How diverse should I be with $5,000?
I'm 19 years old. I've maxed my Roth IRA for this year and am currently a sophomore in college. I have also been making monthly payments on my tuition for the past 3 semesters. I have almost half of my freshman year paid off.
My parent's told me that if I invested $5,000 of my own money, they would match the $5,000 and pay off the rest of my freshman year.
Because of this, I feel comfortable putting money away and would prefer to do so for a longer period of time (15-20 years).
My question is, how diverse should I be with my money? I was considering something like the Russel 3000 or S&P 500, but is this too broad or too diverse for a 15-20 year period? Should I even consider global markets?
I'm looking for something that's stable. I don't expect to be a millionaire or anything close to it from this initial investment, however, I would like to see some sort of growth over 15-20 years.
Congratulations on taking the first steps to becoming a successful investor. The fact that you are young gives you a great deal of options for your future. Generally, the word stable and the S&P 500 Index don't necessarily go together. The market has volatility and will go up and down. That being said, for someone your age and with your long time horizon, you should do well by investing in the S&P 500 Index. There are a lot of low-cost ETFs out there that should fit your needs. You can also own a few different market ETFs like the Nasdaq, the Dow Jones Industrial Average, Russell 1000, etc. Start with Vanguard and do a little research on what kind of investor you are and the type of volatility you can handle. I recently wrote a couple of articles that you may find interesting...
Great job on maxing out your Roth IRA! You are already a step ahead of most investors your age.
If sounds like you would like some decent growth without putting too much risk into the investment.
- Ensure you are properly diversified (low-cost ETF funds are recommended)
- Get advice on a moderately allocated portfolio (debt/bond vs. equity/stock funds)
A properly balanced portfolio can include global markets but should also include a core domestic index holding.
Split it 50/50 between U.S. stocks and international stocks.
Sure you can use the Russell or S&P500 for the U.S. part. Then add a total international fund for the other half.
Other than adding to it, try to leave it alone for that 15-20 years. You may be surprised at the growth.
Keep up the good work at college...
Hope that helps!
Way to go! I would focus on paying off your student loans and continue to max out your Roth IRA every year. Make sure that you have a few thousand dollars set aside for emergency savings as well.
If you are interested in starting a brokerage account to save for goals that go above and beyond retirement, I would start a "build wealth" account at Betterment. You can choose a percentage of stocks to bonds and then Betterment diversifies the portfolio into low cost index ETFs. You pay .25% to have Betterment manage the account but they wrap in all the trade fees. They also make it really easy to set up automatic contributions from your checking.
You're off to a great start! If you want to learn more about saving for retirement, I have a course called: Smart and Easy Retirement Planning for Millennials. You can check it out here: genyplanning.com/retire.
Given the size of your initial investment, I wouldn't recommend investing in individual stock because of the expenses associated with creating a diversified portfolio. I think you are on the right track looking at a broad index fund such as the Russell 3000. However; the Russell 3000 only covers the U.S. equity market. You should also layer in other index funds that cover international equities (MSCI EAFE) as well as the bond market (Barclays U.S. Aggregate Bond Index).