Simple Investment Strategy for a 19 Year Old?

NoApostrophePlurals on 07/11/2022 - 01:21
Last edited 07/11/2022 - 01:26

Hi,
My brother in law is turning 19 soon. He studies part time, works part time and he lives at home with his parents with very low living expenses, only pays for the upkeep of a car and chips in for internet.

I have told him that one of my regrets in life was not saving more when I was younger and not investing at an early age. My problem is, that I still have almost no experience in investing, outside of real estate and business. That's where I need some help from OzBargain.

What are some suggestions from people who have been in a similar situation for themselves or their children?

I am thinking for simplicity sake, to invest in ETFs. From there, I was considering Vanguard for him, but read recently that they don't auto invest dividends. Are there ones that do, that make taxation and bookkeeping as simple as possible?

Alternatively, are Government bonds a safer, lower return option? I know nothing about them. Are they easy to implement into an investment strategy for him?

Are there managed funds with decent returns where he can have $100 direct debited from his account every week, of every month?

I was also considering suggesting he put his money into his super to access the First Home Super Saver scheme and work towards owing his first property, then slowly building a property portfolio, though this might take too long for him to see any benefits in investing and may put him off in consistently putting money aside.

Thanks in advance!

Financial Bank Account Savings Account

Comments

  • mitt on 07/11/2022 - 02:26
    +1

    Definitely take advantage of the FHSS scheme but if he is likely to see a jump in income after studying focus on it then. The higher your income the more tax you dodge by depositing the maximum allowed amount for a couple years instead of trickling it in while working part time. The approach I wish I had taken was finish studying & once you are full time maximise the benefit you can get from the FHSS & buy property early. Go right from living at home into a property he owns. Skip the renting grind completely.

    • Daniel Plainview on 07/11/2022 - 08:59

      @NoApostrophePlurals
      I agree - take advantage and MAX OUT any Govt initiatives like the FHSS, super co-contributions etc - they're your safest and best return - plus easiest to do.

      After that IF he has any extra funds or wishes to diversify a little - set up an account with CMC markets - free trades at under $1000 - so get him to regularly invest small amounts - I'd recommend DHHF as the best choice for him - it's an all in one made up of other ETFs - 100% growth, which given he's 19 is the best choice. DRS is available - but tell him to ONLY do this option (equities) IF he can have the discipline to leave it alone and not pull out when he's freaked etc - minimum do not touch for 10yrs!

      Other than that just teach him good lessons on not spending on crap you don't need or is wasteful - as at that age a $5 coffee ends up coating you $40 or so by the time you're 40! So every dollar saved makes a huge difference - getting the concept of compounding returns through to him is HUGE.

  • daft009 on 07/11/2022 - 06:34
    +2

    When I was 20 and working as a casual at Myer I started saving $10/day. I used to get around $400 after tax per fortnight and straight away $140 went into a high interest account

    When I graduated from uni and got a full time job I increased the figure.

    At 27 i bought my first house. I had just over 20%

    Yeah I could've bought earlier but I also had fun. Went backpacking in Europe for 3 months one summer and other activities

  • Rako on 07/11/2022 - 07:25
    +4

    Vanguard ETFs have dividend reinvestment
    Does Vanguard automatically reinvest?
    DRIP. Vanguard's distribution reinvestment plan (DRIP) will reinvest Vanguard ETF® cash distributions without charging a commission. Under the plan, distributions are reinvested to buy more units of the same ETF. You pay no commissions and fund distributions stay in the market (unlike cash).

  • Shadowsfury on 07/11/2022 - 08:54
    +1

    Dividend reinvestment could potentially be WORSE bookkeeping as when you eventually sell you need to account for all the little purchases on the way - in some ETFs such as VAS that's 4x a year.

    You still get taxed on reinvested dividends/distributions so no difference from that point of view.

    I much rather turning OFF DRP and just add the amount to the next parcel I was going to purchase.

    • netjock on 07/11/2022 - 09:24

      This!

    • MrMarket on 07/11/2022 - 09:47

      easy with software or excel tracking, you just data entry like other share purchase, you get to choose what to sell when you come to sell it
      say you got 100 shares and you DRP an extra 4 shares you just data entry
      eg 10/11/2022 buy 4 shares of XXX (DRP price) brokerage $0

      software will sort out all the calculation for you all you do is data entry buy and sell and select what to sell and how much

    • Daniel Plainview on 07/11/2022 - 10:10

      You're right BUT there's an incredibly easy work around and doing yourself leaves you open to essentially screwing up the benefit of regularly investing as emotions come in (nows not a good time to buy, there's a correction coming etc).

      Most investment plans are fine - but the people doing them screw them up.

      I agree DRS without proper records can be a PITA.

      Solution?

      Free account at Sharesight…..ensure that DRS is turned on for your holding, with rounding down - and it's SUPER SIMPLE.

      One of the best things I've ever used and makes the significant ETF holdings and trades I do a breeze. And the free version is more than what is needed - so it's not one of those traps to get you to use the pay version or a trial etc.

  • Ghost47 on 07/11/2022 - 08:56

    I would suggest buying him the Barefoot Investor and telling him to read it.

    • netjock on 07/11/2022 - 09:24

      Showing him how to fish rather than fishing for him. Good advice!

    • NoApostrophePlurals on 07/11/2022 - 20:45

      I did 12 months ago. He hasn't read it.

  • djkelly69 on 07/11/2022 - 09:23

    Are there ones that do, that make taxation and bookkeeping as simple as possible?

    DRPing definitely does not make taxation easier (for CGT purposes). It is most likely easier/simpler in terms of set and forget, but just harder to sort out when you sell.

    • MrMarket on 07/11/2022 - 09:49

      not really if you serious about investing in shares you would have some sort of software to do all that for you
      all you do is data entry buy/sell and when, all the complex calculation is done for you within the software when it comes to sell

    • Daniel Plainview on 07/11/2022 - 10:23

      Free Sharesight account - I've no idea why anyone would buy equities without using it - as you're right, recording keeping for taxes plus intelligent selling can be a PITA.

      Super simple to do and you can even integrate with your broker so you literally do nothing.

  • netjock on 07/11/2022 - 09:28

    Put it into VGS (vanguard global index etf). If things go wrong nobody can be blamed as it is as average returns as you can get.

    As above. Have him go read some investment books and figure it out for himself. You're there to guide not to force him. If everyone did as their elders (wise or unwise advice) the world would collapse.

    Just adding: gift him a post. One that shows property, S&P500, ASX200 from 19 years ago until today. That would get him fired up.

  • Seraphin7 on 07/11/2022 - 09:28

    The main focus of a 19 year old needs to be on saving. As boring as it may sound, he needs to be looking at saving 50-75% of his income given his current arrangements. In the foreseeable future he's going to have significant outlay whether that be a car, rental bonds, furniture/appliances, etc.

    Being a 19 year old (or 25 year old) with maybe $25k (or more) in your bank account buys a lot of comfort when it comes time to leave the nest.

    That said, if you want to invest in ETFs, managed funds, there are plenty of providers who can deliver what you are looking for as described above.

  • pharkurnell on 07/11/2022 - 10:13

    Simple strategy

    Work hard
    Save lots
    No new phone every month
    no new TV every month
    Reasonable car thats reliable not a hunka shit or an image machine.
    Dont forget to live a life at same time.

  • dust on 07/11/2022 - 10:22

    Investing in themselves to maximise their earning potential.

  • Vulgar on 07/11/2022 - 10:25

    The best long-term strategy is to open a Superhero account which charges $0 for buying ETFs and put everything into a low cost diversified ETF like VAS (top 300 companies weighted by market cap). You will get an average stock market return (7% p.a. after deducting inflation) which will outperform bank interest and bonds in the LONG TERM.

  • Drakesy on 07/11/2022 - 11:34

    Heading into a recession ETF's will probably underperform relative to banks. I'd chuck it into a bank for now and dump as much into the FHSS as possible.
    Go for the BOQ, ING or UBANK savings offerings.

  • ForkSnorter on 07/11/2022 - 13:42

    I wouldn't worry about investing at such a young age.

    It will just take your attention and time away from more important things.

    It is far more important to develop skills, knowledge, and ideas.

    One of the reasons Australia is not a significant innovator on the world stage, nor a large producer of finished products on the market, nor a world leader in technological innovation or engineering, is because we devote so much of our time, energy and attention to making ourselves richer, whether through property investment, flipping properties, or financial schemes.

    It almost makes me ashamed to be Australian to see how obsessed we are with getting something for nothing, and our politicians are among the worst. I don't know how many times I've seen relatively untalented people spend a large portion of their lives obtaining assets while achieving/creating very little of note themselves.

    • Daniel Plainview on 07/11/2022 - 13:49

      I wouldn't worry about investing at such a young age.

      It will just take your attention and time away from more important things.

      It is far more important to develop skills, knowledge, and ideas.

      Investing is not mutually exclusive from those things! So I have to strongly disagree……financial stress is the cause of so much other shit later in life - and if you do the maths and figure out how much more most of us would have if we started doing the right things earlier - it's truly massive!

      At first it's depressing as your balances seem to go nowhere but once you start to get a lot of assets and string a few good years together it's expotential growth. And I say this NOT as money is the be all and end all - but it allows you to instead focus on family, friends, happiness and NOT the rat race/consumer grind.

      So while I 100% agree to focus on those other aspects you mention - investing and learning how to intelligently build one's wealth is smart and will set you up for a good life in more ways than just $$$.

    • NoApostrophePlurals on 07/11/2022 - 20:44

      You have unreasonably high expectations of everyday citizens. It's already a struggle just to exist on this Earth let alone setting ridiculously lofty metrics of what you deem as being a successful, notable, contributing member of society.

      Not everyone aspires to make a difference in this world or local economy or be an innovatator, inventor of a creative.

      Whilst I do agree it is definitely beneficial to develop skills, knowledge and ideas, that's what his education is supposed to do, there's a need to balance everything. I'm not suggesting he needs to invest and be the next Warren Buffett, but he needs to know that there's a future cost of spending hundreds of dollars on in-game purchases and $100 in junk food every week.

  • NoApostrophePlurals on 07/11/2022 - 20:29

    Thanks for the advice, everyone! I am going to go through the suggestions in this thread and for simplicity sake, will probably suggest FHSS and a high interest bank account. I will let him decide for himself.

    I gave him a copy of barefoot investor 12 months ago. I don't think he's touched it. I can't force him to read it as anything I say is merely a suggestion. I can understand it could be a daunting book for an 18 year old, especially as his first language isn't English.

    I have shared links with him of news articles and calculators showing him the values of compound interest and how $100 a week could build to over $1 million in X years with not much effort. That got him interested the most.

    As for enjoying life and not worrying about investing etc, he's only putting aside 25-30% of his weekly income. I've told him to set up a spreadsheet of his outgoings like fuel, maintenance, registration, breaking them down into annual, monthly and weekly costs so he knows how much he needs minimum per week. The rest, he can do whatever he likes with. He spends a lot of it on buying snacks and buying takeaway meals after he finishes work. I'm not suggesting in any way he doesn't enjoy himself, but being financially secure and enjoying life aren't mutually exclusive.

    His parents and sister worry about his future and without going into specifics, I can totally understand why. I love my wife and her family, so I don't want her parents to stress. Helping him will hopefully help them worry less.

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