home purchase without penalty (you do pay income tax on it) so that is a good option for a young person as it can also be used for that.

Teach her the "Dog's of the Dow" investment method. Easy, fun and it works.

https://www.dogsofthedow.com/

Start pumping in a Roth 401k long term. It will pay off hugely at her age.

Short term, get a brokerage account and some good growth stock mutual funds.

Otherwise, park it in a high yield savings account.

quote:

start herself at a 10% rage

I know some folks resist saving, but raging ....

Being serious, though...it's important think through the context. Having her learn to do that is as important, maybe more so, than choosing a specific portfolio mix. External factors, taxes, timeframe, etc.

1) College financial aid, financing, etc.

If she's still in college and getting financial aid, check how the college's aid calculations treat her savings, and whether that depends on what sort of asset/account (retirement account, etc.) the funds are in. If she were to save, only to then have her financial aid reduced dollar for dollar.....that'd suck. Details matter.

2) I wouldn't just assume the job won't let her participate in workplace retirement/tax advantaged plans. Make sure she looks into that, and factors the answers into the plan. Who knows, they might let her in and give her some match funds into the bargain.

3) Financial institutions do love to get new clients. So, yes, there are places that bend over backwards for the younglings, and with good reason... as the twig is bent, so saves the tree.

4) In terms of what to do with actual investment funds...that entirely depends on what she'd be saving for, which determines how long the money can sit, which affects what kinds of investments could work. Retirement in 50 years? Heavy on the equities. Down payment on house in 10 years? Maybe a mix. Books for fall term in a few months? Money market, CD.

5) Taxes: Details matter again. For example, there is a Federal tax bracket within which capital gains are taxed at 0%. As in, take a profit and Uncle Sam doesn't muscle in until you earn over the threshhold. Depending on what tax bracket she's in, whether she's taxed as a dependent, etc.

This message has been edited. Last edited by: joel9507,

Ill go with funding an "emergency"" fund first. Why? Because having some "spare" cash insures against making bad financial decisions out of desperation. Things like not making a needed repair because you don't have the money, and thereby suffering a greater financial loss as a consequence.

If that strategy doesn't appeal, or doesn't apply (e.g. well-to-do parents), I'd think that the way to go would be to invest in land, or other real property. This has been hard to beat over a decades-long investment horizon, and they are not making any more of it. Many many people have ensured a comfortable future by buying cheap land on the outskirts of a growing city and cashing out when the developers come calling, or even more lucratively, becoming partners in the development itself. It works even better if the land can generate enough income to pay for itself. This is not without risk, but has been a winning strategy for centuries, if not millennia.

ETFs instead of mutual funds. SPY for S&P 500.

Tax advantaged retirement accounts are great, for retirement.

Maybe she wants to save for a down payment on a house or to buy a car?

quote:

Originally posted by joel9507:

quote:

start herself at a 10% rage

I know some folks resist saving, but raging ....

Hahaha! I'll go fix that typo now.

Then again, maybe a savings rage really is "a thing!" Really aggressive saving, perhaps?

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Emergency savings is a good thought, too, and honestly I had overlooked that -- probably because I was narrowly focused on (many years from now) retirement rather than (more immediate) real life. Truly, I'd like for her to put 20% of her gross from this summer job into a retirement account. My thoughts there are that it becomes less tangible (penalty for early withdrawal) and less likely to be withdrawn for an "I'd like to go to Europe" event or similar. That comes from my own experience -- my grandmother left me a small account when she passed. If I had put that into a "hard to withdraw" account like a retirement account, then I'd have several times that amount now. Errors of my youth....

ElToro: thank you for pointing out that there's no age minimum for a Roth. I'd love for her to max out a Roth over this summer, then follow Perception's plan regarding splitting savings three ways.

I'll look into the acorns account and the Dogs of the Dow some more this evening.

220-9er, you make a great point about learning the system on her own instead of blindly relying on others' investment strategies. Credit freeze is a good thing, too. I don't know about her credit situation (not my business, entirely, though I feel certain she's in a good situation in that regard).

quote:

Originally posted by YellowJacket:
You can withdraw up to $10k from a ROTH for a first time home purchase without penalty (you do pay income tax on it) so that is a good option for a young person as it can also be used for that.

Not quite accurate...

You can withdraw up to all of your Roth IRA contributions tax free at any time, for any reason. That's one of the benefits of a Roth. And since you already paid income tax on these contributions, that's tax free.

(Just keep in mind that withdrawing from your IRA can hamper your long term retirement plans, so it's generally not something to do outside of very narrow circumstances like potentially investing in a home down payment, or if facing a true imminent financial emergency like facing eviction/destitution/bankruptcy.)

These hardship withdrawal rules and associated withdrawal taxes and penalties you're discussing only apply to Traditional IRAs, or to withdrawals of the gains on a Roth IRA above your actual contributions.

quote:

SPY for S&P 500.

At ~$600/share? Maybe not for her.

ETFs vs. mutual funds? Each has its own plusses and minuses. Research....

quote:

Originally posted by trapper189:
ETFs instead of mutual funds. SPY for S&P 500.

Index ETFs vs Index Mutual Funds is often a wash in a tax advantage account specifically, since the ETF's main draw is greater tax efficiency, which is moot in an IRA.

Also be sure to compare expenses ratios. SPY is higher than some other S&P 500 index fund options. (2x-3x higher, though still low overall)

Plus not all ETFs or all brokerages support fractional ETF purchases, whereas most/all mutual funds do. (Fidelity and Vanguard allow fractional ETF purchases of their own in-house ETFs only, not outside ETFs like SPY, and other major brokerages don't seem to allow any fractional ETF purchases.)

For example, she'd need to have the full $593 to purchase a share of SPY, so even if she had $1000 to invest this month she could still only buy 1 share of SPY. Whereas she could use that $1000 in her Vanguard account to buy 1.81 shares of VFIAX mutual fund or 1.83 shares of VOO ETF, plus have less than half the expenses (0.04/0.03 vs 0.09).

Similarly, if she only had $200 to invest each month, she couldn't buy any SPY this month (or even next month), but could go ahead and buy 0.36 shares of VFIAX or VOO this month and continue adding more fractions each month.

Fractional shares = greater time in the market.

Lady Godiva put everything she had on a horse!