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I've been collecting information about the best investment practices, however I'm have very little financial knowledge and was hoping someone here could point me in the right direction. I feel like I don't even know the correct questions to ask. I guess my question is where do people normally start? At the very least is there a simple way for me to start earning interest?

Edit

I live in the United States and have planned some money planned ahead in case of an emergency. I'm 22, Single and living out of an apartment. My work doesn't offer any savings programs like a 401(K). My goals would be that eventually I could live entirely on investments/interest.

Cloudy
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V. Anderson
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3 Answers3

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(First of all, congratulations on saving $25K!)

If this is all aimed at retirement (no new car, house, children, etc), then -- presuming you earn more than this -- put $11,000 into "Retirement 2065" fund in a Roth IRA account at a discount brokerage like (alphabetically) Fidelity or Vanguard.

Since it's before 15th April, assign half to year 2018 and half to 2019. If you wait until the 16th, you can only invest $5,500.

Then open a regular, taxable brokerage account at the same firm and put the balance of the $25,000 in it. Buy the same "Retirement 2065" fund with this taxable money.

Next year, and every year after, move $5,500 into the Roth account until the whole $25K is in there.

Hopefully by then you'll be earning more on your own, or at a job which offers a 401(k) which you can contribute to.

RonJohn
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This question is asked frequently and there are some common responses. You're wise to start thinking about savings while you are young. Since you already have an emergency fund:

  1. Set aside a portion of your pay towards savings. 10% is a common number.
  2. Tax-advantage accounts are a good thing. A traditional IRA from any of the discount brokers out there (Schwab, Fidelity, Vanguard, etc) is easy to open. If you can max your annual contribution ($5500 in 2019), you should!
  3. Invest in low fee Index funds, like an S&P 500 Index or VSTAX. It is very hard to beat the market in the long run, so just matching the market is a fine goal. You can open a taxable account at the same firm if you are maxing out your IRA.
  4. Don't forget to save for things like buying a home, raising kids, college, etc. But that's advice for another question.
  5. Don't sweat market downturns. You are in this for the long haul, so a market correction is inevitable and is an opportunity to invest more at a discount.

This is just general advice. Basically, compound growth is a very powerful tool. The younger you start, the better!

Rocky
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I would recommend investing in a six-month or less duration bond fund.

Then every three to four months move 10% into some investment that has been found to be interesting.

Obviously, when the entire investment has been placed in interesting positions, the investor would probably allow themselves a re-positioning every three to four months.

S Spring
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