I turn 18 in a month, what should I invest in?

Question

In about a month I will turn 18 and I want to begin investing so I can retire early. Should I invest in stocks,real estate,etc. Not sure if this is necessary information but I make about anywhere from $300-$600 a month at my current job. I plan on going to college in the fall and continuing to work part time at my job.

Answer 1

At this stage of the game your best investment is yourself. Rather than putting it in stocks, use any spare money you have to get yourself the best education you can. See if you can drop that part-time job and give yourself more time to study. Or maybe you can go to a better, more expensive college. Or maybe college will give you some opportunity to travel and learn more that way. You don't want to exclude yourself from those opportunities by not having enough spare cash.

So in short, spend what you need to get yourself the best education you can, and keep any spare money you have somewhere you can use it to take advantage of any opportunities that come your way.

Answer 2

I take it you have nearly zero expenses, since you don't mention any savings and with your income you wouldn't have much left over for investing.

At your level of income, any actual investing is either going to unwisely reduce your cash available should you need it (such as investment in mutual funds, which often have minimum investment periods of 2-6 months or more to avoid fees), or cost you a high percentage of your income in commissions (stock trading). So, I wouldn't recommend investing at all — yet.

I find Dave Ramsey's baby steps to be very good general money management advice. Here is how I would adapt the first three steps to your income and stage in life.

1. Save $1000 for emergencies
2. Pay off debt — you don't mention any, so I'll assume you can skip this step. But, especially at your level of income, be careful of the debt trap. Best to just avoid debt altogether.
3. Calculate a typical three to six months of expenses for someone your age (apartment, gas, car insurance, etc.) and put away money until you have that much in an emergency fund. Don't touch this money.

Beyond this, Dave recommends saving for retirement, college (for kids) and paying off your house early. These things are a little beyond your stage in life, but it would be good to start thinking about them.

For you, I recommend following DJClayworth's advice to "invest in yourself". Specifically, plan to get through college debt-free. Put away money so that you have a head start once you do have living expenses — save for a car, save money for rent, etc. so that you don't have to live month to month as most people do starting out.

So, what this boils down to: Put away every cent you have, in a savings account.

Answer 3

Start a Roth IRA. Keep it in low risk, short term money market or CDs. At this stage, stocks may be premature. As you build up the account, up to $5000/year, at some point, you should start buying an index mutual fund, say one following the S&P.

When you are out of school and working for real money, save an emergency account outside the IRA and shift that Roth IRA to be fully invested.

My 13 year old has her emergency account, and her Roth IRA to deposit her baby sitting money. It's never too soon to start.

Answer 4

Chances are since college is your next likely step I would recommend saving up for it. Start building an emergency fund. Recommended $1,000 minimum.

To start building your credit rating (when 18) get a low interest low limit credit. Pay off the balance every month.

Starting to build your credit rating now can save you hundreds of thousands when buying a house over the course of paying it off. ie. cheaper interest rate.

As for investing, the sooner you can get started the better. Acquire preferred/stocks/bonds/REITs/ETFs/etc that pay you to own them (they pay you dividends monthly/quarterly/etc). Stick with solid stocks that have a history of consistently increasing their dividends over time and that are solid companies.

I personally follow the work/advice of Derek Foster. He's not a professional but he retired at 34. His first book (Stop working - Here's how you can) is great and recommend it to anyone who is looking to get started.

Also check out Ramit Sethi's blog I Will Teach You to be Rich. He focuses on big wins which save you a lot over the long term. He's also got some great advice for students as well.

Best of luck!