Financial Hypothetical Question
 

One of my co-workers is always asking the older folks for investment advice - he's 19 y.o., makes $30k/year, and lives at home. I'm curious what you guys would tell him.

Full disclosure - like most people his age, he's really just looking for some get-rich-quick scheme, so he's ignored all the good advice he's gotten so far and steadfastly refuses to believe the older guys about the biggest assets he's got: almost no expenses, a decent job and he's only 19. He comes to me every week with some crazy investment idea - the last was fractional collector car investment, and Tuesday he wanted to know what he could put $5k in that would net him $3k in a couple of years :D - so I'm just curious what you guys would tell him.

It's entertaining in a way - we've given him advice that would make him well-off by the time he's 30 and financially independent by 40, but he'd be "ancient" by then. Mostly we fantasize about knowing what we know now at 19. :)

Good luck...

Save a little, have fun. No credit cards or financing wheels for his car... stay out of debt and all will be fine.

Dollar cost average into some aggressive growth mutual fund(s).

His best bet is small cap value indexes. They have the highest growth historically, but are also the most volatile. And based on the future which no one can predict, they may or may not pay off in 5 years. Equities are a crap shoot on the short term. He needs to be invested for the long term.

Tell him he needs a time machine.

Move out and figure it out on your own.

plastic my son - plastic!

Colorado marijuana farm

Of all of the people I know with various investments, the only ones that really seem to make money, day in and day out, year after year are the ones who own real estate.

Have him buy a small cheap condo in an apartment building type setup. $40k.
Rent it out. Profits all go into an account.
When you pay it off, immediately buy the condo next door.
Rinse, repeat.
In 10 years you'll own the building. flip the whole thing and start over with $150k condos.

In 20 years, he'll own strip malls and be working from home, semi retired.

EDIT: Nevermind, I didn't read your last line, forget everything I said. Tell him to invest in Bitcoins. :D

Tell him what the mortgage (+tax & insurance) would be on the house that he is living in for free, if he had to buy it today.

Read: sounds like he needs some perspective.

Tell him to take the $5k to Vegas and put it all on red.

If I knew then what I know now, I would take what rent would be if I lived on my own and every month, put it into a savings account. After a couple years, use that money down on my own house. One with 3 or 4 bedrooms and take on some roommates to cover the mortgage and utilities. After a few years, do it again with another. And by the time you're 40 you have 20 rentals under your belt and you're set.

I know it's hard for a teenager to think like this but you don't get rich by doing something today. You get rich by what you did years ago.

He's restless and self-starting and motivated. Those are all good things. But he doesn't have focus right now and he's looking at the entire field. He wants it all and he wants it now. But sometimes a person can stretch themselves too thin in too many areas and it tears them apart emotional-wise. Two opposing decisions get in conflict and indecision does the rest, half-assing both and then losing both.

In any specialized field there are going to be a small group people there and they know the secrets of the industry and aren't giving up their market share easily. Breaking into an unknown field big requires big somethings. There are plenty of scheisters willing to take his investment money and skip town. Happens all the time.

Saving just a small amount of money at the age of 19 consistently and investing it safely will guarentee turn him into a millionaire by retirement age altough that won't make as much difference then. Cut his play money in half and only gamble a portion. Living at home is saving him money now and he should be helping the folks naturally. Use his time to learn evaluate and then bite. But I play on the cautious side.

...or black ;).

....at 19....financial advice???

Wear a condom :)

1)-don't get into cars.
2)-don't buy love.
3)-buy a house.
3)-see #1 #2, and 3.

I'm not into the "buy a house"/condo advice....not at 19 or even early 20s for MOST folks at that age....they are anchors :(. Different strokes....lots of ways to get there however...YMMV.

I bought my first house at 25 and made about $150k cap gain when I sold it. Yeah, it was an anchor, but I wasn't planning on going anywhere for a while. For the first few years I had roommates pay most of the mortgage for me. My share was about $90/month. The sale of that house paid for my 993 and the down payment on my next house.

...at the age of 25 is a just bit older Rick ;)

What is his current job? Does it have any future?

Does he have any plan to educate himself, either military, college, or a trade school (the way to go IMO). Or just hunker down and do what he's doing..

A house has always been the number one investment, long term. Short term, if you can't weather the economy and financial ups and downs it can ruin you. Plus, at least out west, you need around $50,000 to $100,000 down to even consider buying a home right now.

The best advice has always been marry rich...

First. He isn't really listening. So this is for other 19 year olds that will listen.

1) Live well below your means. Try to spend 50% of your take home. Invest the other 50%.
2) Leverage with an eye on risk.
3) I like real estate. If he can buy a duplex, triplex or four plex, do it.
4) Hire a property manager for the legal end but do as much of the maintenance as possible yourself.
5) Add to the mix every year but caution to being over extended. I think Oregon is at peak value on RE for a while. It is very pricey in Portland.
6) I am a big fan of buying cashflow. Working people will always need housing. Buy in secondary or tiertiary markets that have good infrastructure.
7) Work on your career. Investments are great but a career can pay very well which gives you more to invest.
8) Marry well. A sane spouse is a great investment. Divorce is a huge destructor of wealth. Best yet, marry someone with a killer career or portfolio.
9) Life -work balance. I could retire today at 52 but I still would be earning / doing something with my time. I have friends that are trust funders who loaf at home all day. I don't envy them.
10) Remember that children are costly.
11) Don't be a zealot. Your time on Earth is limited. Enjoy it.
12) Be a good human. Karma pays large dividends.

Decades ago when I was teaching high school age kids I used to try to instill some ideas & perspectives that might pay off later. Of course they know everything, but I had an approach to getting them to accept someone older & with more life experience might have something of value for them to consider. I'd ask them at what age they became aware they weren't a little kid anymore. Most of them would say maybe 12 to 14. I'd comment that was about right, so awareness wise how old did that make them? Of course the answer was three, maybe five years. Then I'd point out how much their awareness had developed during that three to five years, which they would realize was a lot. Then I'd point out how old adults were relative to them and how much their awareness must be in comparison (in most cases). Then I'd let them know whatever advice I gave them was optional, & they could take it or leave it or think about it later on. I think that approach served several well. At least those who came back over the years to say hello seemed to indicate that. My idea for them was life would get messy as it does for everybody, but to keep in mind some of the worthwhile things older people had said.

interesting responses, similar to many of my own. Really, I think it'll be a few years before he'll really do something constructive. I was mid-20s before I set a serious financial goal and laid out a plan.

Anyone seen The Score? Our conversations remind me of that scene where old criminal Robert DeNiro tells young criminal Edward Norton to make a list of what he wants and plan on spending 20 years acquiring the items, and Norton's character scoffs. :cool:

What? I don't understand.

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Hookers and blow.

There are no hypothetical financial questions if you manage your money well. Zippy. The math always pencils out. It simply does.

There is no more powerful metric than compound interest over time. One, as Tabs would aver, needs discipline and a readiness to build a nest before taking risks.

As an Ensign in 1984, I put $200 a month into a USSA growth fund. Still do. Amazing return...

See below, no better advice. The 'marry well' portion of the post is penultimate. Do that and win.

If he has no real expenses, put 20% away into mutual funds that return well. When he gets enough to buy property, get into real estate.

The kid is not living in the "real world" yet....I didn't start "saving for the long run" until I was about 25 or so...then paid off an expensive sports car :(. After college....working my dream job in communications r&d for peanuts, living on my own ...I was broke ;). Not really...but I was also being a kid and having the time of my life....balance. Didn't start over again in ernest until I was in my late 20s....

Actually, "Don't be a zealot..." is penultimate, while "marry well" is pre-preantepenultimate.

_

If I could go back and talk to 18 year old me, I would tell him don't ever, EVER, get into real estate, at least not residential.

I know it's mostly California, but the scum bag tenants, laws, court system, etc don't even come close to making it worth it. Sure, you might end up a millionaire when you retire, but the years and years of putting up with evictions, sob stories about non payment, lies, cheats, stress, problems will mean you probably won't live to enjoy it if you can even remember what joy is at that point.

Maybe commercial real estate, even with the much higher cost of entry, but more likely just invest in dividend growth stocks.

max legal limit for 401k and Roth starting the next pay period, or as close as he can get.

He should be able to live easily on ~1000 / month with free housing.

He may be a dumb kid but if he is truly focused and ambitious on being an entrepreneur he will probably pull it off after a few hard lessons.

Obviously, I don't know this Kid at all, but if he has that get rich quick mindset it might be a good time to let him invest in some get rich scheme.

If he follows the wise choice now but sees returns that fall short of his expectations, later when you're not there to guide him, he'll decide to try the get rich quick scheme with more money.

Some lessons have to be learned the hard way.

I also don't know what business he's in, but using his money to further his education is probably the best thing he could invest in.

The real money I've made over the last 30+ years was in real estate. Single family rentals, small apt building.

I had a cousin who graduated in the 70's with a Masters in Psychology. Unable to find a decent job, he started buying run down homes, lived in them while he fixed them up and over the years built a small fortune.

Admittedly he was a bit unusual and died before he should have :-)

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I'd buy a duplex that needs some cosmetic stuff, live in half, rent the other out. When it's in good shape and you can afford another, repeat.

I meet so many people (young-old) who ask me for advice as soon as they hear what I do for a profession. When you tell them that its not the "get rich quick" scheme they had in mind, it all goes right out of the window...

So whaddayado....I wants to be rich...I've got until the weekend though....so there's really no rush ;)

I've seen this strategy work out very well for several people I know. If you're going to deal in residential real estate, this is the way to go. Duplex first, then move up to triplex or fourplex as finances permit. One flaky tenant will not sink the whole ship, as is possible with a single-tenant rental. Commercial real estate is easier to deal with (fewer laws protecting problem tenants) but cost of entry is typically much higher.

That being said, I would think that very few guys his age would have the necessary focus and discipline to see a plan like that thru.

"I wants to be rich...I've got until the weekend though....so there's really no rush." I think this pretty much sums up your average 19-year old's mindset when it comes to finances.

The best investment ? -- himself.
Still living at home with no kids - take his five grand and get his next level degree.
It'll take more than five grand but he's working with little or no overhead.
Turn that $30K income in 60 - 80 pretty darn quick.

Where we work has tuition reimbursement - they cover 95% of school and it doesn't have to relate to work in any way (my old job required that). And since we work nights and only 4 days a week, it should be totally feasible. He's not interested, of course.