My 19 year old nephew has moved in with us and I am trying to teach him about investing. To start with we are trying to teach him investment discipline, putting away 10% of his weekly earning into some kind of savings plan before he spends any of the earnings.
I have showed him how REI works, and we did a few examples of how purchasing a duplex as his 1st home can lower his cost of living dramatically.
I have also showed him how to create a monthly budget and track his expenses in order to help him understand where his money is going.
But in the short term what kind of investments should I be showing him to help build his nest egg towards the purchase of his first property.
The investments available to him will have much to do with his disposable income! Living with you, I'd say his savings should be more to 40 or 50%, he would otherwise be paying 30% on housing, 10% on related housing expenses, does he contribute to food? Living with you is an opportunity for him to save what he'd be spending being on his own.
In fact, he needs to pay his bills, if any like car and insurance and set a lower amount, 200/300 bucks for blow money and save the rest. If he makes a grand he should be saving 500 bucks, IMO.
Investment wise, CD and money market is low but safe to build up funds, then move on to investing, first comes savings. :)
Thanks @Bill Gulley
Yes we are charging him $50/wk for room and board, lol he eats that much
We are helping him get his first vehicle, and insurance so he will have those bills to help get his credit established.
I looked at the CD rate last time I was in the bank, returns are horrible but it will teach him discipline.
He has 401k options thru work, both Roth or Traditional, and he can borrow against them at prime +1. I felt he could do much better using the savings with a plan to purchase an income property. I may be wrong on this, maybe he should still contribute to a 401k.
Hi Chris, I'm new to BP and wanted to chime in if you don't mind.
I think that encouraging your nephew to contribute to his 401k as much as possible will be a great piece of advice. Because he's so young, a few thousand put in there over the next few years and left alone for the next 45 years will leave him with a nice nest egg, no matter what happens as life provides its lessons and hard knocks. Key point: you'll want to have him think of it as money he can't touch not as a loan source.
I agree with Bill that his savings rate should be crazy high right now with you guys subsidizing his life so generously. So he can put money in his 401k AND save for his first property. I'm saving up for my first ever property, a duplex or other small multi, and I'm putting my money into the Life Strategy Income fund from Vanguard:
Minimum is $3K so he may have to save a little first, but so far it's treated me well. It's mostly bonds with about 20% stocks to give it a little boost.
I agree with @Bill Gulley increase the savings to 50%. He's 19 he would just spend the money on things he doesn't need. Then teach him the value of a dollar and have him read rich dad poor dad.
Then I would get him into a plumbing school or apprentice program do you know how much money is landlords spend a year on plumbing! That would pay for itself 50 times over he could do the repairs on his properties himself. And he would never have to worry about finding work their is always someone who needs a plumber! Other trades related to fixing up homes are useful also.
I love what your doing. This is precisely what everyone needs to do or learn prior to actually investing their money in anything. I learned things this way and started a small business cutting grass that didn't work out but it taught me a lot about checks and balances, marketing, and just overall understanding how to operate a business and all those small things you only learn by doing. Encourage your nephew to start a small business and learn sales. Just my thought. Great job and good luck.
Get him in as much 4 family as he can afford under an owner occupied FHA asap. He will thank you when he moves the hell out of that and has a great property to star this portfolio with a minimal down payment.
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