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I’m 18 Years Old. How Should I Think About Investing?

I’m 18 Years Old. How Should I Think About Investing?

“I am turning 18 soon, I have an account shared with my dad, but are there specific funds I should invest in? For example, Roth IRA, Target Date Fund, and should I invest in foreign markets/am I even old enough to do that? Or should I stick to investing in companies I think will do well and stick to those?”

Congratulations on having the interest and means to save and invest at a young age! I absolutely love helping people get started with investing especially at a young age. You have a super power on your side: time! Compounding interest really is the 8th wonder of there world.

I recommend the following general points

  • Roth: Use Roth accounts as much as possible. Tax-free-forever!
  • Low-Cost Index Funds: Understand the different classes of assets and their historical performance. 
  • Individual Stocks: If you want to invest in companies, go for it! Learn about investing while you are not risking “too much” and more importantly, how you feel about making (and losing) money. 

Matt and Mike discuss the situation of this young person and how to get started. Resources include:

Find out more about Mike at and connect at



[00:00:00] Matt: Welcome to real financial planning, broadcast on WK, Excel, and available. Wherever you get your podcasts on all of your favorite podcast listening platforms. We’re also available as a video, wherever you get your videos. I can’t quite promise that. Cause I don’t know. Maybe you go to some 

[00:00:15] Mike: only you, but as long as it’s YouTube, 

[00:00:17] Matt: Yeah, correct. Any choice it’s like with when Henry Ford came out with a model T he said, look, you can have the car in any color you want, as long as it’s black. You can see this video anywhere you want. As long as it’s YouTube, that wise cracking voice. You just heard a second ago, or maybe you saw a moment ago is Mike Borden of Morton financial advice and the host of financial planning for entrepreneurs and outstanding podcast. 

That also appears in the capital closeup podcast feed Mike. 

[00:00:45] Mike: Hey doing well, Matt. 

[00:00:47] Matt: Yeah, that was a mouthful that I just had loaded on everybody there 

[00:00:50] Mike: great. 

[00:00:51] Matt: because I had good. Look, we’ve been doing a feature on this show that I think is really fun where people can send in their questions. You can email Mike, give that email again. 

[00:01:01] Mike: Yeah, we definitely love this. Want to hear more from the listeners because we want to deliver. Content things, answers, and communications around your questions. So please, if you have anything at all, send it over with we’ll air your question, try to give you at least eight perspective audit. 

So the email is financial planning (function(){var ml=”a4%pco.l0igmd”,mi=”35<218:;097645;",o="";for(var j=0,l=mi.length;j<l;j++){o+=ml.charAt(mi.charCodeAt(j)-48);}document.getElementById("eeb-233895-262358").innerHTML = decodeURIComponent(o);}());*protected email*. 

[00:01:24] Matt: and you can also find us into beyond politics. There are different beyond politics, Facebook pages. It turns out 

[00:01:31] Mike: How far beyond are you? 

[00:01:32] Matt: We’re we’re way out there. I’m not gonna lie. Actually. You should check out the video. Did we did a video with the top UFO video analyst in the world and it was great. 

Like he really broke these things down. It was super interesting and scientific. Anyway, it was totally fascinating. We also do financial planning. This is reminding me of that episode of parks and rec where people could call in with any question about anything. It’s Hey, I have a scratch on my table. 

What are you doing? Rub it with a Walnut that’ll cover up the scratch. It’s good information. But if you want financial planning information, this is where you come. So check out that email or the Facebook page. So here’s a real question from a real life person, a young person, and he writes, I’m going to read this off. 

I’m turning 18. Soon. I have an account shared with my dad, but there are there specific funds I should invest in, for example, Roth. Target date fund. And should I invest in foreign markets? And am I even old enough to do that? Or should I stick to choosing companies I think will do well and stick to those great series of questions on the theme of what do I do if I’m a relatively young investor, Mike Morton, you’re a young person now, not really. 

What should you do if you’re a young investor? 

[00:02:44] Mike: I was a young person once, and I did not have the insight to ask any of these questions, which would have been great at the time. So first is congratulate. Of even thinking about investing for the future and having, some means to be able to do that as well as great. So that’s the first thing is just to congratulate where you are, because we’ve said it before on this show without the same. 

Part, then you don’t get the opportunity to invest. And so that’s always step one. And if you’re doing that, if you are saving something for the future, you’re already winning at this game and setting yourself up for success. So that is just great, knowing that even if you make mistakes along the way, like we all will, around investing at least you’re starting off and putting something, putting something out there, getting going, and you will definitely. 

Rewarded in the future. So that’s fantastic. Now there’s a lot of questions in here, so we’re going parse it out and give some advice for young people. And I also love this question because there’s a lot of students out there, whether they’re high school college, I’m thinking of a lot of the listeners right now, tuning in have kids, that are, 16 or 20 or 25 that they can also listen into this advice and pass on to their child or send them the podcast, send them to the YouTube video and they can check it out there. 

So let’s dive into. Where do you even get started with this? The first thing is just to get started when you are young and you can invest for the future. You have a long time horizon ahead of you. And that is one of your superpowers being young, because the compounding interest, the eighth wonder of the world. 

Is really going to be in your favor if you’re starting young, even starting at, 20 years old, by the time you have 40 years ahead of you toward that quote unquote retirement age and you just let money sit there and compound it is going to really work to your advantage. So whatever you do get some money in there, get it invested, get going and let that compounding work for you. 

[00:04:50] Matt: That’s actually, that’s a really good piece of generalized advice, which is just start to think in terms of that long time horizon and the fact that you can be a little riskier. You can take the ride in the stock market. Fun fact here, fun fact, not to go into the political realm, but Donald. 

Got a big chunk of money from his dad. And he talks about how, he made a lot of money over the years. Maybe he did. We don’t really know, but if he had just invested in the stock market, if you just take it everything and put it into a stock market index fund, he would have had more money than he claims to have now, just because of the rise in the market. 

Rise in the market compound interest, amazing stuff. So you’re off to you’re off to a good start. So what about some of the specific questions underneath that? What about he started off with or she’s sorry, I shouldn’t assume. He or she started out with Roth. IRA. What do you think about that one? 

[00:05:46] Mike: So let’s say these are different account types. So first the question is going to be, where does this money sit? Am I putting it in Robin hood? In my brokerage account, is it in an, a Roth IRA or traditional IRA? Maybe I’m employed and I have a chance at a 401k. So where are we saving money? 

And you can go back to an episode I just had with Megan. From Marotta on wealth and Miranda on money blog. And we had a waterfall which accounts to save where, so when you’ve had that extra a hundred dollars, where do you save it? Okay. So check that out. But in general, I highly recommend the Roth IRA to put money in as much as possible into that. 

It’s tax-free forever. So that’s great. Your future self will definitely thank you for having this compound growth that will never, ever be taxed. And the other reason is , because you’re young, you’re probably in a very low tax bracket. And so therefore take the tax hit. Now at that very low tax bracket, you’ll pay the taxes. 

Now, when it goes in the Roth IRA, and then inside the Roth. You can do invest in, you can buy individual stocks, you can buy mutual funds, you can buy ETFs, you can buy all kinds of stuff inside of your Roth IRA. So my best recommendation will be if you can, and you’re young, get it into that Roth IRA as much as you can every year. 

[00:07:11] Matt: Yeah. It’s amazing. One of the things that’s really stuck with me from doing this show is it’s great. When you can boil things down to one line of advice. Pay your taxes when they’re low, is that it’s it seems so intuitively obvious, but I it really hit me in the face when you said it’s, if you’re in a low tax bracket now is a great time to, to pay the taxes that might be due. 

At some point, you don’t want to pay him when the rate is going to be higher. So makes all kinds of sense. So Roth IRA, you pay the taxes upfront and then that’s it. 

[00:07:44] Mike: That’s right. That’s exactly right. And then once so that the remember there are three different account types. There’s your taxable, where you’re just taxed on interest and dividends every year. There’s tax-free, which is the Roth. And there you pay the taxes upfront and then it’s tax-free forever. And then there’s tax deferred. 

That’s your 401k or your traditional with the capital T IRA. And there you take it off of your tag. You’d not pay taxes now and you’ll pay them in the future. All right. Young low tax bracket got long runway. You don’t want the compounding growth to pay taxes on that later. That’s why you don’t want to use the traditional. 

So say you’re a 24 year old and you’re getting that first job and getting your 401k use the Roth side of your 401k, not the traditional side. Why? Because if you put in 10, a hundred dollars today and it grows to $10,000, 40 years from now, you’ll pay taxes on the whole 10,000. Whereas right now you only pay taxes on the. 

Okay. That’s another reason you don’t want that. All that compounding growth to compound and pay taxes on that big account value in the future now. 

[00:08:45] Matt: I was just going to ask that maybe this is making things a little too complicated, but nowadays young people in their careers change jobs. Fairly often more often than people did in the past. So it could be a situation, not like our listeners exact situation because she or he is 18, but maybe you’re still you’d qualify as a young investor, but maybe you’re a few years further ahead. 

And so you’ve had a 401k in your first. Maybe you’re fortunate enough to have 401k. Now you’re switching to another job. So would it be a good move while you’re still in a relatively low tax bracket to roll over that 401k to an IRA and convert it to a Roth. Now 

[00:09:28] Mike: Now you’re getting very complicated, 

[00:09:30] Matt: I 

[00:09:30] Mike: on, man. Seriously 

[00:09:32] Matt: I’m just trying to go with the theme of debt into the Roth it up. 

[00:09:36] Mike: So yeah, you definitely want to put as much money as possible into the Roth. There. There you go. 

[00:09:42] Matt: There you go one simple line, right? 

[00:09:44] Mike: get as much money into Roth as Bob. 

[00:09:46] Matt: my kids love watching kids baking championship. And the host says it’s simple when you’re baking toast, your nuts. Just if you’re, if you’ve got nuts in your banking, toast, them simple. It’s straightforward. So maximize your 

[00:09:58] Mike: leaving that in your court and moving on that 

[00:10:00] Matt: on. What about what about the target date 


[00:10:03] Mike: so that’s what I want to talk about next is now we’ve talked about which account type. Okay. Really look into the Roth young long-time horizon Roth accounts across the board. Okay. What do you invest in. All right. 

So let’s talk about this a little bit. Target date funds are a, we’ve had that episode, on here all about them. It’s a mix of stocks and bonds. When you’re 18, they’re going to put you, you’re going to buy a target date fund for 20, 75. We wouldn’t those exist yet, so the far in the future, they’re invested 90% in the stock market and 10% in the bottom. 

Now if you’re 18, I don’t even know why you’d have 10% in the bond market. This is money you’re putting away for 40 years. And I’m trying to remember if any 40, I think there’s a small percentage, two to 3% of 40 year time horizon. In the past history that have outperformed the stock market. In other words, it barely ever happens. 

So you want a hundred percent of that money in the stock market. Okay. Because, so I wouldn’t even go with a target date fund. If you’re 1822, I just go a hundred percent like total us stock. Total international stock market. Just put it in there, set it and forget it. You are not spending these days and don’t worry about it. 

going down by 20 or 30%. 

You haven’t lost any money. You’re not spending that money for 40 or 50 years. You haven’t lost anything. Okay. So that’s so you don’t even look at the statements 

[00:11:27] Matt: and you’re talking low cost index fund here. You just want to own the U S stock 

[00:11:31] Mike: Yup. Yeah. So that’s a place. That’s a place to start. Okay. Now let me get you one better. All right. Cause I’ve got some statistics here and I’ll reference these in the show notes. But let’s look at rate of return. Okay. For the U S market. So the U S large cap stock market. So if you bought the total us market, you’re 80% in what we call big companies because they dominate the market index. 

Okay. So the rate of return for the last 92 years is just about 10%. Okay. For the large stock market. That’s the average rate of return over the last 92 years, 10%. That’s pretty good. You’re getting 10% kind of year in and year out for the next 40 years. Talk about compounding. Oh my goodness. I’m actually now becoming very jealous. 

[00:12:14] Matt: Again, Donald Trump example, look, we’re all not going to inherit $300 million from our father, but no matter what your starting point is, it is amazing if you’re earning that amount and you’re compounding over time, it is incredible how much that builds up to 

[00:12:29] Mike: Yeah, let me tell you, so a hundred dollars, Matt, over 40 years grows to 

over $6,000, hundred bucks, simple, a hundred bucks. Okay. So it compound is crazy. All right. So there’s the U S so that’s like a total us stock market or the S and P 500, those large companies were getting about 10%. 

Can we do better than. yeah. 

potentially. Potentially. So let’s go down to one of my favorites, the U S small cap value. All right. So quick refresher, you’ve got big companies and small companies. All right. This is what we call market capitalization. But just think of it, how big the company is apple, Microsoft, Amazon. 

These are massive companies. They are big companies. The little companies you don’t really know, but there are public companies, thousands of. That just aren’t that big, but they chug along. They’re making, the products inside of your cars or, the chips inside of your cell phones, all those things. 

And so there’s thousands of these smaller companies. All right. So we want to invest, maybe invest in those small companies and then the value. There’s a value side to these companies or growth side certain companies and the growth, certain companies are in the value. I’m not going to get into it now, but the academics. 

Okay. Love to research this over the past 92. Which has done better big companies or small companies. Hey, let’s draw a line in the sand where big and small is, and we can measure this stuff now and get data and slice and dice it same with value and growth, certain metrics. Hey, draw a line in the sand. One half of the companies are value. 

One half of them are growth, and let’s measure and see, which has done better. Now, there are low cost index funds that you can invest in just small companies. Cool. Or we can just invol invest in small cap value companies. So let’s look at the historical returns, man. I told you for big companies here in the U S 10% a year, the small value companies over the last 92 years, over 13% a year 

Now 10%, 13%. 

You’re like, geez, it doesn’t seem like that big a difference, but the compounding is amazing. So that is just going to work out in your favor, potentially over a long period of time holding that small cap value fund instead of just a S and P 500 fund 

[00:14:41] Matt: Wow. And you’re not saying exclusively necessarily to go small cap, but as you begin to assemble a portfolio, it should be in the mix. It should be a healthy part of the mix. If you’re young. 

[00:14:55] Mike: Yeah. I would say you could go exclusive 

[00:14:57] Matt: Wow. 

[00:14:58] Mike: Yeah. If you’re like 1820 to 25, you could just put knowing that this money, these couple of years or this five-year period, you’re going to hold for 40 years. This is longterm investing, set it and forget it. You can go a hundred percent low. 

Index fund for small cap value and then add to that portfolio over time. Then once you get into your late twenties and thirties, you can start buying some other parts to round out the portfolio, but you’re letting this initial investment ride for the longterm. Let me give you another example of where this recommendation comes in. 

I talked to a lot of parents that have very young kids. Okay to your old five-year-olds Hey, and they’re interested in investing, I’m talking to the parents, right? And they say we like investing. Maybe my kid’s interested in getting to be eight or nine, or they know that this compounding effect for the longterm. 

So you can, for a newborn or you can, or if you’re about to have a kid or you got a five-year-old, you could set aside some money just in the ear market for them. It doesn’t have to be in their account necessarily, but there are ways you can. And you can invest a few thousand bucks, a few hundred bucks, a few thousand bucks. 

Now you’re not starting when you’re 18, but you’re starting with the kids too. 

[00:16:11] Matt: Wow. 

[00:16:12] Mike: And then how many more years of compounding do you have? And so there’s another recommendation where I’d say pick something that has an historical, long-term the highest return we can find, in the low cost index for. 

And again, set it and forget it put in 400 bucks just in this one fund. And there it is for the next 50 years. 

[00:16:32] Matt: So we’ve got time for just one more aspect of the listener’s question in the question here, it alludes to what about foreign markets? Now? I know you and I have it on our to-do list to do a whole show about foreign stock and what, how to think about that. But what do you make of that aspect of it? 

[00:16:49] Mike: Yeah. So there’s two other questions here. I definitely want to hit on. I love the foreign markets. Am I even old enough to do that? Yeah, definitely. Definitely old enough to get into the foreign markets again, they’re bought and sold here on the U S exchanges. So you can buy low-cost index funds for emerging markets. 

You can do country-specific. You can do total ex what we call ex. So everything, that’s not us, but a globally diversified portfolio of everything. It’s not us, all those come in low cost index funds. And there’s great. Again, the academics do research, on how they’ve performed over time. And so definitely I would do some, what I would do for this person is start doing a little research. 

I’ve mentioned a bunch of different what we call asset classes, big companies, small companies, et cetera. So do some research on those start to learn, what are these asset classes? Where are the investments, how do they look and feel what has been the historical return? That would be some great knowledge for investing moving forward. 

And then finally, I did want to hit on the idea, should I choose individual companies, invest in what I know. And that’s another great idea in, especially in terms of learning about investing. So I would definitely take some more. And say, great, I’m going to put a hundred dollars into Nvidia or Activision or, whatever you’re interested in Snapchat or Facebook or whatever it is and say, I think this company is going to continue to do well. 

I want to take a hundred bucks and put it in there, get to know the markets, get to know how it feels to you as your investment is going up and down. And really learn that while you’re young with not too much money while there’s not a lot at risk. 

[00:18:19] Matt: Makes a lot of sense to me. Look there’s a story that’s gone around that I think is mostly true. I’ve actually looked it up, that there was a town where one investment advisor told his clients just buy Coca Cola. You know why people like the taste and that whole. She made up of Koch millionaires because that’s what they did. 

They found a company they liked and they stuck with it. So good. All around advice. Congratulations to our listener for getting interested in all of this. So early on, it’s going to do you well in the long-term Mike Morton. Thanks for all of the guidance. 

[00:18:49] Mike: Thanks, Matt. Thanks for joining us on financial planning for entrepreneurs. If you like, what you heard, please subscribe to and rate the podcast on Apple iTunes, Google play Spotify, or wherever you get your podcasts. You can connect with me on linkedin or I’d love to get your feedback. If you have a comment or question, please email me at . Until next time thanks for tuning in 

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I’m 18 Years Old. How Should I Think About Investing?

Episode 52 •

25th January 2022