Dear Penny: My Dad Wants Me to Invest My Roth IRA in Silver and Marijuana

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Dear Penny,

I’m a 24-year-old single male and recent college graduate. I have a job but no 401(k) match, so my dad suggested I start a Roth IRA. I don’t have any idea how to invest it.

My dad says that since I’m young, I need to take risks. He’s suggested some marijuana stocks and silver stocks that he’s made money on. But this seems like it might be too risky to me. My dad doesn’t work in investing, and I don’t think he knows a whole lot about it. I’m not making enough to hire a financial advisor. Is my dad giving me bad advice?

-New Investor

Dear Newby,

Your dad loves you and wants what’s best for you. But that doesn’t mean he knows anything about investing.

Your dad’s suggestion that you open a Roth IRA was a good one. By forgoing a tax break now, you’ll get tax-free income when you retire. But it sounds like your dad isn’t clear on the kind of investment risks beginning investors should take.

So you start out by investing mostly in stocks, which tend to be high-risk/high-reward, and then gradually shift more money into bonds, which are safer but offer little growth. When you have a few decades to go until retirement, your money has time to recover from a stock market crash.

But when you invest in just a couple of stocks, your risk of losing everything is substantial. Your investments may never recover if things go south. There may not be any money left to recover. You never want your life’s savings tied to the fate of a single company or two.

Both the silver and marijuana industries are especially volatile. The price of silver fluctuates wildly for a host of reasons. One is that more than half of silver is extracted as a byproduct while mining for other metals, like gold, copper or zinc. It’s basic supply and demand stuff: The supply of silver doesn’t move up and down with changes in demand, so the prices are turbulent. With marijuana, you’re doing a lot of political calculus about when and where marijuana will become legal, plus a lot of the companies are small with no proven track record.

That doesn’t mean you should never invest in silver or marijuana. But you should only do so if you already have a diversified portfolio and you’re starting with a relatively small amount. And never use your retirement funds for these kinds of speculative investments.

The best way to start investing is to spread your money across the stock market. You don’t need a financial adviser here. You can do this with a total stock market index fund, which invests you across the entire stock market, or an S&P 500 index fund, which invests you in 500 of the largest companies in the U.S. You could also take the guesswork out of it completely and use a robo-adviser. Your brokerage firm will use an algorithm to invest your money according to your age, goals and how much risk you’re willing to take.

If you opt to choose your own investments once you get your feet wet, it’s essential that you only do so after researching the investment on your own. Don’t make decisions based solely on what someone else says, whether that person is your dad or an advice columnist or a stranger on Reddit.

If, after doing your own research, you decide you wanted to invest in silver or marijuana, a safer way to do so would be to invest in a silver or marijuana exchange-traded fund, or ETF. Your money would be invested in a bunch of businesses throughout the industry instead of concentrated in a single company. But I’d only suggest this after you’ve gotten some investing experience — and only then if you’re limiting your investment to 5% to 10% of your portfolio.

You don’t say how old your father is or whether you know anything about his finances. To be honest, I’m more concerned about your dad’s retirement planning than I am about yours if he gravitates toward high-risk investments.

Since you’re already talking about your retirement, this could be a good opportunity to start the conversation about how prepared your dad is for his retirement. I’m not asking you to play financial adviser here. But even just asking your dad when he wants to retire and whether he feels ready is a good conversation to have.

As for your dad’s stock picks, I think you’re probably fine saying, “Thanks, I’ll check it out.” You’re an adult, and you don’t need to provide your dad with a copy of your brokerage statement.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected]



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