Does this plan make any sense for early 20s investments?
The plan doesn't make sense.  Don't invest your money. Just keep it in your bank account. $5000 is not a lot, especially since you don't have a steady income stream. You only have $1000 to your name, you can't afford to gamble $4000. You will need it for things like food, books, rent, student loans, traveling, etc. If you don't get a job right after you graduate, you will be very happy to have some money in the bank. Or what if you get a dream job, but you need a car?  Or you get a job at a suit & tie business and need to get a new wardrobe? Or your computer dies and you need a new one? You find a great apartment but need $2500 first, last & security? That money can help you out much more NOW when you're starting out, then it will when you're ready to retire in your 60's. "I'm not following what's the meaning of ""open a mutual fund"". You don't open a mutual fund, you invest in it. There's a minimum required investment ($2000? Could be, some funds have lower limits, you don't have to go with the Fidelity one necessarily), but in general it has nothing to do with your Roth IRA account. You can invest in mutual funds with any trading account, not just Roth IRA (or any other specific kind). If you invest in ETF's  - you can invest in funds just as well (subject to the minimums set). As to the plan itself - buying and selling ETF's will cost you commission, ~2-3% of your investment. Over several months, you may get positive returns, and may get negative returns, but keep in mind that you start with the 2-3% loss on day 1. Within a short period of time, especially in the current economic climate (which is very unstable - just out of recession, election year, etc etc), I would think that keeping the cash in a savings account would be a better choice. While with ETF you don't have any guarantees other than -3%, then with savings accounts you can at least have a guaranteed return of ~1% APY (i.e.: won't earn much over the course of your internship, but you'll keep your money safe for your long term investment). For the long term - the fluctuations of month to month don't matter much, so investing now for the next 50 years - you shouldn't care about the stock market going 10% in April. So, keep your 1000 in savings account, and if you want to invest 5000 in your Roth IRA - invest it then. Assuming of course that you're completely positive about not needing this money in the next several decades." I would wait, and invest that money in a Roth IRA. Because taxes are paid on the contributions to a Roth IRA, you can withdraw the contributions at any time, tax and penalty-free. In addition, you can withdraw contributions and earning to purchase your first home. I think it's great idea.  Many large brokerages give customers access to a pretty sizable list of zero commission, zero load funds.  In this list of funds will certainly be an S&P 500 index.  So you can open your account for free, deposit your $1,000 for free and invest it in an S&P index for no cost.  You'll pay a very negligible amount in annual expense fees and you'll owe taxes on your gain if you have to use the money.  I don't follow the school of thought that all investment money should be in retirement account jail. But I think if you have your spending under control, you have your other finances in order and just want to place money somewhere, you're on the right track with this idea.
"the mortgage interest deduction alone couldn't make this work, but if you realize less income by living off the mortgage funds, then it could definitely reduce your taxes by much more than the cost of the mortgage interest.  particularly, if you are waiting for some future cut-off date (e.g. turning 59.5 and getting access to roth funds, turning 70 and getting social security, simply doing a roth conversion with strategic recharacterization at age 40 and waiting 5 years to get the money out penalty-free, etc.).  and that future date could be quite far off if you only use a small fraction of the total mortgage each year. plus, it is fairly reasonable to assume that equity market returns will outpace mortgage rates, especially if you are ""rich"" and don't need to worry about living on the street even if the market hits unprecedented lows.  while i find most financial advisers to be incompetent (most people really...), i wouldn't write this guy off, just because he left out the specific details that made the strategy work for one particular client." "You have a few correlated questions here:  Yes you can. There are only a few investment strategies that require a minimum contribution and those aren't ones that would get a blanket recommendation anyway. Investing in bonds or stocks is perfectly possible with limited funds. You're never too young to start. The power of interest means that the more time you give your money to grow, the larger your eventual gains will be (provided your investment is beating inflation). If your financial situation allows it, it makes sense to invest money you don't need immediately, which brings us to: This is the one you have to look at most. You're young but have a nice chunk of cash in a savings account. That money won't grow much and you could be losing purchasing power to inflation but on the other hand that money also isn't at risk. While there are dozens of investment options1 the two main ones to look at are: bonds: these are fixed income, which means they're fairly safe, but the downside is that you need to lock up your money for a long time to get a better interest rate than a savings account index funds that track the market: these are basically another form of stock where each share represents fractions of shares of other companies that are tracked on an index such as the S&P 500 or Nasdaq. These are much riskier and more volatile, which is why you should look at this as a long-term investment as well because given enough time these are expected to trend upwards. Look into index funds further to understand why. But this isn't so much about what you should invest in, but more about the fact that an investment, almost by definition, means putting money away for a long period of time. So the real question remains: how much can you afford to put away? For that you need to look at your individual situation and your plans for the future. Do you need that money to pay for expenses in the coming years? Do you want to save it up for college? Do you want to invest and leave it untouched to inspire you to keep saving? Do you want to save for retirement? (I'm not sure if you can start saving via IRAs and the like at your age but it's worth looking into.) Or do you want to spend it on a dream holiday or a car? There are arguments to be made for every one of those.  Most people will tell you to keep such a ""low"" sum in a savings account as an emergency fund but that also depends on whether you have a safety net (i.e. parents) and how reliable they are. Most people will also tell you that your long-term money should be in the stock market in the form of a balanced portfolio of index funds. But I won't tell you what to do since you need to look at your own options and decide for yourself what makes sense for you. You're off to a great start if you're thinking about this at your age and I'd encourage you to take that interest further and look into educating yourself on the investments options and funds that are available to you and decide on a financial plan. Involving your parents in that is sensible, not in the least because your post-high school plans will be the most important variable in said plan. To recap my first point and answer your main question, if you've decided that you want to invest and you've established a specific budget, the size of that investment budget should not factor into what you invest it in. 1 - For the record: penny stocks are not an investment. They're an expensive form of gambling." I have a similar plan and a similar number of accounts.   I think seeking a target asset allocation mix across all investment accounts is an excellent idea. I use excel to track where I am and then use it to adjust to get closer (but not exactly) to my target percentages. Until you have some larger balances, it may be prudent to use less categories or realize that you can't come exactly to your percentages, but can get close.   I also simplify by primarily investing in various index funds.  That means that in my portfolio, each category has 1 or 2 funds, not 10 or 20. "Answers: 1. Is this a good idea? Is it really risky? What are the pros and cons? Yes, it is a bad idea. I think, with all the talk about employer matches and tax rates at retirement vs. now, that you miss the forest for the trees. It's the taxes on those retirement investments over the course of 40 years that really matter. Example: Imagine $833 per month ($10k per year) invested in XYZ fund, for 40 years (when you retire). The fund happens to make 10% per year over that time, and you're taxed at 28%. How much would you have at retirement? 2. Is it a bad idea to hold both long term savings and retirement in     the same investment vehicle, especially one pegged to the US stock     market? Yes. Keep your retirement separate, and untouchable. It's supposed to be there for when you're old and unable to work. Co-mingling it with other funds will induce you to spend it (""I really need it for that house! I can always pay more into it later!""). It also can create a false sense of security (""look at how much I've got! I got that new car covered...""). So, send 10% into whatever retirement account you've got, and forget about it. Save for other goals separately.  3. Is buying SPY a ""set it and forget it"" sort of deal, or would I need     to rebalance, selling some of SPY and reinvesting in a safer vehicle     like bonds over time? For a retirement account, yes, you would. That's the advantage of target date retirement funds like the one in your 401k. They handle that, and you don't have to worry about it. Think about it: do you know how to ""age"" your account, and what to age it into, and by how much every year? No offense, but your next question is what an ETF is! 4. I don't know ANYTHING about ETFs. Things to consider/know/read? Start here: http://www.investopedia.com/terms/e/etf.asp 5. My company plan is ""retirement goal"" focused, which, according to     Fidelity, means that the asset allocation becomes more conservative     over time and switches to an ""income fund"" after the retirement     target date (2050). Would I need to rebalance over time if holding     SPY? Answered in #3. 6. I'm pretty sure that contributing pretax to 401k is a good idea     because I won't be in the 28% tax bracket when I retire. How are the     benefits of investing in SPY outweigh paying taxes up front, or do     they not? Partially answered in #1. Note that it's that 4 decades of tax-free growth that's the big dog for winning your retirement. Company matches (if you get one) are just a bonus, and the fact that contributions are tax free is a cherry on top. 7. Please comment on anything else you think I am missing I think what you're missing is that winning at personal finance is easy, and winning at personal finance is hard" "There's a few layers to the Momentum Theory discussed in that book. But speaking in general terms I can answer the following: Kind of. Assuming you understand that historically the Nasdaq has seen a little more volatility than the S&P. And, more importantly, that it tends to track the tech sector more than the general economy.  Thus the pitfall is that it is heavily weighted towards (and often tracks) the performance of a few stocks including: Apple, Google (Alphabet), Microsoft, Amazon, Intel and Amgen.  It could be argued this is counter intuitive to the general strategy you are trying to employ. This could be tougher to justify.  The reason it is potentially not a great idea has less to do with the fact that gold has factors other than just risk on/off and inflation that affect its price (even though it does!); but more to do with the fact that it is harder to own gold and move in and out of positions efficiently than it is a bond index fund.   For example, consider buying physical gold.  To do so you have to spend some time evaluating the purchase, you are usually paying a slight premium above the spot price to purchase it, and you should usually also have some form of security or insurance for it.  So, it has additional costs.  Possibly worth it as part of a long-term investment strategy; if you believe gold will appreciate over a decade. But not so much if you are holding it for as little as a few weeks and constantly moving in and out of the position over the year. The same is true to some extent of investing in gold in the form of an ETF.  At least a portion of ""their gold"" comes from paper or futures contracts which must be rolled every month.  This creates a slight inefficiency.  While possibly not a deal breaker, it would not be as attractive to someone trading on momentum versus fundamentals in my opinion. In the end though, I think all strategies are adaptable.  And if you feel gold will be the big mover this year, and want to use it as your risk hedge, who am I or anyone else to tell you that you shouldn't." "I don't think you have your head in the right space - you seem to be thinking of these lifecycle funds like they're an annuity or a pension, but they're not. They're an investment. Specifically, they're a mutual fund that will invest in a collection of other mutual funds, which in turn invest in stock and bonds. Stocks go up, and stocks go down. Bonds go up, and bonds go down. How much you'll have in this fund next year is unknowable, much less 32 years from now. What you can know, is that saving regularly over the next 32 years and investing it in a reasonable, and diversified way in a tax sheltered account like that Roth will mean you have a nice chunk of change sitting there when you retire. The lifecycle funds exist to help you with that ""reasonable"" and ""diversified"" bit.They're meant to be one stop shopping for a retirement portfolio. They put your money into a diversified portfolio, then ""age"" the portfolio allocations over time to make it go from a high risk, (potentially) high reward allocation now to a lower risk, lower reward portfolio as you approach retirement. The idea is is that you want to shoot for making lots of money now, but when you're older, you want to focus more on keeping the money you have. Incidentally, kudos for getting into seriously saving for retirement when you're young. One of the biggest positive effects you can have on how much you retire with is simply time. The more time your money can sit there, the better. At 26, if you're putting away 10 percent into a Roth, you're doing just fine. If that 5k is more than 10 percent, you'll do better than fine. (That's a rule of thumb, but it's based on a lot of things I've read where people have gamed out various scenarios, as well as my own, cruder calculations I've done in the past)" If you're sure you want to go the high risk route: You could consider hot stocks or even bonds for companies/countries with lower credit ratings and higher risk. I think an underrated cost of investing is the tax penalties that you pay when you win if you aren't using a tax advantaged account. For your speculating account, you might want to open a self-directed IRA so that you can get access to more of the high risk options that you crave without the tax liability if any of those have a big payout. You want your high-growth money to be in a Roth, because it would be a shame to strike it rich while you're young and then have to pay taxes on it when you're older. If you choose not to make these investments in a tax-advantaged account, try to hold your stocks for a year so you only get taxed at capital gains rates instead of as ordinary income. If you choose to work for a startup, buy your stock options as they vest so that if the company goes public or sells privately, you will have owned those stocks long enough to qualify for capital gains. If you want my actual advice about what I think you should do: I would increase your 401k percentage to at least 10% with or without a match, and keep that in low cost index funds while you're young, but moving some of those investments over to bonds as you get closer to retirement and your risk tolerance declines. Assuming you're not in the 25% tax bracket, all of your money should be in a Roth 401k or IRA because you can withdraw it without being taxed when you retire.  The more money you put into those accounts now while you are young, the more time it all has to grow. The real risk of chasing the high-risk returns is that when you bet wrong it will set you back far enough that you will lose the advantage that comes from investing the money while you're young. You're going to have up and down years with your self-selected investments, why not just keep plugging money into the S&P which has its ups and downs, but has always trended up over time? First, welcome to Money.SE. If you are interested in saving and investing, this is a great site to visit. Please take the tour and just start to read the questions you find interesting.  1 - even though this is hypothetical, it scales down to an average investor. If I own 1000 shares of the 1 billion, am I liable if the company goes under? No. Stocks don't work that way. If all I have is shares, not a short position, not options, I can only see my investment go to zero.  2 - Here, I'd ask that you edit your country in the tags. I can tell you that my newborn (who is soon turning 17) had a stock account in her name when she was a few months old. It's still a custodian account, meaning an adult has to manage it, and depending on the state within the US, the age that it's hers with no adult, is either 18 or 21. Your country may have similar regional rules.  Also - each country has accounts specifically geared toward retirement, with different favorable rules regarding taxation. In the US, we have accounts that can be funded at any age, so long as there's earned income. My daughter started one of these accounts when she started baby sitting at age 12. She will have more in her account by the time she graduates college than the average retiree does. It's good for her, and awful for the general population that this is the case. "While you want it to grow faster than inflation, there are things like I-bonds that can carry some inflation protection with them for an idea that may make sense for part of this. There are now some more details and I'd think this seems alright initially though I would suggest considering having some kind of on-going plan to handle periodically seeing how much more to invest here and what kind of taxes will this generate for you as taxable accounts can carry a mix of dividends, interest and capital gains that you may have to pay even though you didn't see the gain yourself. Keep in mind that if you do go with a big-name investment bank, this could well add more fees as well as other stuff.  Lehman Brothers was a big name investment bank once upon a time and they went broke.  While you may want to be hands-off, I'd still suggest having some kind of timeline for how often are your investments to be reviewed and things re-allocated.  Each quarter, semi-annually, or annual?  There isn't so much a right or wrong answer here as much as I'd point out that one should be aware of the trade-offs in each case.  If you take annual and wonder each week how it is doing, then something a bit more frequent may make sense.  On the other hand, some people may well ""set it and forget it"" which can work as long as there is something to know about where to go if something does go broke.  As these are managed investments, the SIPC check I'd make may not hold though this would be the equivalent of FDIC for deposits when dealing with securities. The REIT can be useful for diversification, sure.  You do realize that there may be some interesting taxes for you in the next few years given the nature of a REIT investment, right?  The ""Return of Capital"" that a REIT may pass through as a REIT to maintain its tax status must distribute 90% of its net income each year that can be quite a off shoot of funds.  Where would those proceeds be invested?  This isn't mentioned in your post and thus I'm curious as if the REIT passes out a dividend yield of say 5% then this is $2,000/year that could go somewhere." Googling vanguard target asset allocation led me to this page on the Bogleheads wiki which has detailed breakdowns of the Target Retirement funds; that page in turn has a link to this Vanguard PDF which goes into a good level of detail on the construction of these funds' portfolios. I excerpt: (To the question of why so much weight in equities:) In our view, two important considerations justify an expectation of an   equity risk premium. The first is the historical record: In the past,   and in many countries, stock market investors have been rewarded with   such a premium.  ... Historically, bond returns have lagged equity returns by about 5–6   percentage points, annualized—amounting to an enormous return   differential in most circumstances over longer time periods.   Consequently, retirement savers investing only in “safe” assets must   dramatically increase their savings rates to compensate for the lower   expected returns those investments offer. ... The second strategic principle underlying our glidepath   construction—that younger investors are better able to withstand   risk—recognizes that an individual’s total net worth consists of both   their current financial holdings and their future work earnings. For   younger individuals, the majority of their ultimate retirement wealth   is in the form of what they will earn in the future, or their “human   capital.” Therefore, a large commitment to stocks in a younger   person’s portfolio may be appropriate to balance and diversify risk   exposure to work-related earnings (To the question of how the exact allocations were decided:) As part of the process of evaluating and identifying an appropriate   glide path given this theoretical framework, we ran various   financial simulations using the Vanguard Capital Markets Model. We   examined different risk-reward scenarios and the potential   implications of different glide paths and TDF approaches. The PDF is highly readable, I would say, and includes references to quant articles, for those that like that sort of thing. "Consultant, I commend you for thinking about your financial future at such an early age. Warren Buffet, arguably the most successful investor ever lived, and the best known student of Ben Graham has a very simple advice for non-professional investors:  ""Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)"" This quote is from his 2013 letter to shareholders. Source: http://www.berkshirehathaway.com/letters/2013ltr.pdf Buffet's annual letters to shareholders are the wealth of useful and practical wisdom for building one's financial future. The logic behind his advice is that most investors cannot consistently pick stock ""winners"", additionally, they are not able to predict timing of the market; hence, one has to simply stay in the market, and win over in the long run." Dollar Cost Averaging would be the likely balanced approach that I'd take. Depending on the size of the sum, I'd likely consider a minimum of 3 and at most 12 points to invest the funds to get them all working. While the sum may be large relative to my net worth, depending on overall scale and risk tolerance I could see doing it in a few rounds of purchasing or I could see taking an entire year to deploy the funds in case of something happening. I'd likely do monthly investments myself though others may go for getting more precise on things. "First, congratulations on choosing to invest in low cost passively managed plans. If you choose any one of these options and stick with it, you will already be well ahead of most individual investors. Almost all plans will allow you to re-balance between asset classes. With some companies, sales agents will encourage you to sell your overweighted assets and buy underweighted assets as this generates brokerage commissions for them, but when you only need to make minor adjustments, you can simply change the allocation of the new money going into your account until you are back to your target weights. Most plans will let you do this for free, and in general, you will only need to do this every few years at most. I don't see much reason for you to be in the Target funds. The main feature of these plans is that they gradually shift you to a more conservative asset allocation over time, and are designed to prevent people who are close to retirement from being too aggressive and risking a major loss just before retirement. It's very likely that at your age, most plans will have very similar recommendations for your allocation, with equities at 80% or more, and this is unlikely to change for the next few decades. The main benefits of betterment seems to be simplicity and ease of use, but there is one concern I would have for you with betterment. Precisely because it is so easy to tweak your allocation, I'm concerned that you might hurt your long-term results by reacting to short-term market conditions: I know I said I wanted a hands off account, but what if the stock market crashes and I want to allocate more to bonds??? One of the biggest reasons that stock returns are better than bond returns on average is that you are being paid to accept additional risk, and living with significant ups and downs is part of what it means to be in the stock market. If you are tempted to take money out of an asset class when it has been ""losing/feels dangerous"" and put more in when it is ""winning/feels safe"", my concerns is that you will end up buying high and selling low. I'd recommend taking a look at this article on the emotional cycle of investing. My point is simply that it's very likely that if you are moving money in and out of stocks based on volatility, you're much less likely to get the full market return over the long term, and might be better off putting more weight in asset classes with lower volatility. Either way, I'd recommend taking one or more risk tolerance assessments online and making sure you're committed to sticking with a long-term plan that doesn't involve more risk than you can really live with. I tend to lean toward Vanguard Life Strategy simply because Vanguard as a company has been around longer, but betterment does seem very accessible to a new investor. Best of luck with your decision!" Thanks for the huge insight. I am still a student doing an intern and this was given as my first task, more of trying to give the IA another perspective looking at these funds rather than picking. I was not given the investors preference in terms of return and risk tolerances so it was really open-ended.   However, thanks so much for the quick response. At least now I have a better idea of what I am going to deliver or at least try to show to the IA. If it's money you can lose, and you're young, why not?  Another would be motifinvesting where you can invest in ideas as opposed to picking companies. However, blindly following other investors is not a good idea.  Big investors strategies might not be similar to yours, they might be looking for something different than you.  If you're going to do that, find someone with similar goals. Having investments, and a strategy, that you believe in and understand is paramount to investing.  It's that belief, strategy, and understanding that will give you direction.  Otherwise you're just going to follow the herd and as they say, sheep get slaughtered.