Ask MAX: Where do I start?

November 10, 2004

Dear MAX,

I’m 21 and in the U.S. Navy, currently serving on the ground in Iraq. I have saved about $2000 and I plan on saving and investing an additional $500 a month. I want an investment that will grow, but I don’t want a crazy amount of risk either. How should I invest? Thanks!


Dear Matthew,

I don’t claim to be the Amazing Kreskin, but allow me to look into the future and reveal to you this: you are going to be a terrifically successful investor, and you’ll retire fat, rich, and happy.

How do I know? Because you’re just 21 years old and you’re already building an investment portfolio, and because right off the bat you are being sensible about risk.

Starting early means that you have years upon years of compounding returns coming your way. The money you invest will make you money. Then you begin making money on the original investment plus the return you’ve made. As your investment grows, you’ll earn a return on a bigger and bigger pool of money.

The fact that you are concerned about risk at your age is equally impressive. Many investors a heck of a lot older than you still don’t realize that they need to consider both the upside and downside potential of an investment. You are quite right in wanting to build a growth-focused investment portfolio, but even aggressive investors should have some exposure to lower risk securities like government bonds.

So how should a young sailor with a few grand and a dream invest? Here’s our advice:

The first thing you need to do is keep doing what you’re doing for another two months. You’re starting off with $2,000 and you’re saving $500 bucks per month. In two months you’ll have $3000, which just happens to be the minimum investment requirement of the Vanguard LifeStrategy Growth Fund (VASGX). We want you to open an account at Vanguard and invest all of your hard earned money in this one single fund.

Think of the Vanguard LifeStrategy Growth fund as the investment equivalent of a multivitamin. It is an entire, stand alone, well-diversified investment portfolio, all in one little fund. The Vanguard LifeStrategy Growth is a fund of funds, meaning that its holdings are not individual stocks and bonds like most other mutual funds, other mutual funds – in this case four Vanguard mutual funds. The current allocation breakdown, according to Vanguard’s website, looks like this:


The funds allocation is roughly 77% stocks, 13% bonds, and 10% cash, which for a young investor like you, is a darn good mix. Like most Vanguard funds, the LifeStrategy Growth fund has a minuscule expense ratio (in this case just 0.28%), and comes with absolutely no load charge of any kind (if it did, we wouldn’t be recommending it).

After you open an account at Vanguard and invest in this fund, you won’t be quite done yet. You should then call Vanguard and set up an automatic investment plan that will enable you to transfer a fixed investment amount from your bank account every month. Vanguard will invest each month’s check in the LifeStrategy Growth fund for you – you won’t have to do a thing. Having the money transferred automatically will eliminate the possibility that you’ll forget to send a check one month, lose interest, or blow all your savings while on shore leave in Manila.

After you’ve invested in the Vanguard LifeStrategy Growth fund and set up an automatic investing plan, just sit back and watch your money grow – until your nest egg reaches $15k (and if you follow the steps we’ve outline above, that’ll happen in no time). When it does, let us know. We’ll give you our advice on what to do next.

Thanks for the question, Matthew. Thanks also for your service, and come back safe.


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