Teen investment strategies???

Van Patton

Second Unit
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Jun 27, 2001
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I am currently 17 years old with what I would consider a well off financial situation. I own my own car, have a job that pays decent enough, and have a great relationship with my parents. Anyways I was wondering what to do with money that I have saved. Instead of wasting it on CDs, games, clothes or the usual teen stuff I want to own a few assests. I've read several books on subjects like this but all tend to deal with people just getting out of college making $20K and above. I currently have $500.00 and was wondering if any of you more experienced guys could give me some advice. I know this isn't a "let's talk money" area but was just looking.
 

Chris Tsutsui

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Feb 1, 2002
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$500 is not enough to begin thinking about investments.
Look at it this way, the money you are making now will be little compared to what you can make when you get older.
So use the money while it has a higher value to you now because once you get a better job, $500 won't be that much.
So invest the $500 in personal happiness that will be of use when you move out. I don't see "teen stuff" as being a way of spending the money though. Perhaps save it until you find something that will bring you long term utility, such as a Home theater
 

Philip_G

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I agree, SPEEEEEEEEEEEND it!

savings are great.. but money in a bank account doesn't make me happy the way that, say... a new exhaust system on my motorcycle does
 

DonRoeber

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When you can, setup a Roth IRA, and contriubte to it every year. You can put up to $2000 a year into it, so it's not very difficult, once you've got a job.
 

Brian W. Ralston

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A couple things to consider. If you start working with a financial planner (one that handles everything from investments, to advice, to self-employment health insurance, etc...), they will be able to help you turn that $500 into a wise beginning. For example.....for a person starting out, sure the minimum investment is usually $1000 or greater, BUT they could work out something with you and really there are mutual funds where the minimum could be $50 per month.

A great thing about those plans as well is that the money you make in the interest return is reinvested back into the fund. So you will actually make more money at the end of the year having invested $50 per month rather than the entire lump sum all at once.

So if you can pay $50 per month (use that $500 in steps) and earn the balance of the minimum investment throughout the rest of the year...you will be in good shape to begin.
 

Brian W. Ralston

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Chris,
The thing that sucks about the Roth IRA is that once you make $110,000.00 (or something like that) a year, you can no longer contribute to an IRA.
So....yes it is a good thing to begin one as soon as possible, but when you become a successful business person making over the limit...you can no longer contribute to the Roth IRA and it will just have to sit there for the remainder of your working days.

of course, there are other more lucritive ways for those making $110,000 or more to plan for their retirement.
 

AviTevet

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Apr 11, 2002
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"Invest" in another teen, if you know what I'm sayin'!

I always put my excess money in certificates of deposit (CDs)... they paid around 5% back then. It wasn't a bad place for investing a few hundred dollars, but it wasn't good either.
 

Danny R

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once you make $110,000.00 (or something like that) a year, you can no longer contribute to an IRA.
Sucks to be in that situation!

I second the notion about a IRA of some sort (depends on your plans whether to go traditional/Roth or another brand). Its a great investment tool that lets you build on your dollars in a tax free manner. And the money you put there can be tapped (without the early penalties) when you want to buy your first house (if needed).
The sooner you start putting money aside, the better off you will be when you get older. The magic of compounding interest means the difference between having a couple million dollars when you retire or just having a hundred thousand. I wish I had started putting money aside when I was in my early twenties rather than starting when I did (at 30).
The only problem is that many IRA's charge maintenance fees if your account is below a certain amount. If you find this is the case, then you might need to wait.
 

MickeS

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Sure it is. I wish I would have saved some money when I was 17, I spent the little I had left over on crappy stuff.

Check out if you can buy some stock perhaps and get into that whole thing. I am terrible with money, so I can't give you any advice on exactly what to do, but even putting it in a regular savings account is better than spending it (I assume you have money for "fun stuff" too).

/Mike
 

Denward

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Feb 26, 2001
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Huh? I think that Brian's advice is great except I'm not sure about this statement. I think that developing a habit of saving will be extremely valuable. Van, I think you should make it as automatic as possible so that you don't even know you're doing it. Time is on your side and the earlier you invest, the more of an ally it becomes.

As for the quote above, I believe that Brian is referring to a technique known as dollar cost averaging ("DCA"). The logic behind DCA is as follows: The market is unpredictable, especially in the current environment. Back in the day when the markets seemed to be heading straight up, it made sense to get your money into it as quickly as possible since every day you waited seem to mean another day of missed gains. In the current environment, let's say that a mutual fund has a value of $10/share. If you put in $600 now, you would have 60 shares. If instead you decide to DCA and put in $50 per month, as the share price bounces up and down, you will end up buying more shares when the price is low and fewer shares when the price is high. By the end of year, you would find the average price of the shares you bought would be less the average of the 12 monthly share prices because you bought more shares when the price was low.
 

Max Knight

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I'd say save that money in something that is guaranteed to build interest in the short term. Soon you will be going to college, and you will need all the money you can get. It's smart to begin thinking about saving and investing, but at this point you need to look at your immediate financial future, which is most likely going to require as much liquid assets as possible.

When you start college you are going to need cash for many things like books, food, fun (everyone needs a good study break!), and unforseen "living on your own for the first time" neccessities.

I say put that money in a savings accound (or a CD), and develop a savings plan for yourself to ensure that you will start school with a good chunk stashed away.

My father gave me some great financial advise: Learn to save first, learn to invest second.

If you can't save, you won't have money to invest.
 

Ted Lee

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you're definitely on a better track to financial thinking than most people your age.
i inherited a decent chunk of change when i was about your age. had a lot of fun for about eight years...ended up broke as a joke.
it sounds like you have a good mindset about saving money. i read somewhere that a high percentage of the population live paycheck to paycheck...that's no way to live.
roth ira's are an excellent idea. as someone else mentioned, the sooner you start saving, the more money it will make you in the long run. check the following link:
Guide to Roth IRA's
another site i really like is:
The Motley Fool
they have a great no nonsense, practical approach to investing.
what's really important here is getting used to saving and making wise financial choices. you don't want to have bad credit later in life...it REALLY hampers you down the road.
 

eric holm

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All good advise above.
Here is what I recommend.
What kind of emergency cash reserve do you have? What happens if your car breaks down? What happens if you and some friends want to take a trip? My point is that if you don't already have a significant amount of savings, that is where the $500 should go. Everyone with responsibility (which includes ownership of a vehicle) needs to have something for emergencies. Your needs may not be as great right now as when you finish college but they are still there.
Lots of people like this emergency $$ a little more inconvenient to get to. My advice is to open a money market account at a brokerage. No annual fees and you can get to your money within a couple of days. Right now you won't earn much interest but for emergency cash, the interest is not the important part.
Assuming you have emergency reserves, investing is a fine idea. As others have indicated, $500 isn't going to change your life regardless of investment performance. Instead, I would use it as an educational tool. Use it to learn about mutual funds. Use it to gain experience with individual stocks. If your folks have a financial advisor, use it to gain experience working with him/her. Advisors can be excellent educational tools.
Wishing you a profitable day!
 

Denward

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Feb 26, 2001
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Having money available for emergencies is a fine idea for independent adults. But Van is only 17 and has a good relationship with his parents. Assuming Van's parents are able, it sounds like they will provide funds in case of a real emergency (i.e. car repairs). I think it's more important now to develop good savings habits and learn about investing.
May I suggest www.vanguard.com. They are currently the second largest mutual fund family, but they're closing in on Fidelity and will probably pass them this year. One thing that's unique about them is that they are basically owned by their mutual fund customers so they're effectively a non-profit institution. They are known for their low expense charges and for pioneering the concept of index funds. Van, if you don't know why those things are significant, check out their website and start learning. If you don't meet their minimum investment requirements, maybe you can convince your parents to loan you some money to start your account.
 

andrew markworthy

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The distance is unremarkable - it's the first step which is the hardest. Saving is a smart move, and everyone has to start off somewhere, so let's give Van some credit, okay?

The thing I did when I was 18 was start an endowment fund (I don't know if you have the same thing in the USA). I put 20 pounds per month into it, later increasing it to 30 pounds. Not much, you might think, but twenty years later that endowment fund enabled me to put down a 25000 pound deposit on a new house.
 

Todd Hochard

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So you will actually make more money at the end of the year having invested $50 per month rather than the entire lump sum all at once.
No. The math does not work that way. You must be talking about "dollar cost averaging," but you've extrapolated that logic too far. With dollar cost averaging, you can end up with more SHARES of a mutual fund, if the price goes down over the course of the year, but you'll still have less money at the end of the year. OVER THE LONG RUN, if the fund then moves up, up, up, you will likely end up with more, than if you invested the lump sum all at once, at the price peak.
My advice- even at 17, save 10% of EVERYTHING you bring in. If for no other reason, than as an exercise in living below your means. I know it's unspeakable, living in the center of the "instant gratifcation" universe called the USA, but, hey, go against the grain, and give it a try.

By the time you get to be 23-24, you just might find yourself with enough $$$ for a house down payment.
 

andrew markworthy

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I know it's unspeakable, living in the center of the "instant gratifcation" universe called the USA
Todd, alas, it applies to every other industrialised nation these days. I agree with the spirit of your advice, but I'd say start at 5 per cent and then work up from there. It's the habit rather than the amount which counts.
 

Ryan Wright

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Having money available for emergencies is a fine idea for independent adults. But Van is only 17 and has a good relationship with his parents. Assuming Van's parents are able, it sounds like they will provide funds in case of a real emergency (i.e. car repairs).
17 is more than old enough to take some responsibility for yourself. As a teenager, when my car broke down, I almost always had money to repair it. The only time I got bit was when I needed $1200 for the clutch. Since I had paid for everything to date (made the car payments on time, paid for my own gas, insurance, and repairs), my parents gave me the money without my asking them. I had shown enough responsibility by saving money for repairs in the past that they were more than happy to help me on a repair that was way over my head.

Had they bailed me out on numerous prior occasions, they would have been reluctant to bail me out again.

I vote to put the money in a savings account, or consider investing in some stocks. With only $500, the stocks are liquid assets and could be sold at any time if he needed to use the money for something else. I'd do some research on investing in the stock market, buy a couple of books, and open an account with an online broker such as Ameritrade.
 

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