I am a 24 year old single man and I recently graduated from college. I have a job but not a 401 (k) match so my dad suggested starting a Roth IRA. I have no idea how to invest it.
My dad says I've had to take risks since I was young. He suggested some marijuana and silver stocks that he made money off of. But that seems too risky to me. My father doesn't invest in investments and I don't think he knows much about it. I don't make enough to hire a financial advisor. Does my father give me bad advice?
Your father loves you and wants the best for you. But that doesn't mean he knows anything about investing.
Your father's suggestion to open a Roth IRA was a good one. If you forego a tax break now, you will receive tax-free income in retirement. But it sounds like your dad doesn't know exactly what investment risks beginners should take.
So you start off by investing mostly in stocks that tend to be high risk / reward and then gradually investing more money in bonds that are safer but offer little growth. If you have a few decades left to retire, your money will have time to recover from a stock market crash.
However, if you only invest in a few stocks, the risk of losing it all is significant. Your investments may never recover if things go south. There may be no more money left to recover. You never want the savings of your life to be tied to the fate of one or two businesses.
Both the silver and marijuana industries are particularly volatile. The price of silver fluctuates widely for a variety of reasons. On the one hand, more than half of the silver is obtained as a by-product of the mining of other metals such as gold, copper or zinc. It's all about supply and demand: the supply of silver doesn't move up and down with changes in demand, so prices are turbulent. With marijuana, you have a lot of political rulings about when and where marijuana becomes legal, and many businesses are small with no proven track record.
That doesn't mean you should never invest in silver or marijuana. However, you should only do this if you already have a diversified portfolio and are starting out with a relatively small amount. And never use your retirement funds for this type of speculative investment.
The best way to invest is to distribute your money through the stock market. You don't need a financial advisor here. You can do this with a Total Stock Market Index Fund, which invests you across the stock market, or an S&P 500 Index Fund, which invests you in 500 of the largest companies in the US. You can also take off the guesswork entirely and use a robo-advisor. Your brokerage firm uses an algorithm to invest your money according to your age, goals, and the risk you want to take.
If you do decide to choose your own investments once your feet are wet, it is important that you only do so after you have researched the investment yourself. Don't make decisions based on just what someone else is saying, whether that person is your father or a counselor or a stranger on Reddit.
If, after doing your own research, you decide you want to invest in silver or marijuana, it is safer to invest in an exchange traded silver or marijuana fund or ETF. Your money would be invested in a number of companies across the industry, rather than focusing on a single company. However, I would only recommend doing this after you have some investment experience – and only if you are limiting your investment to 5% to 10% of your portfolio.
They don't tell you how old your father is or if you know anything about his finances. To be honest, if he's interested in high-risk investments, I'm more concerned about your father's retirement savings than yours.
Since you're already talking about your retirement, this could be a good time to start a conversation about how well your father is prepared for his retirement. I'm not asking you to play a financial advisor here. But even just asking your dad when he wants to retire and whether he feels ready is good conversation.
As for your father's stock picks, I think if you say, "Thank you, I'll check it out", I think you'll probably be fine. You are an adult and do not need to provide a copy of your brokerage statement to your father.
Robin Hartill is a certified financial planner and senior writer at The Penny Hoarder. Send your tricky money questions to (email protected)
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