Should I start investing at 19 years old or save up cash?
I'm 19 years old, I have a steady job, and I'm a good saver so I gain about $600 a month that I don't need for any expenses. However, I don't have a lot of money to start investing. Should I just continue to save up, invest my savings, or should I split saving and investing?
Good for you! Start leveraging compounding returns by maxing out a Roth IRA (about $450/month). You can put the rest in savings (or a more conservative investment) as an emergency fund. Many firms have significant initial investment minimums, but you can open an account with a low-cost ETF portfolio and no minimums at Betterment.
Investing is much like planting trees. The best time to plant a tree is 20 years ago. In your case 19 years ago. Do both, invest a little and build a savings safety net. Something is always better than nothing and before you know it you will have a nice portfolio and savings. All the best!
I would advise investing heavily, splitting money between a Roth IRA and an individual account. An individual account can be invested in mutual funds just like a Roth IRA, but with 100% liquidity and thus acting like a savings account. You will accomplish both goals simultaneously, with the primary goal being investing and accumulating wealth. You could set a goal of being financially independent by age 45 and it would be very achievable. What is financially independent? Having a very large investment nest egg, such as $1 million dollars. With a $1 million investment portfolio, you could begin taking systematic distributions of about $42,000 pear year (4%), or about $3,500 per month - in perpetuity. And you will still be growing your nest egg as you get older, because the growth should outpace the spending. This called having your cake or eating it too. While $42,000 may not sound like a lot now, or 25 years in the future, keep in mind that everything is relative. If you have a fiscally conservative approach to your lifestyle and the amount of debt you accumulate between now and then, $42,000/yr. can be a boatload of money. Low montly overhead, including low or no monthly debt service, means you need less money each month to have a good life. And notice I said financially independent, not retired. Very few people truly retire, especially at 45. Many retirees in their 60's and 70 are still working just to stave off boredom. Imaging being both financially independent and working doing something you love. This is what you could achieve by 45 if you start investing heavily now. This is the advice most people wish they had at age 19, even me. But unfortunately I didn't have anybody in my life at the time to show me what was possible or how to get there.
One of my more memorable clients talked to me about his favorite investment. He got $500 worth of a mutual fund for bar mitzvah. He never touched it and always reinvested the dividends. When we spoke, he was in his early 60s. The mutual fund was worth over $150,000 at that point.
The conversation taught me a valuable lesson early in my career. It's not how much you invest... it's how long you invest.
The earlier you start investing, the better off you'll be in the future. If you have 600 a month available for investing, that's certainly enough to get under way. And yes, investing is the direction you want to be going. Saving brings up the thought of savings accounts or Certificates of Deposit, neither of which is going to grow at any rate that makes sense for someone of your age. These days, that would be talking about interest returns of perhaps up to 2%, which is nowhere near as well as you're likely to do if you invest in a sensible way. To begin, I suggest you consider making equal commitments in exchange-traded funds such as VTI (Vanguard Total Market Index) and VXUS (Vanguard Total International Market Index) and adding to them as funds are available, regardless of whether the market is up or down. I expect that will be more advantageous than "saving" or some combination of saving and investing. Good luck!