As a 19-year old trying to achieve financial independence, what should I consider when looking for long-term high-yield investment vehicles?

I am 19 years old and I would like to achieve financial independence, which is $525,000 in my case. I have about $8,000 readily available to invest and can contribute an additional $650 per month. What should I consider when looking for long-term high-yield investment vehicles so I can reach that number safely and efficiently while beating inflation?

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March 2018

It's great you've begun thinking about investing so young. You'll have added years of compounding at your back!

First, I'd be curious as to where you got your $525,000 from? Over time, inflation will push that number up. If you wanted to become "financially independent" by age 40, you're likely looking at a much higher number. For example, let's assume an inflation rate of 3% over the next 20 years. Inflating the $525,000 in today's dollars that it would take to achieve financial independence in your case would be equivalent to roughly $950,000 in 20 years. Of course, that's why we invest!

Investment vehicles you should consider are a Roth IRA and taxable brokerage account. A Roth IRA allows you to pay taxes at your tax bracket today in exchange for tax-free growth. Meaning you can withdrawal the funds tax-free for retirement after age 59 1/2. You can also always access the contributions to the account without penalty. The taxable brokerage account could be used for anything in excess of the maximum Roth IRA contribution amount. The brokerage account doesn't have any tax advantages, however, you'll be able to access principal and earnings without penalty whenever you want. 

As for types of investments within these accounts, building a low-cost diversified portfolio geared towards equities would be your best bet for the long-term. Index funds and ETF's allows you to achieve the low-cost goal while providing broad diversification among their respective indexes. For example, an S&P 500 index fund owns all the stocks within the S&P 500 and therefore tracks its performance. It's an easy, and proven way to have success as a long-term investor. 

Equities aren't considered "high-yield" investments, however, historically they offer growth of capital. As a young, long-term investor, you want to gear towards investments that offer growth, not income.


March 2018
March 2018
March 2018