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My 18-year old son has a little extra money (approx. $1,000) and I'd like to get him started on some savings and investment strategies. He started with a six-month CD but the current rates are so low the profit was minimal. Are there any suggestions for a better method to have him earn some interest on that money?

Last edited by Maryann
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Dividend paying stocks are my go to for earning interest on my money. There are lots of them out there but I personally don't invest in anything that pays less than 2% dividends and it is good to do your research on the company to see how stable their dividend payments have been.

I like using Stash Invest to buy portions of various dividend paying stocks to see how they do over time before deciding to invest more into them.

Another app I use to earn interest is Worthy Bonds. I have been using them for a couple years now and they pay 5% interest on your bonds and you can withdraw at any time. (Let me know if you would like a link that will get you a free bond when signing up)

For investing without having to put too much attention on it, I highly recommend using robo-advisor investing. (basically letting a computer invest for you)

I have been using several apps for years now and have seen good returns.

My favorite has been Axos Invest (formerly WiseBanyan) but since they changed companies, their new app is much harder to navigate.

Betterment and Finhabits are two other ones that work well.

Some apps are free, some charge a small fee but I have found that if you are investing consistently, it tends to be well worth it in the long run.

If your kid is that young (at 18 years old), I wouldn't recommend dividends as they provide a much lower return over the long term than appreciation.

I feel like dividends are lower-risk, but lower reward, while classic ETFs like S&P 500 will provide longer rewards over the long term. If your kid isn't wanting to just make a quick buck off the $1000 and spend it immediately, I'd just do S&P 500 or something and let it appreciate over time.

The S&P 500 is more volatile in the short-term, but much more stable in the long-term than almost any individual stock picks/dividend plays out there, if you look at the empirical data across the past century. So, if your kid has that much time on their side, I highly recommend doing something that's more appreciative over long term to maximize money than to do plays that encourage spending the money/selling the position in the near-term.

Here's a quick run-down/study I wrote for dividends, their risks, and returns. And here's another study I wrote on how S&P500 and other indices that consistently outperform almost all hedge funds in the long term work.

This is just my opinion and not investment advice. Should always do your own research and due diligence and compare your risk-tolerance against the volatility of the assets you're trying to buy and what you think their performance will be.

I'm young and probably taking more risks than most, but I agree with your sentiment. I'd also like to add that you should never gamble with money you can't afford to lose. If you lose $10,000 to $20,000 on some investments in your twenties but can still pay your bills, it's not so bad. On the plus side, you could turn that into $100,000 and then reduce the risk of your portfolio by playing the long game and letting compounding do the work. Even though I mentioned numbers, everything is relative to what you earn and how much debt you have. It is also critical to consider debts such as student loans. You don't want to lose $10,000 on a risky investment and become indebted.

I agree with @Angie P. above --

Just starting out, at 18?

Get started with simple ETFs -- something like an S&P 500 index fund is pretty safe (in investing terms; of course - all investments carry risk, yada yada standard disclosure). I wouldn't personally start with any individual equities - even "safe" and dividend bearing stocks at this point. Just getting started - go simple and something like an ETF is as simple as it gets.  Basically, a balanced mix of the 500 biggest stocks in a single fund if you went with one of the traditional 500 funds like FXAIX - Fidelity's version or VFIAX - Vanguard's version....

Others have mentioned platforms like Stash - which is fine, but you can also get no-fee/no minimum accounts through most platforms nowadays.  I.e., he can open an account (or you can open a custodial account) for him on say, Fidelity - and you won't have any recurring fees.  The biggest reason I'd suggest one of the stalwarts (Fidelity, Schwab, Vanguard, etc) - is that you can generally buy into their ETFs without any extra costs. 

He can then continue to invest in further shares of this ETF - or, if he wants to start dipping into individual stocks?  He'll have that option to - but I wouldn't rush into that... Most platforms should allow him to set up watch lists, so before rushing into individual buys?

Some good advice I got long ago -

- Start a list of stocks you might want to buy.  Track in the notes why you like those individual stocks...

- Jot down the price at the point you "pretend" bought the stock

- Monitor over time -- keep in mind, even 6 months is almost nothing for most individual equities, but the point is to get to know yourself as an investor.  How much risk can you tolerate?  What happens if your picks fall? 

- In the meantime, familiarize yourself with basic concepts... tax implications (short vs long)... basic metrics like P/E ratios (and importantly, sector-specific P/E benchmarks)... other scoring methodologies... reading quarterly reports... etc

- Create a benchmark - the nice thing about buying an ETF to start with is that it makes a PERFECT benchmark. There are plenty of others available - most any platform should give you a variety you can use. 

- Absolutely avoid any exotics - as a beginner, the last thing one should be worrying about are things like option chains and whatnot.  Don't even bother. You're buying a stock at market price and tracking it over time.

After some period time?  Re-assess...  How did your pretend pics do against that benchmark?  Do you understand why your picks beat/lost/met your benchmark?  How would you feel if it were really money?  In a hurry to pull out profits?  Freaked out because your $1000 is now worth $900 or $800?  Do you understand the tax implications of any moves you make?  Think about the longer term - what kind of market were we in during your hypothetical?  How much effort did you put into this - and most importantly, do you like that effort and want to continue?

You might well find after your hypothetical - it's not worth the trouble and not something you enjoy... which is fine -- then you can simply keep buying into your ETF and potentially, expand into broader ETFs for some balance and diversification (i.e., a 500 index ETF is generally the best starting point - but there are broader indexes that give you exposure beyond the ~500 biggest companies and even into international exchanges, etc). 

Tried and true rules you can read most anywhere, but I follow -

- Any investment should be made with money you don't plan to touch for years (some folks will say ~3, others might be more conservative and say 5).

- Especially as a beginner, never try to "time" the market. You'll only get frustrated. Dollar Cost Averaging (regular, incremental investing on a set time schedule).

- Start simple - and unless you decide to get really hardcore/find you've got a knack AND desire, don't bother with any exotic instruments.

If you are going to invest outside of the "safe" investments (savings accounts, CDs, etc.), you should not expect to use that money within the next 5 years. With that in mind, if you are investing in things like the stock market for the long term, it is a good idea to have some sort of safe cash reserves on hand as an emergency fund.

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