I'm 21, and I want to get started in low risk investing. I'm in an engineering economics class and I'm just now getting the sheer scope of the power of compound interest, and the most important thing I've learned is that the earlier I start, the better it will do. I'm moderately well off; been averaging 40k in my first few years farming. However, due to expanding my farm and a significant increase in the price of wheat this year I'll make around 120k. Now nearly all of that will go to pay for my cost of living, college, and go back into the farm, but I would like to invest a little to be a security net. Let's just say I don't expect social security to be around when I'm 68. My stated goal is to have some money for retirement, so that my children can run the farm for themselves, OR to be a safety net in case of a total farm collapse.

How would you invest 5k in a very low risk, sustained growth manner? I certainly don't need to get lucky on a high risk stock; farming has enough of that for me. Should I just buy 5k worth of the S&P 500 or 250? Is there any way to do this on my own without going through a broker? On the other hand, are there benefits to a broker?

I know nothing about the actual mechanics of investing. Are diversified S&P 500 stocks chosen randomly among those 500 companies? Do you periodically check on them, and drop under performing ones? What is a trustworthy company to invest through, and how much should I be paying them?

S&P 500 index fund, such as the VOO. Cramer's advice is first 10k in an index fund, then given the time to study you can select other stocks

There are many on here with much more investing intelligence than me so just learn from my years of experience.  The good news is that you are young and understand compounding interest.  I didn't really understand that but started my 401k in my mid 20's and have close to 1 mil today at 50.  From your post it sounds like you are a farmer and do not work for a large company such as I that matches a 401 so I think IRA's are what you seek.  Just put back as much as you can every paycheck in something that is gaining interest and you will be fine as long as you keep an eye on it.

I'm looking on Vanguard's site now. If I buy some of those ETFs, how is it kept in my name? Is it only through their website, or does my name get distributed elsewhere?

In other words, what proves that I own that stock?

I'm an owner-operator, so there are no paychecks, only profit from the operation. Harvest is over, and I'm looking to put some of that money away now, and in the next few months as I market and sell my grain.

How intently do you keep an eye on your money? Do you check daily? What do you do if you don't like what you see?

ROTH IRA has the best tax benefits for you

Does the Vanguard 500 stock automatically reinvest the yield into itself, or does it pay a dividend each year, with which I buy more stocks?

its up to you on the amount of risk you want but the younger you are, generally, the more risk you want.

S&P ETF or fund until you have some experience and more $$ in the investment.  Then you may want to go into some other places like sectors.  When that all grows and you get more time/ experience under your belt then maybe a stock or two, ect.  Stay diversified.

The USUAL advice from investment advisors is that when you are young you should take higher risk, higher reward investments and as time goes on you migrate your portfolio to lower risk investments as your worth grows.  

So at 21 I'd go right for the high risk, high reward investments, with SOME of my money.

Right now Vanguard's mutual fund VWIGX is turning an incredible YTD return of 37.38 percent.  So I'd put some money into that!

Its lifetime return is 10.76 percent and that even includes what happened in 2008.   So I'd say it's a pretty good risk and I'm happy to have money in it.

Set up a Roth IRA and invest in a fund like this.  And once you max out your year's contribution you can also set up another non-IRA brokerage account and put more money into the same fund but it's subject to normal capital gains taxes without deferment.


You can choose if dividends reinvest.  Usually you would want to do that unless you're using the dividends for living income.

I do understand what you guys are saying about the risk, but farming is somewhat volatile in and of itself. I'd prefer my extra investments to be very safe, even with lower yield. Does that make sense? Or can you talk me into a riskier viewpoint?

You are young so you should be taking more risk as far as investing goes but you are still playing the long game so you don't have to look at it every day.  It really depends on what type of investment you go with.

On the other hand there is the old Know your customer thing.  He's new to the game and isn't ready for the additional risk.

I have an acount with Charles schwab, the dividends are paid quarterly and reinvests directly into the stock. A different brokerage like robinhood will not reinvest the cash, only payout.

At your age, I would begin axing out a Roth IRA each year, as it's only $5,500. Stick with a mutual fund or ETF with low fees, like .20% and under.

I don't care what kind of volatile work you're in, fund your Roth to the max if it fits your budget. Make it a priority.
I can tell you with certainty all of us that now see the power of compounding, wish we took our own advice 20 years ago.

Remember, we are investing, not trading. Look at the companies a fund holds in its portfolio, do you recognize the names? Do you see a world/country without those companies? That should tell you if you should feel at ease about buying that fund. Large cap (growth) funds, are very stable, but won't have the volatility of a small cap, which is riskier, emerging companies.

Should I just open a Roth IRA with my local bank? Or is there a preferred company offering them?

Do this.

Call Vanguard or go online, open an account and either send them a check or, once you set up your banking information, you can transfer the funds to (and from when required) Vanguard.

VOO (ticker symbol for Vanguard’s S&P500 index ETF* is what you want.  $3,000 minimum initial investment IIRC.

When you open your account, you will set up ownership and your beneficiaries; that is how ownership is established.

Dividends (which will be something like 2%/year paid quarterly can be reinvested or deposited as cash in your account.  I would reinvest the dividends since you won’t be getting enough cash to really do anything with.

* There are two kinds of mutual funds; traditional mutual funds and Exchange Traded Funds.  They are both the same ( hold essentially identical stocks at Vanguard) except that mutual funds can’t be traded during the day.  One buys and sells them at the closing price which is established at the end of each trading day.

ETFs trade intraday like a stock and one can enter limit and other types of orders which can be executed during the trading day (when the markets are open).

As a low risk, long term investor you might say “why do I need the extra trading ability of an ETF?” and normally you wouldn’t.  Overall, ETFs are more flexible and if you want to buy/sell at s given time and/or price, you can do so.  With a mutual fund there is one price/day, the closing price and you buy/sell at that price.

Onc you establish a base/core portfolio (value is subjective, but something like $10k-50k, then start adding diversifying ETFs with additional investments.

One thing that has alr been mentioned is a Roth IRA.  ARFCOM hates Roths so you will read a lot of negative things about them but, if you are really looking to do something for your children, the Roth is the way to go.

With a Roth IRA you make contributions with after tax dollars, the earnings are never taxed, and if inherited by your children, will not be taxable to them, either.

The only reason not to go Roth over traditional IRA, and even this isn’t a strong argument against the Roth, is that if the up to $13k ($6,500 each for you and your spouse) will put you in a lower tax bracket and/or otherwise qualify you for some other tax benefit (like earned income and/or child tax credits [but at $120k you won’t qualify for them]).

You’re doing the right things:  starting early and asking questions.

Go to Fidelity or Vanguard for their low fee ETF's and mutual funds. Open a Roth IRA and max it out. Look at VOO or VTI if you go with Vanguard.

AT 21 I would be investing at least half in high risk shit like werewolf serums and flying cars, the other half feel free to invest like an old man.

I used to be a pretty good trader. I won 2 college econ stock competitions while still in high school and using 40 to 80 grand of my own money along side it.

My 2 cents would be to invest in more farm land,  cattle,  or rentals.  The tax shelter is too good. I do very little in the market these days.  

My returns on our farm,  rentals and other businesses are much much greater.

Just this year i bought an auto shop with my brother.  We had to put 20 grand down and financed the rest through the seller.  We would have to really botch it not to clear 150 after servicing debt next year.  Not everything is a home run and ive went under once before but the good is really good.  By 34 ill have complete financial freedom.

Am I missing something? Not saying VOO isn't a good index fund, but it's over $200/share.

There's alternatives for sure.

Farm income on a schedule F qualifies for a solo 401K since you are self-employed.  If you have employees, you'll need to go the SEP route.

My advice is to setup a solo 401K (I set mine up through Vanguard) and plow as much cash into it as your maximum will allow based on your Schedule F (18K on the employee side and 20% of the farm's net income for the employer side.)  That money can then be deducted from your Federal tax.  So you are meeting your goal of investing while reducing your taxes at the same time.

As a SE individual, it's my most valuable deduction and I max it out every year.

I don't see the issue with $200/share.

How does one invest in farms or livestock if. Ot an actual farmer?

Do you have a Fidelity investment center nearby? If so go talk to a financial planner.

Well, if he does a Roth IRA, it’s only 23.5 shares per year.

I'm planning to expand into cattle after I graduate, in order to make use of a fair fraction of our land which is not suitable for cash crops. I honestly had not considered investing in local businesses. To be frank, most small businesses in my area are not very well run, and the owners don't make very much money.

@Fella

Can you elaborate on investing in farms? My wife’s grandfather is willing to sell us his farm, 110 acres, of which 80 acres is rented out.

He rents it out for $140/acre, it’s just a corn and soybean farm. How can we make it profitable, when cropland goes for $5k an acre in his county?

I would talk with Fidelity. They'll get you setup.  I've been very happy with them for my latest 401k.

Read the Bogleheads Guide to Investing and The Four Pillars of Investing.

If you PM me and promise to read them after getting them I will pay you full price to send me your copies so I can pass along to someone else.

Share price is completely meaningless way to compare index funds. Expense ratios is all that matters.

Expense ratios and holdings.

Can you elaborate on this, from a teacher viewpoint?

Roth IRA isn't a bad option imo.

The overhead cost of the index fund is what drives your long term expense/loss.  If the index funds are buying similar asset classes returns will proportionally be the same.  If two ETF's are S&P 500 mirrors, one costs $200/share and the second costs $50/share, the share cost is practically irrelevant.  What matters is how much load is on the ETF.  VOO costs .04%/yr in overhead. Fidelity also has a good low-load fund (I think it's called IVW and has a .18% expense ratio).  The only downside to $200/share is you have to buy in slightly larger blocks.

If you have a Vanguard account you can buy sell Vanguard ETF's for free.  So just keep contributing weekly/monthly and purchase another share every time you have enough to add one.

THIS RIGHT HERE !!!!!!!

Get started, you will learn as you go.

DO IT NOW !!!

Don't go to a private bank, you can control your investments from your comp or smart phone with Vanguard, much easier than a bank.

This gets really convoluted but this is what i do with land.

I lease all of our land to a farmer, 2/3 1/3 split which is normal here. I used to run cattle and farm part time but im a shitty farmer and just dont have time anyway.

I buy land, mostly family land with cash or only borrow a smaller portion so it will cashflow and then use the available equity as collateral in lieu of cash down on rental units. I can then buy those rentals with no money down as opposed to 25% down like the other properties.

It helps me diversify, shelter from taxes, and one day realize gains from appreciation. Also, farming as "retirement"was my dream, my passion project. Now im thinking much differently but its important to keep it in the family.

My family used to farm 4500 acres when that was a big deal. Another local family farmed 3000 at the same time. They were savvy. Now they farm 45,000 and own 60,000 cows. My family farms 2500 now.

I have some huge convoluted 10 page packet of figures on why this is a good idea but the numbers come out different every time.

At the end of the day, my operation makes money and its a family passion project. Very important to myself and my mother. My mom never had much and is a great person so i would do anything to give her the things that make her happy in the last 25 years of her life. She never thought she would have anything in life, the money we've made in the last 4 years alone was more than she thought she would ever make so as long as the company gets me where i want to go, my mom and brothers get to pick and choose even thought im the final decision.

I pride myself on being a dettached finance and numbers guy but i honestly dont know if this is better than just putting it straight into rentals and the value of "diversity" cant really be quantified.

In my area, if you farm yourself, my figures show you need 3 acres of paid off land to cashflow the note on one acre of financed land. I.e. the income from those 4 acres will pay the note on the one you borrowed money for.

That isnt worth a goddamn as an investment. It sounds like your area may be similar.

Disclaimer: we have multiple profitable businesses feeding the land and real estate which are leveraged heavily and cash flow negative at times but always profitable on paper. I also take money from my day job every month to put into the company and the company owes me a decent sum of money that i havent taken a dime of and wont until next year.

Does it make sense to purchase and hold these in a standard trading account, or only in an IRA?  So instead of buying VWIGX for ex. through IRA, just buy like it is a normal stock to trade?

Use it to pay off debt first
then if anything is left over invest in a growth mutual fund
also are you just planning to be a farmer for life? If so why bother with college? Hardcore waste of money unless you have a specific career firled in mind that requires a degree. Trust me, the 8-5 rat race sucks, if you can make six figures doing your own thing do it!

No debt. I started off in college because I thought I wanted to be an engineer, and changed my mind later. Now I'm just going to finish it out for a fall back career.

Knowing that you want to do something is half the battle.  I try to get my two kids and the Fiance four kids understanding about investing.  My youngest son just turned 17 and has worked for publix over a year - So every quarter I now help him buy some publix stock (Publix is a very sucessful hight in southern grocery chain).  I am helping him by having him do something early....

I would recomented that you start reading/studying - recomended "the millionare next door"  "more milloionare next door"  "un-tapped riches - never pay off your mortage"  Do the Dave Ramsey course - get into his books - glean what he puts out there.  

If you are taking in 120K - how much of that do you get to keep?  Go find a good accountant  he can guide you to the advantages for an S corp or LLC  - the reason is that you can do things in a INC. that you can not do as a private person.  IE - put up more of your earnings and not having Uncle Sam take his cut first.

Make sure that you have a cash reserve (rainy day fund).  Then do the investments - at the very least - a roth - inside of that have fun. (see above if there is a pretax investment that would be better for you).

I hope this helps....


Red

Bitcoin

Funny enough, I just bought a little bitcoin for the first time. 30 bucks worth, just in case it goes to a million per coin.

open a wealthfront account  they will manage with no fees for first 15 k i think

One fund I have that has been performing well is Fidelity's FUSEX.  $2500 minimum buy-in, 0.09% fees, 16.15% YTD, 14.13% @ 5yrs, and 7.36% @ 10yrs.

If you're willing to put in more Fidelity has FUSVX.  10k min, but the fees drop to 0.035% and performance numbers are nearly identical.

Another member recommended those to me about a year ago, thought I'd pass it along.

I have a T-Rowe Price account, my Roth IRA is doing really well. If you are interested I can look up the funds I am using, but they are Index funds.

Dumping a little bit of money into a Roth from every paycheck is a nice way to go.

Thank you for your replies. I will be going to my bank tomorrow to see about opening a Roth IRA. I'd like to invest 5 to 10k this fall, including a certain amount of silver and gold.

I started off with a Vanguard target retirement fund until I learned more about investments.  It’s a good start.

Gold is often viewed as a "Safe" investment but there are a lot of downsides. Just ask people who bought peak gold back in 2011. It peaked at $1900/ oz and right now it's about $1290/oz.
It's a hassle to buy and sell real gold (and selling it costs money). You pay MORE for real gold than it's worth to get a coin.  


Roth IRAs have a yearly cap on how much you can put it. I think it's around 5k per individual.

ETA: Trowe Price funds- my best performer is TRBCX Blue Chip Growth.  It's averaged 10.77% growth (lifetime average- over 10 years) and it's been almost 19% for the last 4 years.

I absolutely don't consider gold to be an investment, but as a store of value. I'm not a wild doomsday prophesier, but every fiat currency ever devised has crashed and burned.