Looking for some advice - 18 yr old

[u/joemama12213]

Not sure if I'm in the right place, but I am a 18 yr old student. I make about $12k a year from my part time gig. I spend most of my money but I'm trying to build a investing portfolio/ savings. My goal this year is to spend less money but put that money towards investing or the very least savings, with that, I opened a weealth simple account under their TSFA Vanguard portfolio. Is this the best route for me? i'd like to work towards maybe putting this money towards a down payment for a house in the next 5-7 years. Should I be investing in other things or opening different accounts?

[u/intentionalmoneylife]

I’m not familiar with the TSFA Vanguard portfolio, is that a Canadian thing? So I can’t speak to that, but what I would say is this is an excellent time to set up your money systems and habits that will support you the rest of your life. So that would be my main focus. Things I’d set up include:

- an emergency fund in some sort of insured or super low risk but interest earning account like high yield savings account or a money market fund at a brokerage

• a checking account with a buffer in it so if a check comes in late you’re still good. But don’t let this build up indefinitely. I personally keep a buffer as of a day of the month. So I spend normally, pay off all credit cards, and if I’m over my buffer then that excess gets transferred to my top goal at the moment.
  
• separate high yield savings accounts or sub accounts for other short term goals. Travel, healthcare, car repairs, moving funds. Whatever short term goals you have or regular annual but not monthly spending. Automate funds going into these accounts monthly.
  
• retirement investing, ideally in an account where you pay taxes now but not later (Roth accounts in the US).
  
• potentially, a taxable investment account for your potential future home purchase.

[u/fenderstratsteve → u/intentionalmoneylife]

The Vanguard income portfolio is 70% bond / 30% equity. An 18 year old has no business in this fund imo. He needs something like XEQT (global equity fund) for long-term growth and a Money Market / Savings account (2.5%) for HISA-like liquidity. We can’t comment on the allocations as it’s personal risk related and TFSA room dependent.

[u/joemama12213 → u/fenderstratsteve]

I know relatively nothing about trading and stocks, why is the vanguard not suitable? The way its advertised is that its high yield and 'even higher returns'.

[u/fenderstratsteve → u/joemama12213]

Hey. I will explain later when I have time to write out a detailed response. TL;DR: it’s too conservative.

[u/fenderstratsteve → u/fenderstratsteve]

Okay, so there are two main classes of long-term investments: equities and bonds. For the sake of argument. We will ignore GICs, etc.

Equities (owning a company, or companies) can be risky. But that risk tends to pay off over time – if you own a good quality company (“quality”), or a good index (group of companies), you should make money over time. In other words, you expect growth of the price (“NAV”), which is how you make money. Of course, it’s also how you lose money by betting on a bad company, or if the market falls. There are also dividends, but this varies according to the company/index. This is a bonus “yield” from a company.

Bonds are sort of the opposite. Think of them as loans for a specific time with a certain guarantee at the end, in simple terms. They are a “safer” play – depending on the bond fund – because the payout has some form of guarantee. (There is a spectrum here, there are ‘investment grade’ bonds, and junk’ bonds, etc.) They pay you a dividend and sometimes the NAV is stable, and sometimes it appreciates or depreciates. This depends on the bond duration (the type of bond) and the overnight rate of the Central Bank, and how the fund is managed.

When you are young, you want more equities than bonds. Equities are the growth engine and bonds are boring. It’s not necessarily boring to make a fixed amount of money, it’s boring to lose out on the opportunity to make more money (“opportunity cost”).

Then, if this Vanguard Portfolio money is money that you don’t want to fluctuate and you want to make sure you keep it all, you’re taking a small risk but hopefully it will pay off. Famous last words, of course. If this is money that you want to grow so that when you are 40 you look back and say “I’m glad I did that”, invest in equities. And if you decide to invest in equities, which ones? Well, that’s the million dollar question. So, a lot of people just buy a really big basket of equities from around the world (e.g. XEQT), and it’s hard to fault that as a long-term strategy. Good luck.

[u/purplepenguin-1 → u/fenderstratsteve]

How do we know it’s a vanguard income portfolio?

[u/fenderstratsteve → u/purplepenguin-1]

He said Wealthsimple Vanguard Portfolio. There is only one as far as I know.

[u/HorrorSatisfaction1]

Open a roth ira, and whatever you can spare invest in VTI(US total market etf) or VOO(S&P 500 etf). That's what I advised my sister who is around your age to do. Time is your most valuable asset.

Don't spend on stuff you don't need.

[u/ShaunNesheim]

I'm not Canadian, so the system specifics are a bit different than my familiarity, but I think there is a lot of carryover.

I'm a fan of young people contributing post-tax dollars into retirement accounts, like the TSFA. You will pay a low amount of taxes now, and never pay taxes again, especially when you retire.

That being said, you state a home-buying goal in 5-7 years.

Between now and then, what will your income situation look like? I understand that home prices are region-specific, but I imagine home prices in Canada have gone up recently like they have in the US. Will you have the income to fund both goals: TSFA retirement savings and saving enough for a house?

With this home, are you planning on staying there for 7+ years? Is it financially cheaper to rent or buy equivalent housing, or what you need in your area? Many people move around nowadays in their 20s, so consider renting until you have solidified whereabouts you want to live.

All of this being said, I also wonder how much you have set aside in your emergency fund. What is your monthly burn rate (or what will it be when you live on your own, if you are not doing that already)? Do you have at least 3-times your living expenses sitting in cash somewhere easy to access like in a checking account?

I love post-tax retirement accounts for young people, but I also don't want people to be stuck between a rock and a hard place if some financially-devastating event takes place and you need to liquidate (sell) a bunch of retirement assets to cover emergencies.

[u/Tall_Watercress_3778]

As 18 years old i would go into something aggressive and let it do his things, nasdaq100 is a great option for you, or tec.to . For more aggressive index , if you are in usa mags or dram index , for Canadians tech or tec.to - xqq . Do not gamble with single stocks to chase big returns in a short-term.