Ask Paul: I'm 16, is this the best way to invest?

Hi Paul,

I'm 16 and have just started my first job at a small business. I work three hours a week after school and on alternating weekends.

My pay comes to around $330 a fortnight, and on top of that I was delighted to find out that I would also be paid superannuation. The super guarantee comes to around $200 a quarter for me.

To take advantage of the government co-contribution, I am also making additional post-tax contributions, which I expect to reach $600 this financial year. 

Although it is quite far down the track, I am hoping for a modest but comfortable retirement. 

Outside super, I invest personally through Stockspot and Betashares, loosely following The Barefoot Investor 'buckets' strategy for investing, saving and giving. 

So, my question is, considering my low balance, around $1000-$2000 a year of contributions and my extended timeframe (50 years, give or take), should I opt for a super fund that has the best performance, low fees or somewhere in the middle?

I have gone with Vanguard Super - its fees are 0.56%pa and its performance appears decent.

However, I am wondering if you think this was an appropriate choice for me. - Nathan 

Hang on, Nathan, are you 16 or 60?

I've spent much of my life trying to do my little bit, along with so many others, to improve financial literacy in our community.

Improving financial literacy

For many years I was chair of the Australian government's Financial Literacy Board and today I chair Ecstra Foundation. This received quite substantial funds to promote and build financial literacy. Our major program, Talk Money, runs in schools.

These interactive workshops are free to schools, are delivered in class by our expert facilitators and are aligned to the Australian curriculum and the National Consumer and Financial Literacy Framework.

If you, or Money readers, are interested in the work Ecstra does to build financial literacy, just search online for Ecstra Foundation. We provide grants to organisations who are building financial literacy and also have a wide range of free resources.

Ticking goals

But back to you, Nathan.

You have got to be kidding me. You tick every single goal that makes a person financially literate. In fact, I'd put you in the top 1% of all Australians of any age.

Just look at your financial literacy.

You have got yourself a job in a small business working a sensible three hours a week, plus alternating weekends, to earn about $330 a fortnight.

While any job is great for a 16-year-old, I picked oranges in my home town of Griffith and the reality is you don't learn much picking oranges - except not to pick oranges as you get older! It was hard and hot enough as a 16- to 18-year-old.

Understanding business

Your job will get you much closer to the engine room of business.

You will be close to customers, understanding costs and how a business operates. This is more than the money you earn; it will allow you to build an invaluable set of life skills. Who knows, it may lead you to start your own small business.

Orange picking did not teach me much about business, but it showed me the connection between effort and income. It also gave me some insight into how a farm operates. I also liked the direct link between earning based on the weight of oranges you picked.

Back to you again.

You've worked out you are getting super and I am gobsmacked that a 16-year-old has worked out super co-contributions, though I am a little terrified you can even contemplate retirement. I recall at 16 that about my longest goal was getting my driver licence and being able to go to the pub.

Next you are a share investor, using Stockspot and Betashares and following Scott Pape and The Barefoot Investor buckets.

Money is locked away

Seriously, Nathan, just keep doing what you are doing.

The only thing you will be wrong about is a 'modest but comfortable retirement'. With your financial literacy skills, my prediction is that you'll be able to retire rich by 50. Mind you, you won't want to retire.

Like the great Warren Buffett (whose wealth-creation thoughts I recommend you read about, if you haven't done so already), I know you will always enjoy investment.

About the only value I can add is that while I appreciate the tax efficiency of super, in particular the co-contribution, I'm not big on you adding to super beyond the employer contribution.

You are locking your money away for 50-plus years. Sure, starting at your age, you'll have a stack of money in super.

Stay flexible

But my advice is to build assets outside super to give you flexibility.

As an example, in my mid-20s I had an opportunity to join four people to start our business, ipac Securities. We each held 20% of the company, but way back in 1983 this required me to come up with $20,000.

My wife, Vicki, and I had some savings and my parents had invested small amounts for me in shares.

By selling the shares, using our savings and with a $5000 gift from my parents, we were not only able to scrape together the $20,000 but also a $15,000 deposit on a tiny semi in Artarmon, in Sydney. That put us on the path to financial independence.

But money in super, if it existed back then, would have been locked away and not available for a startup or a home.

Money gives you options

My last advice to you is to never forget that money only provides choice and it is useless to you when you die. So, use your money to have fun along the way.

My terrific longstanding friends came from parties, university college, trips away for golf and skiing. Overseas travel hugely opened my eyes to opportunity and it was, and still is, a blast.

These things all cost money, but please don't forget that at your age it is not about the money. It is about building skills and experience and enjoying your life. With your unbelievable skills, money will never be a problem for you.

What I am trying to say is, keep up your focus but don't become obsessive about money. Put it to good use and be happy to use your money for experiences that enrich your life.

Can you do me a favour: could you drop me an email explaining where your money skills came from? Obviously I suspect you have financially literate and supportive parents, but I would really like to know.

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