Say you were 20 and you had $100k tax-free in your bank account to do anything with.
What are some ways in which you'd invest it to get some yearly return?
Or, if you'd do something else with it, what would you do?
If you have high risk tolerance and won't need this money until retirement, you should deposit it in your choice of Vanguard Total Market or Vanguard Retirement 2050~2065, and forget about it for the next ~35~50 years.
If you anticipate needing to actually spend it within the next few years, or you are risk adverse, you can put it in CDs, which will earn you virtually nothing but let you withdraw it at any time. You'd probably want to do a CD ladder, which would leave you with some money maturing in any given month, so you could use it without penalties.
The $100k is also not your primary asset at this point in your life. That would be the NPV of your nascent career. Depending on one's existing trajectory, I'd strongly consider building capital in oneself as opposed to investing it in the formal markets. For example, if one cannot program, $10k invested in learning to program will probably absolutely destroy the ROI of most investments in the public markets.
Warren Buffett recommends investing into S&P 500 (instead of any managed fund), but aside of that his recommendation is pretty much identical: forget about it and focus on your primary job/business.
Warren Buffet's advise is great but I have never understood why he picks S&P 500 vs the Nasdaq? If you look at almost any time period the Nasdaq has outperformed the S&P by at least 1% (Annualized Growth Rate) which compounded year after year is a significant difference over your working lifetime (~%50 greater return after 40 years)! This is what I have been doing for the past 10 years and I am >2% (AGR) over the S&P.
Warren Buffet likes companies with strong revenues and profits, and importantly, companies that pay shareholders/owners. Nasdaq Composite is largely tech companies whose main value is growth potential and most of their profits get reinvested in the business.
It depends on other things too. For example, if you have credit card debt, you should probably pay it off instead of investing in a mutual fund, since the interest you pay on your credit card is much higher than the yield you can expect from a mutual fund.
I'd spend $100 of that on a few widely-accepted but contrasting books on personal finance and investing. A library card will do just as well. Read them carefully.
Price is what you pay, value is what you get.
A traditional option is to buy index funds over time.
Stay within your circle of competence. If you have to ask if something is within your circle of competence, you already know the answer.
If you're in a low income tax bracket, making contributions to a Roth IRA can be very wise in the long run.
If it were me today, I'd play with it by algorithmic trading.
If it were me at 20, I'd tell myself to take 30k, buy a decent car and pick up girls, and leave the rest to smooth over my life. Especially to avoid taking jobs when I don't really want it just for money. Then I could invest in my personal projects and skill growth.
Whatever investment growth for that 100k would have been really meaningless compared to the experiences I missed out on.
I'd buy land. The US has unknown dozens of trillions of dollars in debt that we have no intention of, or plan for, ever paying back, and the dollar is due for a major crash, if not right away, definitely sometime between now and when you'll be at retirement age. I wouldn't trust any investment I couldn't hold in my hands or stand on. Buy a few acres of good farmable land... live on it, or rent it out if you want, but you'll be glad you have it to fall back on.
At 20 years old I think it's important to keep the cash liquid and safe. There's so much that can change in your life that the money can come in handy for, and there are so many ways that access to that money could change your life.
That said, in the US, it's also a good opportunity to max out a Roth IRA every year. There's a lot of upside to Roth IRAs and not too much downside: you can deduct your contributions anytime without any penalty or taxes. And in retirement years, the gains can be withdrawn tax free. In a Roth IRA you can hold a wide variety of assets, real estate trusts, and metals.
But overall I'd just hold onto the money as money and treat it as a rainy-day fund for the rest of your life.
If you have the credit I'd buy $500,000 worth of rental properties. Ideally I'd get 10 x $50,000 putting down $10,000 each. You'd need a bit extra for closing costs, so you can just buy 9.
If done right, you should be earning over $15,000-$20,000 a year in rental net income. Spend that money as freely as you'd like, making sure you keep aside 3-6 months of mortgage payments in cash.
Learn how credit works, and feel comfortable buying a car with little money down at 1% interest, rather than reducing your asset value buy buying a car with all cash.
You should read more about this but that's my suggestion, best of luck.
I'm not the OP but even in middle america you can.
I'm not convinced on his returns tho.
I calculated renting out my condo, refinancing to buy a second one, with tax depreciation, repairs, etc. I was looking at a return of ~2% on assets and operated under the assumption housing appreciation would cover the cost of inflation.
Depending on skills and inclination, pursuing the right degree at the right university has an expected value very much in excess of $100k over what you might otherwise do. E.g. if you want to be a lawyer and could use this money to pay your way to $PRESTIGIOUS, instead of going to $PODUNK, consider that. (Or, as patio11 says, if you'd otherwise not learn how to code, consider that.)
(Be careful, though - American higher education can consume a lot of money and leave you with very little value. Be doubly careful with law in particular.)
If I had no college degree, I would go to a state school and obtain a zero-debt degree in computer science (maybe dual-major in math or stats) with it. This is a good investment.
If I did have a college degree, I would get a job and stuff the money into an automatic "growth" stock index and ignore it until time came that it became needful. Possibly in a retirement fund, possibly in a house fund, possibly in a "children's college" fund, depending on life priorities. For pure bang-for-the-buck long-term, an IRA wins here.
First, take a bit of it (5-10k) and blow it on the crap you always wanted. Enjoy life. It's interesting how quickly you tire of buying expensive things. Good to learn this lesson early.
Then:
Education - despite grumblings about rising cost and legends of the Silicon Valley dropout billionaires, a degree still leads to earning an additional $1m+ over your career and provides a good foundation. Getting an education and leaving without debt will put you in a really strong position compared to your peers, who will be weighed down with student loan debt for decades.
Housing - Depending on where you are, put 20% down on a 30-year fixed mortgage on a modest but nice house (average for the area). If you move, you can rent it out. The bulk of household wealth is in primary residences. This will put you decades ahead of your peers, who due to student loan debt will be unlikely to be able to purchase homes until well into their 30s.
Mutual funds - Mutual funds allow you to match growth in the stock market. You are young so can put money into the aggressive funds which may even beat it, but don't worry too much about beating the market, even pros have a poor track record at that. Just put the rest into a mutual fund and forget about it. Read about Compound Interest to find out why.
Thing is, 100k isn't a lot (even if it seems like it now) and you probably don't have enough to do all of the above. But, it can create a great foundation that will allow you to take great risks (starting companies, speculating in real estate/stock market) if you want to, or a steady path to continue down.
Take a year and go see the world (20K will be more than enough to do it with your age). Go test yourself and specially leave your comfort zone. Pick a place in the world and go there. Live as a native. Don't be afraid, you have a safety net and a safety net will boost your confidence dealing with any possible problem. Live in the present for some time of your life, you'll never forget that experience. Start to worry about future at 28-29. Focus after 30. Start as early as possible (after/during college), not at 27 (when I managed to have a safety net) because you will not be ready to focus at 30. You can always call yourself a late bloomer but your level of anxiety will raise exponentially. I wouldn't advise you to go in this way.
Say you're 20 and also healthy, with no commitment to a specific geography or time constraints:
Budget a trip to a destination you want to visit, with one rule: no flights. Then, slash the budget in half, invest/save the rest, and figure out how to get to your destination and home again.
It was created as very simple and easy to follow investment strategy by Harry Browne who had many years experience in the financial industry. It is meant to protect your wealth first and grow it with the market. No more, no less.
Also, Harry Browne's #1 rule of investing is:
Your career provides your wealth
Stick all (or at least most of it) in the Permanent Portfolio, forget about it and focus on your work.
If you don't think you'll move, buy a house outright. If you do, invest in a Vanguard or similar 'safe' investment account (see a professional).
Depends on housing prices where you live I suppose, here 85k landed me a quaint 1200 sq ft 3 bed / 1 bath place in suburbia. Not the best house, but one I'd be ok dying in.
Honestly being young, talk with a professional and see where would be safe and yet flexible if you need it later.
OP might need to interview a few professionals, because I talked with a retirement advisor (free via work) shortly after college and they basically told me "You're young, you could lose all your money tomorrow and it won't matter in the long run" and basically gave the normal advice of "buy index funds."
Similarly trying to find someone now that I can pay for advice is difficult because there's no one around working with young professionals. You either need a few mil in assets, want them to manage all your money, or be 10-15 years from retirement.
Why hasn't anyone suggested using some of that money to hire a financial advisor? That option, while potentially costly, seems least likely to backfire.
Probably because most financial advisers are thinly veiled salesmen masquerading as financial experts. If you do want an adviser, you want to make sure they have fiduciary duty, if not, you're just as likely to get dumped into high load, high fee funds that just pad the pocket of your "adviser"
I went with a financial advisor because otherwise I know I would just leave the money in a savings account, or even worse, spend it. Working with First Command was what I needed at the time to get set up putting some money into an IRA plus some other investments every month. If you want to dedicate the time, and have the willpower to invest yourself I have no doubt you could do better, but not everyone is in the perfect situation to do that.
Other things to consider... how much do you value that $100k? How long would it take you to replace? If I had 100k at 20 and I had a good job or business that let me put away 50k, then I'd go very agressive with it. Why? Because it's relatively easy to get back to zero if all hell breaks loose.
If you were 50, and had that 100k, my answer would be completely different.
If long term was your goal, put half in an IRA and have it managed by a mutual fund with a good track record of around %10 a year. That would easily make you a millionaire by 65.
If you have high risk tolerance and won't need this money until retirement, you should deposit it in your choice of Vanguard Total Market or Vanguard Retirement 2050~2065, and forget about it for the next ~35~50 years.
If you anticipate needing to actually spend it within the next few years, or you are risk adverse, you can put it in CDs, which will earn you virtually nothing but let you withdraw it at any time. You'd probably want to do a CD ladder, which would leave you with some money maturing in any given month, so you could use it without penalties.
The $100k is also not your primary asset at this point in your life. That would be the NPV of your nascent career. Depending on one's existing trajectory, I'd strongly consider building capital in oneself as opposed to investing it in the formal markets. For example, if one cannot program, $10k invested in learning to program will probably absolutely destroy the ROI of most investments in the public markets.