the amount is small, $2k or so, i was looking at the some articles on 12% yield %26amp; compound interest so I'd like to start early, any good advice or articles would be greatly appreciated. Thanks!Hi, I'm 18 with some savings from work, %26amp; would like to start investing. Advice on any low risk plans?
It's good see that you are planning early.
Yes, $2,000 invested per year for six years, at your age, will turn into millions at 12% by retirement age. But, wait.
You have six areas of your life to manage financially. They are:
1) Income
2) Debt
3) Emergencies
4) Protection of Assets
5) Long-Term Savings (Retirement)
6) Estate Planning (Death)
I usually recommend that my clients handle the above list in the order shown. Obviously, you have some income, and hopefully, you have no debt. If you have $2,000 saved, then you probably don't have an emergency fund.
Your emergency fund, ideally, should equal six months' expenses, although many feel that it should equal six months' income. This would be difficult for many people. Most people use a credit card for their emergency fund.
In your case, I would recommend that you set a goal of initially having two months' expenses in an emergency fund, before you look at any long-term savings. After that, plan on adding enough money to this fund each year to increase your account by one months' expenses. As your income goes up, your expenses will probably rise also, so this is not a linear savings model.
Put the first two months' expense total into a regular savings account that is immediately available (not a CD). Interest won't be much, but liquidity and availability are most important in an emergency. As your excess over two months grows to over $1,000 you should open some sort of no-fee cash management or money market fund account. ING has a good one.
Save at least 10% of your income now. If you can, save 15-20%. Live at home for as long as your parents will put up with you. Keep your expenses down.
Once you have $2,000 over and above the Emergency Fund recommendations, send me another question, and we will start on your Protection and Long-Term needs.
Just FYI, you should have auto and health insurance already. If no one depends on your income for support, you only need enough life insurance to cover your burial expenses ($25,000 should suffice). A VUL is probably not your best investment vehicle at this point, since you are much more likely to live than die over the next few years.
Unless you have driving issues, max-out your auto liability coverage, and keep the highest possible deductibles on your collision and comprehensive coverage. I'd recommend $1000/$250. DO get uninsured motorist coverage. If your vehicles are registered in your parents names, change them to your name only. Protect them from liability.
Let me know if you need more information on anything discussed here. Work your plan. Live long and prosper!Hi, I'm 18 with some savings from work, %26amp; would like to start investing. Advice on any low risk plans?
It is not easy to get 12% returns. The stock market averages 8%, but will not likely get that anytime soon, it is already down for the year. Banks will give you next to nothing. The best Money Market Account is currently yielding less than 4%. However, you might want to read this article, http://www.thefinancialfitnessclub.com/a鈥?/a> Given your rate goal, this might be right up your alley.
To get a 12% return while minimizing risk, mutual funds are the likely option. You might want to check out Morningstar as a starting point for fund ratings, min investments, etc. Avoid funds that have loads (a fee for contributing or withdrawing funds). I've found that Fidelity has some good mutual funds available, but the minimum initial investment might begin at 2K.
The best thing to do is to start reading finance journals and follow stations such as CNBC and Bloomberg. This will help to give you an idea of what your options are.
Be cautious, but remember... scared money don't make money!
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