Start with Roth IRA Or Brokerage account frist?

Question

Hello, I am a 19yr old who is still a beginner & learning the ins & outs of investing in stock market. Should I focus on investing in a ROTH IRA or A Brokerage account? I still live with my parents and have no financial obligations as of yet, so i have the ability to put most if not all of my money to work. Which account should I focus on? I of course want to retire before 59 1/2 and 65.
thank you!!

Jon Kelly · Answer

@Kaiya Sherriff you can get fantastic real estate advice since this is a real estate focused platform. Skip the IRA / Brokerage account and find yourself a househack opportunity. Reinvest the proceeds into SFH or MFH buy and hold. You'll be able to retire before 35.

Travis Timmons · Answer

My biggest advice is to simply take action. House hack, invest in the market, any other appreciating asset. We all have our preferences, but this is one of those "When all is said and done more is said than is done" situations. Don't chase perfect...find something that you understand and like and invest in that thing. Effective house hacking that would pay for your biggest expense (rent/mortgage) would be life changing and get you off to an incredible start. That takes some up front money and getting an FHA or low down payment offer accepted on a multi family can be tough (some of that depends on where you live). There are going to be barriers, advantages, disadvantages to whatever strategy you pick, but please just pick one and take action. It's always hard to start and you won't know what you're doing at first (but you'll learn a whole lot when you start writing checks!). Good luck!

Travis Timmons · Answer

Roth grows tax free and you can withdraw the principal tax and penalty free. It's a fantastic investment vehicle. The down payment on both of our first two properties was purchased primarily with Roth principal. Both real estate and index fund investing are incredible investments - especially with the benefit of time as you are 19. Just start buying appreciating assets and watch the magic of compound interest and time do its thing. Having a combination of a solid index funds and real estate in your portfolio is a worthwhile goal and I believe that a Roth IRA is the best way to start and balance that.

That's the general advice. Your specific situation, skill set, or interests may give you advantages or a lean in a different direction. The most important thing for you to do at 19 is to learn as much as you can and work as hard as you can. You can be really selfish with your time right now in ways that you will not be able to later in life. Most 19-25 year old's choose to be selfish with their time in ways that are not all that productive. Delay gratification, think long term, and say no to the dumb stuff most of your peers are spending time, energy, and money on right now.

Nicholas L. · Answer

@Kaiya Sherriff welcome.  I strongly agree with @Jon Kelly in "investing" in house hacking.  It's an amazing way to get started.  Being interested in retirement accounts is great too.  If you can find a job that offers a 401k or some other kind of retirement match AND house hack, you'll be well on your way.

Check out Paula Pant's podcast for a lot of great info on both RE and investing.

Steven Foster Wilson · Answer

You're asking a bunch of real estate investors what to invest in...I would suggest real estate! You can make much more then in the marketplace as well as earn tax benefits. I'm not saying retirement accounts are bad, but if I was starting out I would focus on growing a RE portfolio!

Denver McClure · Answer

Hey @Kaiya Sherriff, as an experienced real estate investor and Investment Advisor, I can truthfully say the answer is both! I'm currently live in my second house hack, and it's by far the easiest way for you to get started in real estate. However, you need to be diversified across all of your investments. A Roth IRA only takes $6,000 a year to max out, and as @Travis Timmons stated, it grows tax free until you retire at 59. This would be the only retirement account I'd suggest you fund while you save for a house hack.

You also mentioned a brokerage account. A little known secret among real estate investors is the ability to use a Margin Loan against your brokerage account. You'll find that access to low cost capital is a MUST to grow your real estate portfolio. Well, if you invest into an Individual Taxable account, you'll have the ability to borrow up to 50% of you account value without selling and funds/stocks/bonds/etc. Plus the rate to borrow is extremely low compared to hard money. Interactive Brokers has a fantastic comparison on the cost of Margin Loan rates across multiple brokers.

Ideally, you could design a portfolio that acts as you own lending account for real estate. You account can grow in size and produce enough cash flow to cover the cost of a Margin Loan if needed. I build that exact strategy all the time for my clients, and personally use it myself. It's pretty cool once you sit down and think about it!

Start with Roth IRA Or Brokerage account frist?

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