20 year old s&p

claire21

Hi all , my son who’s 20 has told me he’s opened a Vanguard s&p 500 UCITS ETF (VUSA) . He’s put £500 in to get started and has £10k in savings he’s going to move into it . He then hopes to add monthly. I was a bit worried about his decision as I knew nothing about this scheme but it’s his money. He’s an economics uni student and he’s trying to save £100 a month to go into this from his job.

Is this wise as his first method of investment for his savings , he understands it’s a 20+ year plan.

I’ve got his back covered if any financial needs happen so he wouldn’t have to touch this money.

Thanks

lpgm

If he does understand investing is a long-term thing and can deal with paper losses, and if you really are prepared to support him financially for a while, then there are worse things to do.

That said, it's not great to stick everything into one country. Okay, he's picked the biggest country, for now at least, but it would still make more sense to cover the whole world, or at least a bit more of it than just the States.

And I think he'd feel more comfortable if he had some of his own savings to hand too.

Alexland

Vanguard are a good asset manager and passively tracking the US index is probably going to be an OK long term investment decision. Personally I would rather have global coverage with something like the Vanguard All World VWRL ETF.

At times of market volatility these investments could drop 50%+ before hopefully recovering eventually. If he wants less downside risk he might want to consider a multi asset fund such as the Vanguard LifeStrategy series.

Check if he has considered a S&S Lifetime ISA for a 25% government bonus (on upto £4k of contributions per tax year) depending on how he eventually wants to use the money.

xylophone

It could be wise for him to keep some in cash and also to open a LISA.

Otherwise, investing early in life gives his investment time to grow for his future.

WillGates

I wish I'd done what he's doing when I was 20!

claire21

I’m going to get him to read up on the LISA as that is probably something he’s unaware of as he’s only just taking an interest in his finances , thanks

WillGates

In fact I wish I had done this but used a SIPP aswell.
I'd put at least £3600/year gross into the SIPP.

Hindsight great isn't it

SonOf

Hi all , my son who’s 20 has told me he’s opened a Vanguard s&p 500 UCITS ETF (VUSA) . He’s put £500 in to get started and has £10k in savings he’s going to move into it . He then hopes to add monthly. I was a bit worried about his decision as I knew nothing about this scheme but it’s his money. He’s an economics uni student and he’s trying to save £100 a month to go into this from his job.

You are right to be worried about his decision as its flawed. However, be happy that he is at least putting money aside.

Single sector investing is bad investing. The S&P500 has done well in this cycle but that is in part because the previous cycle saw US equity underperform badly compared to global equities. The best performing sector in one cycle is rarely the best in the next and often at the opposite end of the scale.

By picking just one area to invest, he is taking very high risks. Especially by picking the best in this cycle so near the end of the cycle. Plus it was a period when Sterling fell. So, it was the perfect scenario in this cycle. It could be the perfect storm in the next cycle. He is putting all his money in that one area and that is just bad.

System

SonOf wrote: »

You are right to be worried about his decision as its flawed. However, be happy that he is at least putting money aside.

Single sector investing is bad investing. The S&P500 has done well in this cycle but that is in part because the previous cycle saw US equity underperform badly compared to global equities. The best performing sector in one cycle is rarely the best in the next and often at the opposite end of the scale.

By picking just one area to invest, he is taking very high risks. Especially by picking the best in this cycle so near the end of the cycle. Plus it was a period when Sterling fell. So, it was the perfect scenario in this cycle. It could be the perfect storm in the next cycle. He is putting all his money in that one area and that is just bad.

It is not very high risk and it is not a single sector as it is a single country that accounts for 54% of market cap in a global ETF, such as VWRL: http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000WAHE
A global ETF would be better and less risky than just the US ETF.

SonOf

Economic wrote: »

It is not very high risk and it is not a single sector as it is a single country that accounts for 54% of market cap in a global ETF, such as VWRL: http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000WAHE
A global ETF would be better and less risky than just the US ETF.

It clearly is a single sector (US Equity) and it is 100% equity. Your analysis of risk is flawed if you think it is not high risk or poor quality investing.

A global ETF would be better and less risky than just the US ETF.

Yes. Lower risk than a single sector 100% equity fund and better quality investing. Albeit still higher risk overall than the average consumer (although the regular contribution mitigates some of that risk and its only later on that the risk rises).

System

SonOf wrote: »

It clearly is a single sector (US Equity) and it is 100% equity. Your analysis of risk is flawed if you think it is not high risk or poor quality investing.

Yes. Lower risk than a single sector 100% equity fund and better quality investing. Albeit still higher risk overall than the average consumer (although the regular contribution mitigates some of that risk and its only later on that the risk rises).

The US is a country not a sector. Pharmaceuticals or technology would be sectors. You said that this investment in the S&P500 was very high risk not high risk, even though the US is 54% of the global index. How would you characterize investment in the shares of a single company or a single sector such as US biotech? You obviously do not not understand the English language and/or risk analysis.