How Should A 20 Year Old Invest $5000?

jssr13 on 17/05/2021 - 11:14
Last edited 17/05/2021 - 17:40

20 year old here with no experience in the financial world when it comes to investing.

Currently have $30k in savings and was wondering whether it would be a good idea to invest $5000 of it, or whether I should just leave it in the bank?

If I were to invest it, where should I start and what should I be looking at? Is it even worth investing a small amount like $5000 or do people usually put aside much larger amounts for such things?

Annual income is around $24,000 per year, of which I save around 70% of it and spend the rest.

Any suggestions would be appreciated.. I’m aware that suggestions here don’t constitute professional financial advice.

Financial Investment

Comments

  • orangetrain on 17/05/2021 - 11:17
    +1

    What's your risk profile? Safe? Risk? Yolo?

    • jssr13 on 17/05/2021 - 11:39

      Hmmm. I guess I’m fine with risk since I’ll be keeping the rest in the bank anyways. But Ideally safe but still greater returns than the low interest rate you get with the bank, though I’m not sure if that exists.

    • netjock on 17/05/2021 - 13:10
      +2

      This is the question to answer.

      Also your time horizon. Over long term share market will always go up but if you pick the wrong moment it might take 10 years to break even.

      Some people hold cash, then invest into low volatility (index) so if they run out of cash they can cash their investments in, once they have a bit of low volatility they will go for high risk end of the market (small companies), even speculative such as crypto.

      Other people will hold cash, then go straight for the high risk / high return stuff.

      If you are building a home deposit and don't think you are going to have strong cash flow out of uni or a windfall then you might go for the low volatility route.

      Alternatively if you have YOLO / FOMO then you might throw it into speculative crypto and try to 10x your investment and turn your $5k into $50k in 3 years + your $25k then you might have a deposit for home.

      Risk / return + time horizon. For every person that bought bitcoin there is probably another 4 that bought some other crypto that didn't go up as much.

      • jssr13 on 17/05/2021 - 15:29

        Yeah low volatility would probably be the way to go then.

        Was hoping to have saved at least $200k for a house deposit in about 7 years from now.

        Going to look into cryptocurrency as well and see what it’s all about.

    • hothed on 17/05/2021 - 15:55
      +5

      OP - At this stage in your life, I would suggest to keep a portion of your 30k bucket for a "rainy day". I would assume 5k would be enough if you're 20(income depending, as you didnt state this). Allows the car to break down, go for an inpromptu holiday with uni friends, get wisdom teeth out etc.

      Invest the rest.

      I personally have invested in an index fund that is diversified into the top 300 australian companies, this reduces your risk profile, so it wont go up and down very far but (if past indications are anything to go by), will continue to grow at circa 7% PA. The index fund I chose is VAS.

      I use Self Wealth as the platform to purchase shares.

      Do your own research.

      … and I just burnt the shit out of my toasted sandwiches. Good luck and see you on the FIRE blogs. https://www.aussiefirebug.com/start-here/

      • jssr13 on 17/05/2021 - 16:07

        Thanks I’ve added the additional information.

        Will look into indexes.

    • dylanando on 17/05/2021 - 19:15
      -1

      Safe? Safemoon!

  • Ema000 on 17/05/2021 - 11:45
    +1

    THIS IS NOT FINANCIAL ADVICE Place that 5k in 1k increments over the next 5 months. Assuming a conservative portfolio with slight risk, place money in dividend stocks and reinvest those dividends over the long term - Put 1k in Vanguard (VHY), Put 1k in Vanguard (VAS), 1K in WAM Research (WAX), 1k in Fortescue Metals (FMG) and 1k in a company you see doing well in the next 10-20 years, e.g. Tesla, Apple, Samsung. Once again THIS IS NOT FINANCIAL ADVICE

    • poboy on 17/05/2021 - 12:10
      +2

      Why 1k increments? This makes brokerage a higher proportion? Why recommend VHY without asking their tax brackets? It may be better to invest in an index that doesn't pay out as much but instead grows? The advice would also depend on the investment timeline. 5 years? 30 years? Perhaps a super concessional contribution would be better?

      • Ema000 on 17/05/2021 - 12:36
        +1

        1k increments so that you're able to minimise your risk, nobody can time the markets, some months it may go up and down. Also the OP states that he/she has no experience in the financial world so it would be better to ease into the system slowly rather than going all in.

        Online Brokerage would be around 5-10 dollars per trade anyway and it is better to diversify the portfolio instead of just picking 1 stock and putting all your money that way. As long as OP reinvests those dividends, the balance will grow over time.

        Assuming OP is only 20 years old and already has 30K in savings, both VHY and VAS will provide long term capital growth. The tax implications benefit anyone as these stocks are both franked so you will minimise your tax debt regardless.

        A concessional super contribution might be a good idea in the short term, and it makes sense when you're closer to retirement age. However, OP won't be able to access that money for a long time and they would miss out on all the benefits of franking credits over the next 40+ years.

        • djones145 on 17/05/2021 - 12:45
          +2

          what….. is this financial advice? i couldnt tell, couldnt see any disclaimers in the post

          hehe

          yeah split it up, set and forget! he's young, got some spare cash, get all the risk stuff u can find!

          • Ema000 on 17/05/2021 - 12:55

            @djones145: WHOOPS but then again I wasn't replying to OP, I was replying to poboy

            • djones145 on 17/05/2021 - 13:23
              +1

              @Ema000: but u provided financial advice to poboy

              SHOCK!

          • holdenmg on 17/05/2021 - 13:00
            +4

            @djones145: I just read financial advice and went with it. lol

  • YeemaiI on 17/05/2021 - 12:18
    -3

    Doge.

  • johndowy on 17/05/2021 - 13:30
    +2

    More like the other way around.

    Keep 5 and invest the 25.

  • isthatallyougot on 17/05/2021 - 13:59
    +2

    head to the casino and put it on red . YOLO

  • tunzafun001 on 17/05/2021 - 14:13
    +8

    Not financial advice, but what I did when your age in a very similar situation.

    Looked at property in suburbs not too far away (so I could actually view the property) with new Maccas, Supermarkets, schools being built. They have far better population researchers than me, let them do the leg work!

    The property I was looking at was priced so my deposit covered 20% (so I could dictate my loan terms and avoid LMI). Don't expect a gem on your first property. I'm from an uber low social economic background (Dad broke his back when I was 6, i'm the second child, I was raised pretty tough) . Anyway, I'm now in my 40's and have never received a single $1 from anyone (inheritance or otherwise). If this is you, and you dont have the luxury of having a parent as a guarantor etc, you are going to need to be prepared to work. If you can get someone to boost your deposit, then do it, as low priced investment properties have work attached with them.

    Anyway, when there was a bust period, did the opposite and bought a property. Approached the banks and basically told them that they will be loaning me x amount for x rate (below their best offer).

    A few did the (you wont get that being so young blah blah, and tried to make me feel like I was the one who should be begging for the loan). Gave em a reality check that the market has a million lenders and their business relies in money coming in. Anyway, a credit union offered me a rate 0.25% cheaper than anyone else, and no offset fee/ monthly fee / package BS. I call a number, and a person answers…try doing that with a BIG 4!

    Lived in it, did it up a bit. Got it revalued and used the equity to buy the next (plus lent extra to put in an offset account). Did a refi deal to a big 4 for an extra $2k in the process and got an offset account. Then used the offset account to by a few shares, a better second hand car (not a new one), and I was the only person at my work without a car loan.

    Bought another investment property (refinanced away from the big 4 in the process). Tennant trashed it, I was devastated and worked every weekend for 3 months to get it back to where it was. Insurance (Terry Sheer) wasn't worth it for everything (had to pay an excess for every event, ie a door kicked in $500 excess vs $50 to replace yourself). $3000 benchtop was worth claiming. Basically, I worked myself ragged for 3 months. Has happened twice since. So be prepared for work.

    Used equity to buy a display home carpark (they paid $200 per week, locked for 5 years for a piece of dirt - cant trash it could they). Yes they did in the end, a bulldozer ripped it all up building the house next door. So i now spray/ whipper snipper the block around 5x a year to avoid council fines. Waiting on a property sale to fund building on it.

    Then bought a couple of properties in a mining town. They increased 5 fold in 6 years (got greedy /should have sold), but hung on for rent. They were vacant for 12 months, values dropped to below what I paid for them…couldn't rent them/ couldn't sell them. Also had several thousand in share shares collapse. Brutal couple of years that I had to live within my means. Thankfully I had 4 years of payment value in reserve in my offset account. So never got too sketchy. They are now around 3 times what I paid, but I wouldn't do this again. Shares that hung on have outweighed my current loses.

    By doing so I have lived a lifestyle well above the means of others I work with, but well within my own. If I had my time again, I'd pay others to do a fair bit of work and claim it on tax (but at the time GFC share collapse/ no rent…I was haemoraging cash). But if you aren't… value time.

    Anyway, key parts..use others research, back it up with your own homework, get a property for equity, offset loan for security, be prepared to work at times, be prepared to lose, diversify, don't panic in the cycles, value time.

    • jssr13 on 17/05/2021 - 17:31

      Thanks - that is quite a life story albeit a very successful one.

    • Ughhh on 18/05/2021 - 10:22

      Well done.

      Bought another investment property (refinanced away from the big 4 in the process). Tennant trashed it,

      How much did this cost you approximately? I assume a lot emotionally at least.

      • tunzafun001 on 18/05/2021 - 14:40

        Around $15k (got $7k back on insurance). But I did all the work myself. Basically gutted most of it. Replaced several, doors, kitchen -oven, stove, benchtops, walls replaced, repainted entire house, curtains, pretty much all carpet/ timber floors, re tiled bathroom walls, shower screen, light fittings and yard work. No idea what it would have cost in trades. Agent is actually excellent, but they trashed it in like 9 weeks. So couldn't blaim them, and they at least picked it up early.

        • zrach on 01/06/2021 - 23:43

          How did they know? And how could the tenants get away with it? Don't they have to pay?

          • tunzafun001 on 02/06/2021 - 00:19

            @zrach: The tenant missed a few rent payments and their lease terminated. Agent then found it when serving the eviction notice.

            This tenant will be chased up by the insurance company for what I claimed. The stuff I didn't claim, due to high excesses (and the bond didn't cover) they just get away with… nothing you can do about it.

            My worse one was when the agent had a family member renting my house. On paper it sounded good, but the reality was
            I ended up terminating that lease as they weren't looking after the place (yards became weed fest, bathroom, kitchen left mouldy, chunks of render knocked off walls etc… But the agent gave them back their full bond saying it was 'acceptable levels of damage'. Caught the scum bag agent doing dodgy repairs after hours to try to cover up their mess and literally ran off! As it turns out, there is nowhere to report an agent. Plus I changed insurance companies after my last experience. But found out that when I took out the policy, the tenant had 2 prior late payments and this made the policy null and void!!

            So my advice, be real careful in small communities and specifically ask the agent if they have any affiliation with them whatsoever. Still haven't found a decent property insurer…hence I just fix it myself.

            • zrach on 03/06/2021 - 19:53

              @tunzafun001: Oh wow that seems like a lot of headache to deal with.. and you've gone through a lot with the shares and GFC as well. It sounds like you're doing well now though!

    • Bob Svargis on 18/05/2021 - 14:55

      That's a great background story and quite inspiring! Thanks tunzafun001

  • tuesdayweekday on 17/05/2021 - 14:23

    just invest

  • Mango1 on 17/05/2021 - 19:34

    I would invest 20k

  • jhaley3180 on 18/05/2021 - 07:31
    +3

    Leaving cash in the bank is likely costing you money. That is the interest you are getting is likely less than CPI…. Therefore, invest $25k in managed fund/s. Keep $5k in bank for easy access in emergency. In the mean time learn about investing, risk and reward. When you are in a position to leverage your investment do so in a rush profile you are comfortable with.

    • friedsnowdays on 18/05/2021 - 07:48
      +4

      To add to this solid advice.

      This is a good website to start your education: https://www.passiveinvestingaustralia.com/. Points 3. + 4. in "Building a Passive Portfolio" are very important. A lot of people don't understand the concept of risk-adjusted returns.

      Secondly I highly recommend you start reading websites like AFR or other finance based websites (like various subreddits). And I say this…because as you read them you'll see articles like "Inflation is coming", "Watch out for Inflation" and it will make you panic and dump your money into assets like gold. And then a month later you'll see articles like "Inflation fears overblown, buy the tech dip" and it will make you feel FOMO and dump your money back into growth. It's important to understand that a lot of these articles/ posts are just guesses or straight up manipulation by the authors/ contributors, who often have a vested interest in whatever point they are selling. Also by the time the news comes out the reader has usually missed their chance to make money and will be left holding the bag.

      A much better strategy is to understand your goal, create a simple plan (i.e. have 50% Aussie Shares, 40% International, 5% Individual Punts and 5% crypto) and stick to it.

  • badg3rz on 18/05/2021 - 09:56

    Some will say invest here, some will say invest there. Some will say invest in this stock, some will say invest in that stock, there is no right or wrong answer.

    The best way you can invest is in a managed stock, ETF, and/or LIC.

    Find the best advice is here https://www.barefootinvestor.com and https://www.fool.com.au

  • afah0447 on 18/05/2021 - 13:48
    +1

    You will need to buy a house one day so put the entire $30k into superannuation and keep adding in as much as you can till you have the maximum allowable withdrawable first home loan deposit.

    • jssr13 on 18/05/2021 - 20:34

      I thought if you put money in super you can’t take it out until you’re like 65. Or am I mistaken?

      • hothed on 19/05/2021 - 08:02

        You can access superannuation when you are 60. Pension starts at 65.
        You can make a tax free withdrawl to pay off your mortgage if you still have one at that point in time.

        The main reason to smash super is to reduce your tax. This strategy would depend on your tax bracket.

        You can use the 5 year bring forward rule once you start earning a decent wage to catch up on your contributions.

      • hocus on 19/05/2021 - 22:51

        There's the first home super saver scheme, where you can make voluntary super contributions (up to 30,000?) and later withdraw as a first home deposit. Can save taxes given only 15% tax on super.

  • OzHunterNSW on 18/05/2021 - 15:39
    -1

    Put it in Super

    • hocus on 19/05/2021 - 22:57

      Worth noting if you earn under $40,000 the government also has the super co-contribution. They will pay a co-contribution of 50c per $1 up to $1000, meaning you can receive up to $500 per annum.

    • tunzafun001 on 20/05/2021 - 00:03

      I massively disagree with this.

      Don't put it all in Super. By the time you get close to retiring they will have raised the age to access Super to 85.. Too late to enjoy it anyway… that's if you even make it to 85. Then if you need to go into a nursing home they will use the extra documented income against you and make you pay more…then google the Super situation in Greece… No thanks.

      Use this investment as a side investment to Super, and then it is accessible entirely on your terms, when you want it.

      By all means put in the $1000 co-contribution if you are eligible, but that's it.

  • TheFIREnanceGuy on 21/05/2021 - 22:27

    Have you got a 6-12 month emergency fund? I would probably do that first.

    Consider investing in ETFs a proportion of your paycheck every month, this will eventually give you financial freedom. Probably 5-20% into crypto depending on your risk profile.

    Property also a great asset to use with many tax benefits!

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