Advice for an 18 Year Old?

I've read through the whole "Realistically when do you think you can retire?" thread, mainly due to pure curiosity. However, I pretty much have zero clue about the discussion as far as content goes, mainly because my only education regarding retirement and investing was from a basic course in 9th grade.

So here's where I'm coming from....
I'm currently 18 years old, freshman (sophomore credit-wise) in college. I plan on taking over my father's dentistry office, so I should be making decent money after about 7 more years of school. Most of the retirement fund knowledge I have is involving the retiree working for a larger company. Because of this, I'm a little lost on what my plan should be if I am a business owner, just put away a set amount of money every now and then?

This is where you guys come in...
I would basically love to have a sort of "flash course" or even just a few tips on basic investing, retirement funds, etc. since y'all are much more experienced and knowledgeable than I am. I'm not looking for the extreme end of things (such as living super frugally and retiring at 35), but instead, just an average plan that will allow me to live super comfortably later on, while still having things such as nice vehicles or whatever hobby I enjoy.

Thanks in advance, and all comments will be greatly appreciated.

 

Best way to start off is with an S&P 500 index fund ( I like the Vangard 500 Admiral VFIAX fund). At your age, as you get more money to play with, large cap stocks or funds accordingly for growth and dividends. Remember, never invest any money in the stock market that you are not willing to lose.

As your father is a successful business owner, you should ask him about his investing over the years.

 

Generally speaking, start early. The earlier the better. Can make hundred of thousands of dollars in difference when it's time to retire.

 

What I would tell my 18 year old self/child:

Worry about paying cash for college getting through dental school debt free and successfully, and becoming an awesome dentist before worrying about retirement.

You shouldn’t be investing until you have money to meet your educational goals, because education is an investment into itself right? The most important investment you’ll make for your career goals.

Also laws from now until 10 years from now can greatly change. So even if you understand it today, that information may not have the same relavence now in terms of how and what you can put away as a private business owner and what types of options are available.

Its great you are thinking of it and asking questions. It means you are being mindful and intentional about your money and future goals. That will take you places.

I highly reccommend the book “Everyday Millionares” by Chris Hogan.
He talks a lot about the everyday habits of individuals who build incredible wealth through saving. Individuals who make reasonable household incomes but have saved enough money to live incredibly in retirement.
He talks mostly about how much wealth can be generated through boring 401k Mutual fund investments. Not so much other vehicles for saving.
Its a book with the mindset for long term wealth building like you talk about but not so much education on the different vehicles. I’ll defer to others to reccomend reading materials on those.

Good for you on having your stuff together at 18!

 

Once out of school, put a minimum of 12% of your gross income into retirement accounts. If you carry college debt, you could drop that a little bit but waiting until college debt is paid off entirely is a mistake. There needs to be a balance.

 

Start a Roth IRA now. Max it out as best as you can I understand you can’t do the full 450 a month at 18 but put some away, and have your financial advisor go very aggressive. That why when you max it out and switch it over to a traditional IRA you will be able to have a good amount in there it won’t be taxed. I started investing real young(18) with the help of my grandmother who’s a financial advisor/planner/stock broker.
I officially retired at 31 after selling off some real estate and just live off my investments now. Wife works a full time job and we still save roughly 12-15% of our monthly income in a savings account.
The fact that you asked this at 18 means youre on the right track. In the future look for a job that has a matching 401k and put in what they match. If your future job offers a 401k use it anyway because that money won’t be taxed going in.
Also another great book is this one by Ben Stein https://www.thriftbooks.com/w/yes-y...q=3250340&mkwid=7iRpvLeX|dt&pcrid=11558858262

 

Rich dad poor dad
The millionaire next door
A random walk down wall street
The little book of common sense investing

That should be a good start. I'm 24 and really wish I had started a roth IRA when I was younger and working. If you can't fully fund it, $6k a year, see if you can talk your dad into helping you out by matching your contributions or something along those lines. Make you an excel sheet that compounds so you can see how the money grows at different interest rates, this really helped me actually visualize and realize how important it is to start early.

Most of what I have read recommends index funds with diversification, like a total market fund, international fund, and a bond fund. That's great if you want to set it and forget it but I want to be a little more aggressive at my younger age and am going to start researching other strategies soon.

 

As people have said... start a roth IRA as early as you can. even if you put in $20 to $50 a month or such... it gets you in the game.

For example.. using this calculator and your age and some default assumptions, if you put $600 a year into a Roth ($50 a month) starting at age 18, with 5% annual returns, you'll have almost $107k at 65 years old. The reason is that the earlier you have money set aside, the more time it has to grow big. You get in the habit now of putting money aside for retirement at 18 years old, and you'll be light years ahead of the game.

Now think about if after you start earning career money... and max out your roth (i.e. more than $50 a month) what that'll look like at retirement. Earlier the better.

https://www.calculator.net/roth-ira...ionrate=3&printit=0&x=52&y=18#roth-ira-result

edit to add: Investing for Dummies is a easily digestible book to understand the investing.

 

A buddy of mine tried to tell me about E*Trade about 20-25 years ago, said I should put some money in. Anything. I didn't listen. I also didn't listen when another friend of mine said to open a Roth IRA when I was in my late 20's and try to contribute to it monthly, again I didn't listen.

Don't be like me. Invest now, save now. You are even younger than I was when I first got that advice. Whatever method you end up choosing, something is better than nothing. I have been playing catchup the last few years and I am doing ok now, but it could have been a lot better. Years in market is what is the key, the power of compounding interest. I try not to beat myself up over it though.

 

Self employed have different rules when it comes to tax advantaged accounts. Once you are set up in business talk to an accountant. Other than that several general rules: debt is generally always bad, cash flow is king, boats (horses the list goes on) are holes you pour money into.

 

I don’t think debt is always bad, it depends on the interest rate. If you have the cash to buy something (house, car, etc.) and the interest rate to borrow is less than you can make on that money invested, I think you’re better off taking the debt. For example, I could pay off my truck, but the interest rate on my loan is very low, so I pay the minimum monthly payment. That money is generating more just in dividends than the loan’s interest rate. That’s how I look at things.

 

People say this but I don’t get it.

So do you save up a chunk of money on the side, lets say, $35,000 to buy a new truck and then once you have that cash you put it into an investment vehicle and then take out a $35k loan for the truck?

I’m asking because if I were to take a loan out on a truck right now it means I have to take the truck payment away from the amount of money I’m currently investing into retirement each month. So its taking away investment money for me.
If I needed a new truck I would have the cash in a sinking fund off to the side to buy a new one then just keep consistently keep the same monthly going into investments if that makes sense.

 

I may do things differently, but every penny I can come up with goes into my dividend stock portfolio. The goal is to get my monthly dividend income to exceed what I need to live. So for example, that $35k would be slowly getting pumped into dividend stocks over the years. Then I would take out a loan for the truck. Say for example that you have a portfolio of a few hundred thousand dollars, I just wouldn't take $35k out of it because that money is generating monthly income.

I'd rather generate 4.5% in dividends and then take out a truck loan for a lower interest rate.

I don't look at it in terms of the price of a truck; I only focus on monthly income.

 

Start early. In your budget, whatever part of it you take home personally. Make sure all your bills are paid, THEN put savings first. Everything else follows. If you put savings last on your priority you'll never do it and spend too much money on your truck.

Start a Roth IRA and try and max that out each year. Learn as you go

 

It’s perspective. If you don’t get it, from my perspective, that’s good. I’m anti debt. Currently in the US, there is a cumulative 1.5 Trillion in student loan debt. Every mothers son and daughter of them will tell you “its good debt”. Many have graduated with an average of $60,000 in student loans and have the skills that qualify them for a job that does not pay a living wage.

Avoid debt if at all possible.

 

I disagree, it's all about cash flow.

I have never paid a penny of credit card interest in my life. I just see a good deal and take it (i.e. 2-3% for a vehicle). I would never take debt that isn't beneficial to me.

Edit: Sorry for taking this tread off track OP!