# 21 y.o. with 25k wanting to start investing... any good tips/suggestions?



## Investing101 (26 December 2015)

Hi guys,

I'm new to this forum so I don't know if this is the right place to ask the question, so please let me know if it's not.

As the title indicates, I'm a 21 year old uni student in Australia and I'm interested in investing in some stocks, securities etc, but am not sure how to start. I have 25k sitting in a savings account and only earn interest from that. I don't have any major debts or student loans and my living expenses are minimal. I work part-time and have a Super fund with about 2.5k.

I'm not expecting people to tell me to "invest in x and y stock", but rather, I'm looking for some guidance or resources on investing 101 that I can use to educate myself in order to make investment decisions.

Given my inexperience and current finances, I'd appreciate it if someone could offer some tips/suggestions on where/how to start, how much I should invest (or whether investing is even a good idea) etc.

Cheers


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## systematic (26 December 2015)

When invited to do so, I'll happily give my opinion (if I have one).  Take my reply (and any others) and then weigh it all up for yourself.




Investing101 said:


> Hi guys,
> 
> I'm new to this forum so I don't know if this is the right place to ask the question, so please let me know if it's not.
> 
> ...





This will be a bit out of order, but anyway:

- How long to go (study) and what are you studying (just curious)?

- "no *major* debts" doesn't sound like zero debt.  What is your total student / non-student debt?

- You've earned around 26k in your jobs.  You said your expenses are low (great!) but just want to check; are you earning enough part-time (along with any help from parents etc) to cover all expenses until you finish uni?
Basically trying to figure whether that 25k is truly freed up or if there are any expenses / debt that needs to be taken care of.  Finishing uni and getting your first job with zero debt is my aim here.

- Goals.  I've already asked when you are finishing uni.  What's your current living situation?  For example, if living with parents, I'd assume you want to move out at the end of uni (bond, basic furniture, relocation costs).  Also, what's you car situation (will you need to buy or upgrade?)


All of the above before suggesting where you could invest your money.  The best investment you can make at your age is in your education and you're doing that; so well done.  The above amounts to: where are you at, and what will you be doing over the next few years?  
Great question, by the way.


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## howmanyru (26 December 2015)

Good on you for starting early in the stock market, wish i did. 
Learn what it means to have an investing or trading plan before worrying about which stocks to buy though. 
Ask the right questions and read some books first, then paper trade for a while to get a feel for the market.


Good luck.


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## Wysiwyg (26 December 2015)

Investing101 said:


> Given my inexperience and current finances, I'd appreciate it if someone could offer some tips/suggestions on where/how to start, how much I should invest (or whether investing is even a good idea) etc.



The trouble with so called investing in the stock market is the indeterminable length of periods in draw-down. That is when the stock/s of choice are at prices less than what was paid for them. For example a choice of banking stocks (which were/are good income (dividend) stocks) at most times of this year would be in draw-down now. It's a tricky game knowing when to buy, what to buy and when to sell. I still don't know. Swan dives are ugly. There is the upside and that is when we want to be on. I think buying my own home would be an investment goal first while observing and learning about stock market investment for the future. Buying quality companies at a discount or deep discount is a strategy some people use. It's called Value Investing. Gotta look at it as buying the company yourself so researching that company and some forward looking at the companies business is smart. Bear markets can last longer than thought.

It's not easy and that is by design.


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## Rainman (26 December 2015)

If you're 21 and have some money to invest, then, no matter how modest your initial sum may be, you have a great opportunity ahead of you.  

This opportunity is the chance to compound your wealth.  I can't stress the importance of that enough.  

If you were to invest your $25K now and make that $25K earn you 10% a year for the next 20 years, you'd end up with $183,201.  At 15% a year for the next 20 years, you'd end up with $492,887.  At 20% a year for 20 years - a rate of return that is still entirely feasible and that many value managers earn on average - you'd end up with $1,320,688.  At 25%, you'd end up with $3,524,538.  

This is the magic of compounded returns.  The above figures assume a scenario where you would make no further contribution to your investment funds. That is very unlikely at your age.  So, if you were to make regular monthly deposits of $500 a month for 20 years on top of your initial deposit of $25,000, then, at an average compounded return of 15% (which many investors achieve, not year-in-year-out, but on average), you'd end up with $1,250,864.  At an average compounded return of 20% a year, you'd end up with $2,901,427. 

If you were to keep doing this up to the age of your retirement - say, for the next 40 years -, then, at a compounded return of 15%, you'd end up with $25,419,394.

 The point of highlighting this to you is to show you that:
you can be seriously wealthy the longer and the higher that you are able to compound your returns; and 


you need to think of investing as the systematic process of compounding your wealth.
If you accept this idea of investing, then the only remaining question is whether you choose a fund manager to compound your wealth for you or whether you choose to do that yourself.  If you choose to do it yourself, then, in my view, you need to learn how to value businesses (if your area of investment is to be stocks).

There are many ways to value a business and I'd be happy to offer some of my thoughts on them but if you look around the forum you'll find that it is a topic that many others have offered an opinion on.  A good recent book on valuation that I would recommend is _Deep Value_ by Tobias Carlisle.


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## So_Cynical (26 December 2015)

Sign up at the ASX site, go thru the education section and then start making watchlists, watch what happens to your selections...learn from that.

http://www.asx.com.au/


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## notting (27 December 2015)

My suggestion -
DON'T LOSE MONEY


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## minwa (27 December 2015)

notting said:


> My suggestion -
> DON'T LOSE MONEY




Unless you know some superior investment vehicle that I am not aware of, it is not possible with investments, especially in the markets. 

You WILL lose money, that I can guarantee.


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## joea (27 December 2015)

Investing101 said:


> Hi guys,
> 
> I'm new to this forum so I don't know if this is the right place to ask the question, so please let me know if it's not.
> 
> ...




https://www.thechartist.com.au/Articles/

joea


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## joea (27 December 2015)

Investing101 said:


> Hi guys,
> 
> I'm new to this forum so I don't know if this is the right place to ask the question, so please let me know if it's not.
> 
> ...




It takes more than fundamental or technical analysis

http://www.smh.com.au/money/investi...tal-or-technical-analysis-20110826-1je2h.html

joea


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## CanOz (27 December 2015)

joea said:


> It takes more than fundamental or technical analysis
> 
> http://www.smh.com.au/money/investi...tal-or-technical-analysis-20110826-1je2h.html
> 
> joea




Yup, start with that article, an open mind, the patience to study, learn and fail....and the ability to pick yourself up off the floor and have another try.


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## Gringotts Bank (27 December 2015)

Rainman said:


> If you're 21 and have some money to invest, then, no matter how modest your initial sum may be, you have a great opportunity ahead of you.
> 
> This opportunity is the chance to compound your wealth.  I can't stress the importance of that enough.
> 
> ...




No tax huh?

20% year in year out for a noivice?  Fat chance.  And name me *one* managed fund who has returned this for even 10 years, let alone 20 or 40.

I think your estimates are extremely unrealistic and misleading.

Then again, Investing101 won't even make another appearance on ASF.  Not even to read the detailed replies you guys have spent time on.  This is the internet remember.


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## Rainman (27 December 2015)

Gringotts Bank said:


> ... 20% year in year out for a noivice?  Fat chance.  And name me *one* managed fund who has returned this for even 10 years, let alone 20 or 40...




You're betraying your ignorance: 


Stanley Druckenmiller: 30% over the course of 24 years: http://www.bloomberg.com/news/artic...after-30-years-as-hedge-fund-job-gets-tougher


Walter Schloss: 20% over the course of  47 years:http://basehitinvesting.com/superinvestors/walter-schloss/


Peter Lynch: 29% over the course of 13 years:http://www.investopedia.com/university/greatest/peterlynch.asp
In Australia, Roger Montgomery hasn't been investing for 10 years but his performance since August 2012 has averaged 25%.  Of course, the period between 2012 and now is not particularly representative because we have been in a long bull market.  Also, some will probably dismiss Montgomery as a lightweight and and a self-promoter. But in my view his method is sound and I expect him to average over future 10 year periods somewhere between 15% and 20%.

With exception of Montgomery, the managers above are no longer managing money.  But it would be a mistake to think that 15% to 20% returns are impossible - especially for small time value investors.  I can guarantee you that.


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## Gringotts Bank (27 December 2015)

Rainman said:


> You're betraying your ignorance:
> 
> 
> Stanley Druckenmiller: 30% over the course of 24 years: http://www.bloomberg.com/news/artic...after-30-years-as-hedge-fund-job-gets-tougher
> ...




There's quite a number of performers mentioned in the Market Wizards books and most of them are for high net worth US residents only.  Closed funds if you only have 25k and live in Aus. 

Looking at Montgomery's performance, we only have 3 years to judge him on.  Chart below looks like he just tracks the index.  Like most fund managers - minimal work, maximal cream.  If we had a chart which extended back to 2008, it's fair to assume he'd be tracking the index 40% into the red.


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## McLovin (27 December 2015)

Rainman said:


> In Australia, Roger Montgomery hasn't been investing for 10 years but his performance since August 2012 has averaged 25%.  Of course, the period between 2012 and now is not particularly representative because we have been in a long bull market.  Also, some will probably dismiss Montgomery as a lightweight and and a self-promoter. But in my view his method is sound and I expect him to average over future 10 year periods somewhere between 15% and 20%.




Actually he has been investing for more than 10 years and his returns at Clime were poor (also had a valuation subscription service at Clime -- sound familiar?). By my calculation his new fund has averaged 12.8% since 2010. I'm not sure why you'd expect him to average 15%-20% when that has not been his historical return.


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## McLovin (27 December 2015)

Gringotts Bank said:


> Looking at Montgomery's performance, we only have 3 years to judge him on.  Chart below looks like he just tracks the index, like all fund managers.  Minimal work, maximal cream.  If we had a chart which extended back to 2008, it's fair to assume he'd be tracking the index 40% into the red.
> 
> View attachment 65405




There's five years almost to the day of his older fund at Montgomery, with a return of ~12.8%. See here: http://www.montinvest.com/apply-to-invest-montgomery-private-fund

Here is CAM's return when he was IM.


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## Gringotts Bank (27 December 2015)

McLovin said:


> There's five years almost to the day of his older fund at Montgomery, with a return of ~12.8%.




Managed funds really are a ticket to print cash.  Hire some dude to write an algo to track the index (easy), sit back and skim your fees off the top.  Or get crazy and hire a decent quant and outperform the market by a few %pa.

The Kerr Neilsons of the Aus funds management word are rare.  Has the midas touch, but still his returns are not that high.  Many funds are around 9%pa.


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## Gringotts Bank (27 December 2015)

Sorry for the tone of my post Rainman.  It was too harsh.

A positive approach is great, if you can manage to maintain it.  There's a tiny fraction of people who make big cash from the markets.  But it _*is *_possible.  Definitely possible, using a range of approaches.


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## Rainman (27 December 2015)

Gringotts Bank said:


> ...Looking at Montgomery's performance, we only have 3 years to judge him on.  Chart below looks like he just tracks the index...




Criticizing a fund manager for "just tracking the index" is a fair criticism.  But I think you misunderstand what "just tracking the index" means.  The chart of Montgomery's performance that you have included shows that Montgomery is not "just tracking the index".  He is outperforming it - and by a wide margin. 

If Montgomery was "just tracking the index" his performance line and the performance line of the index would merge with each other and run together in more or less a single line.


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## Rainman (28 December 2015)

McLovin said:


> Actually he has been investing for more than 10 years and his returns at Clime were poor (also had a valuation subscription service at Clime -- sound familiar?). By my calculation his new fund has averaged 12.8% since 2010. I'm not sure why you'd expect him to average 15%-20% when that has not been his historical return.




I am not here to carry a candle for Montgomery.  

While I am not aware of his returns at Clime,  I accept your claim that they were poor.  But do we know the extent of his responsibility for that performance?  I don't rate John Abernethy, Clime's CIO, as an investor and I haven't been able to find any evidence that Clime's investment performance suddenly spiked after Montgomery left.   

When all is said and done, I think that it's fairer to judge Montgomery's record now that he is running his own investment firm.  Also, the older fund that you refer to has returned just over 16.5% after all fees since 2010, not 12.8%: http://www.montinvest.com/apply-to-invest-montgomery-private-fund.

I might add too that it's possible - just possible - that Montgomery is a better investor now than he was at Clime.  He is probably not more than 45 years old and investment is something you get better at the longer and more thoughtfully you do it.


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## McLovin (28 December 2015)

Rainman said:


> I am not here to carry a candle for Montgomery.
> 
> While I am not aware of his returns at Clime,  I accept your claim that they were poor.  But do we know the extent of his responsibility for that performance?




He was founder, chairman and MD. It was his firm.




Rainman said:


> When all is said and done, I think that it's fairer to judge Montgomery's record now that he is running his own investment firm. Also, the older fund that you refer to has returned just over 16.5% after all fees since 2010, not 12.8%: http://www.montinvest.com/apply-to-i...y-private-fund.




No. He returned 12.8%. The returns are compounded. At 16.5% his total return from inception would be ~114%. His return on his newer fund is ~19.5%, not 25%.



Rainman said:


> I might add too that it's possible - just possible - that Montgomery is a better investor now than he was at Clime.  He is probably not more than 45 years old and investment is something you get better at the longer and more thoughtfully you do it.




Sure it's possible.


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## Rainman (28 December 2015)

McLovin said:


> No. He returned 12.8%. The returns are compounded. At 16.5% his total return from inception would be ~114%. His return on his newer fund is ~19.5%, not 25%.




You're right.


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## Investing101 (30 December 2015)

Thanks for your advice systematic, here's a bit more info about current finances:

*- How long to go (study) and what are you studying (just curious)?* 
I'm currently studying Commerce/Business and so have somewhat of an understanding of the financial market, but in terms of applying that knowledge to make an investment, I'm completely clueless. 

I'm doing a double degree so I have about 3 years left. 

*"no major debts" doesn't sound like zero debt.  What is your total student / non-student debt?*
I think it's about 10k a year for my degree, but that's covered by HECS and I don't have to start making repayments until I reach a certain income threshold. I meant no major debts in the sense that I don't have immediate debt obligations because HECS is interest free (as opposed to say student loans in the US where interest accrues).

Other than my HECS I don't have any credit card bills or private loans.

*- You've earned around 26k in your jobs.  You said your expenses are low (great!) but just want to check; are you earning enough part-time (along with any help from parents etc) to cover all expenses until you finish uni?
Basically trying to figure whether that 25k is truly freed up or if there are any expenses / debt that needs to be taken care of.  Finishing uni and getting your first job with zero debt is my aim here.*
I earn about $750/fortnight at my part time job and live with my parents, so I contribute a bit every month (nothing major, just things like paying off internet bills, health insurance etc). My other siblings also contribute and my parents work so there's no pressure for to me to contribute more than what I do now.

Having said that I do plan on studying abroad for a semester or two before my degree finishes, but even with that expense I'm pretty sure I have enough left over.

*- Goals.  I've already asked when you are finishing uni.  What's your current living situation?  For example, if living with parents, I'd assume you want to move out at the end of uni (bond, basic furniture, relocation costs).  Also, what's you car situation (will you need to buy or upgrade?)*
As I said I have 3 more years' left on my degree so I haven't really thought about moving out yet. I currently borrow my sibling's car (because public transport is usually sufficient) so I definitely will need one when I move out, but I'm not picky and am okay with a second hand as long as it takes me where I need to go. 

I don't really have any specific financial goals at this stage and learning how to invest is just something that I want to pursue as an interest in the meantime. At this stage I just want to understand how the financial market works as it feels highly relevant to what I'm studying and my future career. I would be happy if I could make some money from it though (so I can be more comfortable with my daily spending, travel overseas more frequently), but I have no urgent need to raise a specific amount of money to fund x after I graduate etc. 


Also, what would you suggest be a good starting amount to invest? I've been reading around and people seem to recommend something in the range between 1k-5k (which also depends on the type of investment).


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## systematic (31 December 2015)

Okay, cool.  First off, I should clarify - I'm firstly addressing your last question in the last paragraph of your original post; that being basically, "should I even invest?"  Good question to be asking.

I think you _should_ invest, and I'm glad your interested in it.  Learning about it can initially just be books, but you also asked about _actually_ investing, so I'm addressing that.

Given that you've asked for opinions, here's mine, as if we were sitting together over a cuppa and you wanted me to freely tell you what I think.

I think you are going great, and you are investing in yourself, through your education.

What I'd like to see you do is actually get some of those if's and maybe's solidified on paper, even just an educated guesstimate.

I'd like to see you roughly work out how much money you need for some of those goals.  

You earn $1,625 a month which is great.  If you're saving half that (after paying your parents and some spending money - I am totally guessing), you'll save another 20k in the next 2 years.

Okay, fine.  What I'd like to see you do is budget for that overseas trip (where you're not going to be earning, presumably).  I'd also like to see you earmark money that you're going to need in 3 years time...starting a new job, needing a new wardrobe (possibly) and those moving out costs - as well as a car (and I totally agree - your first car needs to be el cheapo).  Hardly anyone is that responsible, but it sounds like you might be - I wasn't - but if you ask me my opinion, I'm going to tell you.  That amount of money has to come from somewhere and you can earmark funds now for those things.  Work out roughly how much, on paper.
Sure, invest it - but that should influence _how_ you invest it.  Now, maybe the 20k you save in the next 2 years - which was a total guess - covers _all_ of that.  Work it out on paper.  If it does (or something like it), your 25k is freed up to invest.  

If you are as smart as you seem to be, you should be able to think long term enough to realise that when you are out on your own and working, you should have a rainy day / emergency fund.  Some people might roll their eyes and say that's way too conservative for a young person and / or that you could invest it now for later anyway.  I disagree, and I only say that because you have the opportunity to set yourself up.  Taking my pretend example above, one step further, let's say you decide on a 15k rainy day fund.  
So now you know you need to save over the next 2 years (prior to overseas) in cash, and - if I've managed to convince you - another 15k of your 25k as cash (rainy day fund). 

Now I'd take the rest (in this pretend example, 10k) and definitely invest that.  Like, it's the beginning of your (hopefully early) retirement fund!  Once you get your first job, and you've done all these things, you'll have an emergency fund, be debt free (apart from HECS), have money to set yourself up - as well as an investment fund!  Like, that's pretty good for a young person just starting out!  Then all you'll need to do is make sure you're on a written budget and keep saving for your early retirement plan!

Does that make sense?  

So invest, yes.  But have a plan over the next couple years to cover everything (the car, moving into a place, your owverseas trip etc)...including a rainy day fund.  So don't do anything fancy with those funds (one example would be an online saver, at 3.50%).  

If you're with me, and like my crazy plan...then you'd just invest your initial and ongoing capital probably in something like Warren Buffett would recommend - i.e. index funds or somesuch.  Nothing wrong with that.  The message in a book called, Mind over money (written years ago by an Australian who was in the financial field but also a psychologist) was basically - you dont have to do anything special.  You can become wealthy being average.  

Learn investing / read books etc.  But my opinion (remember, same as if we were chatting over coffee) would be that you dont need to be picking your own stocks etc yet.  Most people shouldn't!  More important to keep your savings up through life, even as you get married and save up for a house etc.  You can do it!

Just a disclaimer: none of this is financial advice - for that you need to see a financial advisor.  This is, once again, my opinion and what we might chat about over a coffee.  Having said that, I'd be quite happy for ASIC to read my post, as it's some of the most sensible and conservative advice you could get (if it was advice, which it's not, ha!).

One thing I'd steer you away from?  Doing anything exotic or weird.  You just don't need to.  Not even trying to learn to trade FX short-term, or whatever the current fad is.  You just don't need to!

If you like learning about investing and genuinely want to pick your own stocks - fine, but that can come later.  You might also find yourself more attracted to property investment as far as going deeper on a subject.  All well and good - but sticking with the basics is all you need for now.


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