Investing Tips for College Students? 740
GenKreton asks: "I am a rising junior in college and decided to take out loans to cover all my costs so I could graduate with money in the bank. My tuition bill is minimal as I have a nearly full ride, but living is always expensive. With that said, I feel like my thousands sitting in the bank could be doing work for me instead of collecting dust till the day I graduate. I have been researching how I could best invest my money so I have immediate access to it if needed, but still do better than a mere savings account. There seems to be a lot of mixed advice and some obvious scams out there. So I ask Slashdot, what is the best plan for a college student to do with his money?"
Live frugally first! (Score:5, Informative)
For most folks, I'd have to say mutual funds or real estate right now although the stock market usually performs at about 10% or better depending....
Percentages are misleading... (Score:5, Informative)
Re:Percentages are misleading... (Score:3, Insightful)
Re:Percentages are misleading... (Score:3, Insightful)
What you should be saying here is "the entire time I've been watching, real estate has had a good return". Talk to someone who was active in real estate during 1989 (which has an uncanny resemblance to real estate action in 2006) about that lovely time and come back to me. There's a great little chronicle of that based just on the headlines of California newspapers at
http://www.rntl.net/history_of_a_housing_bu [rntl.net]
If you don't want to lose yuor money, be smart. (Score:3, Interesting)
There are some companies which are guarenteed to make money simply because the federal government spends billions of year giving money to companies to defend the country. You can bet phone companies won't be losing money, banks won't be losing money, most hedge fund
Re:If you don't want to lose your money, be smart. (Score:3, Interesting)
What about the opposite? Surely there are some companies that are good investments AND don't leave you with a guilty conscience from sponsoring people that are profitting on the misery of others. (Or am I living in la-la-land again?
Re:Don't assume real estate is the way to go (Score:3, Insightful)
The question is, can the guarantine it ?
Actually, increased child mortality tends to increase, not decrease, the population growth rate. The reason is that people wi
Don't put it in stocks or stock funds (Score:5, Insightful)
This loan money is money you're going to need to repay in a fairly short time, right? The stock market is volatile. When you need the money a year or two years from now, the stock market could be way up from where it is now. It could also be down--possibly by 25% or more. And that's just the market indices. If you invest in individual stocks, rather than index funds or other diversified mutual funds, your investment's value could fluctuate even more.
Better options:
Finally: have you thought about the ethics of using your student loans in this way? Were the loans given to you in order to help you pay for your expenses as a student? Do you think it's okay to ask someone to loan you money for one thing and then use that money for something else? Isn't that a form of lying?
Re:Don't put it in stocks or stock funds (Score:3, Insightful)
Also keep in mind that money market funds can go down. Say you buy one that represents a selection of normally reliable stocks and then the stock market declines as a whole (like it has been recently). Money market funds are generally a good choice, but you still have to consider overall market behavior if you aren't interested in long-term investing.
Six-month Treasury bills or a two-year Treasury note.
Threasury bonds a
Re:Don't put it in stocks or stock funds (Score:3, Informative)
Re:Don't put it in stocks or stock funds (Score:3, Informative)
You certainly can loose your principal. Money market funds are sending your money out somewhere, and if it doesn't come back, you're screwed. Weren't you around for the S&L bust during the 1980s? Millions of folks would have lost their principal in that fiasco if it wasn't for federal insurance bailing them out. Almost all money market ads have big bold print
Re:Don't put it in stocks or stock funds (Score:3, Interesting)
Re:Don't put it in stocks or stock funds (Score:4, Funny)
It's more ethical than downloading music from the internet without paying for it, which most people here on slashdot seem to think is ok.
Re:Don't put it in stocks or stock funds (Score:3, Funny)
You must not have ever been a college student. Currently I'm maxing out all the loans I can get. Weed may grow on trees, but who has the patience and privacy to grow their own? And have you seen t
Re:Don't put it in stocks or stock funds (Score:3, Informative)
http://home.ingdirect.com/products/products.asp [ingdirect.com]
If nothing else, it keeps you up with inflation.
Re:Don't put it in stocks or stock funds (Score:3, Informative)
Or even CitiBank's (www.citi.com)e-savings account. You can open it online, so no worry about having one nearby.
The 5% rate should be as good as any CD you could get, and since it is a savings account, you can access your money anytime. Also, depending on the rate the student loan is at, you could be making more money than you are losing in interest.
Re:Don't put it in stocks or stock funds (Score:4, Informative)
Before everyone goes crazy about how stupid it is not to invest this money, just hold up a second.
Depending on the terms of your promissory note, it might be illegal (i.e., breach of contract in the best case, actually breaking the law in the worst case). For my student loans, I was careful to read over the promissory note carefully and discovered that, under its terms, pretty much anything I needed was considered an "incidental educational expense". For my federal loans, however, they were very strictly limited to only contributing toward tuition and some immediate expenses like textbooks. Whether you worry about ethics is really your own business, but you should definitely be certain that what you're doing does not constitute a breach of the contract you signed in order to accept that loan. Most loans will automatically be considered defaulted if you do that.
That being said, the CD or T-bill ideas are all good ones. Do NOT invest that money anywhere where there's not a guaranteed return. You don't need super-huge returns here; you just need enough of a return to cover the interest being charged on the loans.
Re:Live frugally first! (Score:3, Informative)
CDs aren't bad either, they are safe and do better than most savings accounts, but they tie up your money. The best option I've found is hsbc online savings [hsbc.com] accounts. I don't work for HSBC, but at a
Re:Live frugally first! (Score:3, Interesting)
Re:Live frugally first! (Score:3, Informative)
Avoid the hot deal's forum - you'll be broke and in debt - some of the deals are really tempting
Some of the better banks have options that pay 4-6%, ing direct is probably the most popular one, but there are others.
If you can (new college student, so probably not), get a credit card with 0% interest on balance transfers for 1 year, take out a bundle and then toss that in as well. Not fucking up your credit is probably the most important.
Re:Live frugally first! (Score:5, Interesting)
Real estate is caught up in a speculative bubble that will probably pop in the next couple years, bringing terrible pain.
http://www.investorsinsight.com/images/otbemail/1
The stock market is highly overvalued. Stocks have only ever been a good buy at PE ratios of about 10 or less. The US market is at about 21, and profits are at record lows as a percentage of GDP. A cursory examination of the equity price cycle says now is a terrible time to buy. The typical bull market lasts about 15 years and the typical bear market lasts almost as long. Stocks went way up in the 15 years leading up to 1965. Then stocks did nothing until the early 80s. Then they shot up for 20 years. We are in a bear market now (inflation adjusted stocks are 20% below the 2000 high and still dropping). The historical pattern suggests stocks might be a good buy around 2015.
The claim of 10% historical returns from the stock market is complete garbage. Nobody invested at an "average" time. People invest over the course of a 45 year career. If you break the last 150 years down into every possible 45 year investing period and then take the median return from all those periods you get a typical return barely better than bonds. The 10% claim is also complete garbage from the get-go because it ignores taxes and fees.
If you want to buy stocks anyway, mutual funds are the worst possible way to do it. Fees and active trading will kill you. Mutual funds are obsolete now that we have ETFs. The advice someone posted elsewhere to consult with a professional is bogus. Professionals will steer you into their comission generating products like mutual funds. You have to research this on your own, and most of the popular literature is basically industry propaganda.
Someone else criticised you for even taking out student loans. They are wrong. Student loans are free money right now, assuming your income is negligible. The interest rate is way below inflation, which is understated by as much as 5%.
My money is on commodities. I think we're on the brink of a 10 fold gain in things like oil, metals, grain, gold etc. All the major currencies are being rapidly debased and an industrializing world is creating materials shortages. The case is so easy to make, while people selling stocks can only cite historical returns.
If I wanted to make a high risk play, as I might if I were in college and just playing with the money, I would short the NASDAQ.
KingKong's post... (Score:5, Insightful)
I also agree it's probably going to take another few years before stocks are a good investment - say, 2012-2015 - and we're going to need a major market dump before that happens. As one market analyst remarked some 30 years ago "You can't breathe in all the time; at some point, you have to exhale". It's just so with markets - the cycles the poster above referred to are the result of new technologies changing societies and markets, and then a sort of 'resting period' while they digest all those changes. The bull market from 1916-1929? Society was investing in cars, telephones, and radio. A bear market while that was digested. The bull market from 1949-1966? Television, jet travel, mainframe computing. Then a pause from 1966 to 1982 while they were digested. The bull market from 1982 to 2000? PC's, internet, cheap telecoms, broadband cable, etc., etc. We're still digesting those changes.
My guess is the next boom will be fueled by major advances in biotechnology, natural language speech recognition and synthesis, and, of course, pr0n and anally implanted RFID's.
Re:Live frugally first! (Score:3, Interesting)
"Real estate, mutual funds, and the stock market are the worst possible investments you
Re:Live frugally first! (Score:2)
Re:Live frugally first! (Score:3, Informative)
I have seen folks get rich doing this. I have a couple of friends who lost everything. That's investing for you. Remember though that is advice for a student, who is using his student loans for capital. Patience and timing don't enter in to it for him. Six months after he leaves school he has got to start making interest payments at the very least, no matter what the state of the
Re:Live frugally first! (Score:5, Insightful)
Don't forget, with loans, you are going to come out of school with debt. Why not plan to have some cash on hand to start paying that off early? Trust me, paying that debt off should be priority #1.
Going back to point #1 - I will say that this applies to just about anyone. If you have reserve cash - hang on to it, you never know if you will need it in a snap. To many of my friends had a glob of cash from different things (insurance payoffs, VC money, loans money) and spent it too fast, and found themselves high and dry when it counted.
RonB
Re:Live frugally first! (Score:4, Insightful)
Because you don't really own it if you have even a single cent of debt. Remember, the debtor's property rights trump yours. What's worse, you can't simply walk out from debt, while you can walk out from a rented apartment - which means that if you become unemployed, or need to move somewhere else (to get a new job, for example) you are in it deep.
Never take any debt if you can avoid it; always pay with cash; if you can't pay with cash, ask yourself if you really need the thing right now. Debt is a risk - you may not be able to pay it back - and a shackle - you must keep on paying it until it's all paid out. Paying with cash means that you have less opportunities for investments, since you don't have as much available cash; but it also means that you have much more freedom to act in unexpected circumstances.
Add to the above the concepts "interest" and "interest on interest" and it's clear that debt is not worth the risk. And if you still need further prove, consider this: Why did your debtor lend the money to you ? Surely, if you can invest the money in ways that exceed the interest of the debt, he could as well. This is an especially good question when the debtor is a bank or some other financial institution which can consult financial experts; you are not likely to know better than they do.
To GenKreton: Taking loan to save your own money was stupid. Loans must be paid back with interest. You'd been better off living out of your own money and only borrowing money if you actually needed it.
The people who sell the houses are presumably making a profit as well, and a greater one than if they simply rented them out. Either that or they are doing it from the goodness of their hearts, which, since they are usually corporations and therefore have no heart, is not very likely.
Re:Live frugally first! (Score:3, Informative)
To GenKreton: Taking loan to save your own money was stupid. Loans must be paid back with interest. You'd been better off living out of your own money and only borrowing money if you actually needed it.
This depends on the variety of loan (s)he has. If they're student loans on which (a) no payment is due until 6mo after graduation, and (b) don't accrue interest until payments become due, it was absolutely a smart idea to take the loans. I have friends who have very successfully taken every dime worth of t
Re:Live frugally first! (Score:3, Insightful)
There is no reason to pay them off any faster than required, even if you have the money.
If you don't wnat to be shackled by it, you should try to have enough money to pay it off whenever you want,
but that doesn't mean you should, pay it off.
frugality, houses, long & short investments, R (Score:3, Interesting)
1. I agree that living frugally is paramount. Living frugally trumps the advantages of buying a house (unless you're going to put a lot of labor into fixing up the house) This means if you can find a house as small/cheap(#2) as your apartment or find enough roommates to make it so then it's often a
Re:Live frugally first! (Score:3, Informative)
The coasts are suffering from extrem
Re:Now is the best time to invest! (Score:5, Interesting)
Talk to the pros (Score:4, Insightful)
Go ask a financial professional. There are tons that give free first time consultations.
Re:Talk to the pros (Score:5, Informative)
I recommend getting an online brokerage account, and investing in an index ETF (many boring technical reasons for this). The one I like most is SPY (the spyder fund), which tracks the SP500. Once you have invested whatever you want, ignore the money. It will go up, it will go down - but over 20-30 years it is a very safe investment.
For every $1 invested:
after 10 years, you have $2.60
after 20 years, you have $6.70
after 40 years, you have $45
after 55 years, you have $190
So assuming that you are 20 and retiring at 75, every dollar you invest now is about $200 at retirement (or, seen another way it is $20 per year at retirement). Invest early! (And ignore what people say about the markets - it is a proven fact that you cannot make money listening to others, except for insider trading...)
Not so fast (Score:3, Insightful)
So assuming that you are 20 and retiring at 75, every dollar you invest now is about $200 at retirement (or, seen another way it is $20 per year at retirement)
Considering the state of the US economy, the demographics of the US population (hint: it's aging fast) and, perhaps most important to this discussion, this publication [stlouisfed.org] (warning: .pdf) by the St. Louis Federal Reserve Bank [stlouisfed.org], that $200US at retirement might have the same purchasing power as that $1US now.
YMMV.
--
The usual disclaimers apply
Good advice: (Score:5, Funny)
Get rid of the savings account and do not invest: this way you can file 1040EZ instead of 1040 to the INS; as a college student this will save you money.
Start your own business and become a consultant. Claim beer etc. as a business expense.
Buy gold. That keeps going up, plus will keep its value when the Revolution comes.
Get a PhD in chemical engineering; you will be raking in 250k+/year if you are any good.
Become a Canadian citizen; with your IQ you will qualify for disability payments.
Don't underestimate mere savings account (Score:2, Informative)
Lotto (Score:2)
bankrate.com (Score:3, Informative)
Your best bets if you want no-risk are probably money market accounts and CDs.
CDs will give you a higher interest rate, but will not allow you to take the money out early without forfeiting some or all of the interest you've gained.
--The Rizz
"Money is just something to make bookkeeping convenient." --H.L. Hunt
Mutual fund (Score:2, Informative)
And to boot, you can withdraw your investment at any time. Usually takes 1-2 business days to take effect.
Re:Mutual fund (Score:2, Interesting)
Though you can only "borrow" up to about 60% and if your fund drops, they will call the margin and sell y
Re:Mutual fund (Score:5, Informative)
I.e., the banks will get you to pay them (indirectly) a commission, so you start out a few percent poorer than when you walked in the door, and they don't really care if the fund performs well or not, so who knows if you'll ever make that back or when. Or they'll sell you some stupid annuity with a multi-year lock-in. Either way, you'll almost certainly pay them some nice percentage for lousy advice.
This guy will need to pay back his loans (which, most probably, were only authorized for qualified educational expenses, in order to qualify for various governmental guarantees needed to get the interest rate for student loans, even in the absence of a good credit rating, but that's a whole other line of criticism) within six months or so after graduation, or at least will start racking up interest unless he keeps in school or makes some other sacrifice that persuades the goverment to keep paying the interest for him. At which point, any volatile investment has a good chance to be down when the loan payments start.
This guy should not have maxed out his student loan debt if he didn't need to. Using them to invest on margin, even if the interest for now is zero percent, is idiotic, except in something liquid and low-risk.
Reality check (Score:5, Funny)
Cash Is King (Score:2)
Once you graduate and get a job your priorities should be starting a 401K, paying off loans and building a rainy day fund (6 months income) as a cusion in case of unemployme
Pay down any credit or loans. (Score:5, Insightful)
Loan type? Interest rate? Payoff schedule? (Score:5, Insightful)
The biggest issue in my mind is that by taking out loans, you now owe interest. Depending on what kind of loans they are, the interest rates, and the repayment schedules, this may not be the best thing to do. In the long term, unless you're able to achieve a higher rate of return on any investment you find, you'll be losing money.
If you financial situation is stable, and you have some sort of fallback plan (i.e. family), or you can look forward to finding a good job when you graduate, the best thing to do may be to just pay off those loans right now.
Short term deposit could be good... (Score:3, Insightful)
Hope the above helps and I can provide more accurate advice if you need. Also time for a new acronym...I Am A Investment Geek Though My Advice Has No Warranty So Don't Sue Me If You Fuck Up...IAAIGTMAHNWSDSMIYFU
Immediate access? (Score:2)
Re:Immediate access? (Score:2)
Get out of debt (Score:5, Insightful)
Then you borrowed money to invest and you don't even know how to invest. Think about that for another minute.
Give the money back to the bank, pay your stupid tax, and go to DaveRamsey.com and get My Total Money Makeover and learn how to use money.
Or, continue to be financially brainless and wander around borrowing money for no good reason and wonder why you retire broke and bitch about Social Insecurity.
Re:Get out of debt (Score:2)
Thanks for playing, please try again.
Re:Get out of debt (Score:5, Insightful)
1) My loans aren't gaining interest now, the federal government is handling that for me.
2) I want options when I graduate to move to where I need to or whatever. I don't want to live in my parents' basement till I am 35.
Re:Get out of debt (Score:4, Insightful)
Your parents basement is better than the federal pen.
If you learn how to budget and live beneath your means, then you will not live with your parents unless you are just afraid of work.
Loans represent risk. Unmanaged money leaves.
99% of people in your situation blow the money they didn't need and then end up paying back the student loan over 20 years. Oh, and Student Loan rates are now 7%. It's too late to consolidate at the 4.whatever rate that was the second lowest in history back in June.
Go read the Millionaire next door. Millionaires don't borrow money. The middle class borrows money.
Re:Get out of debt (Score:3, Informative)
Re:Get out of debt (Score:5, Insightful)
2) I want options when I graduate to move to where I need to or whatever. I don't want to live in my parents' basement till I am 35.
When I graduated from college I got a job and moved out of my parents' house in 6 months. If I understand you correctly:
1) You're borrowing money you don't need from the taxpayers so you won't have to do that, and
2) You're asking those same people to tell you how to make more money.
Suck it.
Re:Get out of debt (Score:3, Insightful)
If you absolutely must have the money set aside for something, just put it in a savings account that's FDIC insured and leave it alone.
Re:Get out of debt (Score:3, Insightful)
Get a part-time job during classes, get a summer job for the 2-4 months you have off. If you live in your parents' basement, your expenses should be practically nil. I did the same thing and came out of school with thousands of dollars in the bank, and I didn't have to cheat the system to pay for it.
Besides, on the less harsh side: nothing, and I do mean NOTHING is as satisfying as not owing a single
Re:Get out of debt (Score:3, Interesting)
So, you know, get a job. If you don't have a job, then you shouldn't waste your savings just to move out of your parent's basement. The goal isn't to move out of your parent's basement, the goal is to be a contributing member of society. Manage that and moving out of the basement should follow. The shame is in living in your parent's basement because you blow all your incom
What you are doing is lame (Score:3)
If you really are living on this loan just leave it in the bank. You are not going to get much more interest o
Not rocket science (Score:4, Insightful)
One concept I've heard of that I liked combines liquidity (access to money) with a high return. Say you've got $5000 you can put away. Divide it by five and put $1000 each into a 1-, 2-, 3-, 4- and 5-year Certificate of Deposit (CD). At the end of the first year, when the first CD matures, roll that into a 5-year CD. (The longer the time, the higher the interest rate is you earn, usually). Lather, rinse, repeat. Every year, 20% of your investment becomes available without penalty and you're earning a high rate of return on your money due to the longer term and interest rate averaging over the time period.
That, or find a financial advisor you can trust. A good one will value your relationship and look forward to making you money for many years. A bad one will want you to trade stuff in your account often (earning them high commissions) and leaving you in the poorhouse.
That, or invest in mutual funds that cover a lot of type of investments: some index funds, some international/European funds, a few bonds here and there. It's very easy to avoid scams and beat your savings account rate. Optimizing that is what is a bit trickier.
Net profit (Score:2)
The stock market hasn't been the sure thing it used to be [yahoo.com] of late.
Use this advice at your own risk; I'm not qualified to give it, and when your lawyer sees my net worth he'll laugh at
Re: Net profit (Score:2)
Sorry, I linked the log-scale version of the plot. You can click their link to get the linear-scale plot.
Also, if you shorten the period to 5 years you'll see that the market is finally showing some signs of life, though IMO the growth isn't convincingly stable yet.
Sounds crazy but... (Score:5, Funny)
I'll let you know how it turns out!
What a crock of self-important crap (Score:3, Insightful)
Secondly, get in touch with reality. College is hard work... I have learned that you don't go to college for money. You go to college to learn. With that learning (not just academically, but about life in general) you learn that life does not come delivered to you on a silver plate. *Most* college students have loans. Unless you're some rich trouser stain who doesn't have you be bothered by reality (i.e. the submitter) you'll probably be working shit jobs at a shit wage living in a shit apartment trying to get your degree.
This sense of entitlement is beyond infuriating. I experienced this kind of crap in college all the time. Life does not owe you anything and there is a high likelihood you'll be in debt. Just be happy that it is another day and leave it at that.
Re: What a crock of self-important crap (Score:5, Funny)
That's almost universal on Ask Slashdot articles. Most of the "questions" should be posted to Brag on Slashdot instead.
Fertile ground for parody, though:
"I've been sleeping with seven beautiful women for the past five years, but now some of them are hinting that they expect me to marry them. Are there any good IT jobs in Utah?"
"My IQ is so high that I have trouble comunicating my ideas to ordonary programmars. Is there an open source tool to help me?"
"I invented an incredibly programming tool, but my boss won't make everyone use it. Please tell him he's wrong."
etc...
Re:What a crock of self-important crap (Score:5, Funny)
You're doing it wrong!
Go to all your classes, do all your assignments, get Bs.
That leaves lots of time for partying.
Re:What a crock of self-important crap (Score:3, Informative)
Re:What a crock of self-important crap (Score:2)
Re:What a crock of self-important crap (Score:2)
Believe it or not it's illegal (Score:5, Interesting)
Re:Believe it or not it's illegal (Score:2, Insightful)
Internet savings accounts (Score:2)
Think about the loan... (Score:2)
Look very carefully at how much interest you're paying on your loan and how much you're making on your investment. If you can't make enough to cover the loan interest, paying off the loan is the "best investment" - it's not a sexy answer but it's the truth. Oh & for deity's sake don't run up credit card debt.
Its not about cash (Score:2)
Dont go into debt if you can at all afford it. (Score:2)
Talk to a professional. (Score:2)
There's a few obvious answers of course. You shouldn't be putting your money in anything where you're risking losing it. You're a poor college student right now, and risk is not something you can afford. That rules out things like mutual funds and stocks. You also need to make decisions about what portion of your money you need immediate access to. A
You need to start a business (Score:2)
... the simplest is to buy a house and rent it out to your fellow students. You take advantage of your social connections and don't pay rent.
However, unless you can get a small business loan, you're going to need a hand from somebody who can back the mortgage. The banks don't consider potential rental income when calcuating what you can afford.
If the local real-estate market is too high for you to enter, and you're not entreprenural in nature, then I'd say there's not much you can do with your money w
Beer (Score:2)
college student and investing? (Score:2)
Most college students can't even afford dog poop...even if it came with a free car wash (and the dog)....
What about investing in a startup? It's high-risk...but hey....
Or invest in something that's bound to do well....oil stocks for one (unless they pull an "enron")
Borrowed funds? (Score:2)
Risk. Don't invest more than you can afford to lose.
Time horizon. If you really need the money within a year or two, do not invest them in anything riskier than a money market fund, a bank CD, etc. The market can fluctuate abruptly. Over the long run, you can get good returns, but in the short run you can lose a lot.
Diversify. If you want to be in the st
HELP NEEDED TRANSFERRING FUNDS (Score:5, Funny)
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You're in luck! (Score:2)
Money Markets (Score:2)
I got mine thru CitiGroup.
It's what 007 would do..... (Score:2)
Hey, it's as good advise as any thing else your likely to get here
You have the money but are taking loans? Why? (Score:3, Informative)
Figure out your monthly nut (living expenses, ie. food, rent, medicine) and then set yourself up a salary from your cash. Invest in something liquid and safer... A large portion cash (ie. Money Market,) maybe as much as 33%; some in a stock index mutual fund, maybe a third, and the other third in high-quality bonds. This is a fairly conservative investment strategy, and you probably won't be a millionaire at graduation, but you'll spend less of your original capital by having steady income streams from your conservative investments, and some protection against inflation from your stock-based mutual fund.
The bottom line is you might be able to get ahead by buying stocks and taking loans out for school... But US Dept. of Ed. loans have gone up drastically in the last couple years--into the 6% range. This means you'd have to have a pretty good year on your stocks--every single year you're in school--or you'd end up paying more in student loan interest than you would earn from your stock investments, especially after you adjust for inflation... That 10% avergage on Large-Cap stocks over time is fine, but after inflation is factored in your margin gets pretty thin before you're upside down.
My Advice (Score:5, Insightful)
Here's some brief advice based on my own experiences... I don't have the willpower to go into lengthy explanations for each point, so the first thing that I can recommend is that you start by doing some background reading. (Also, I'm skipping all of the mundane advice like "live frugally" because you've probably heard most of it before, and you want a non-bullshit answer.)
0) Pick up the "Intelligent Investor" by Graham, revised edition with commentary by Zweig. Then, read everything at: http://www.bylo.org./ [www.bylo.org] When done, read everything at: http://www.ndir.com./ [www.ndir.com] Once you have established this basis, you will probably understand & agree with my following comments more closely.
1) Pay off your debts first. Do not invest money while you still have debt -- paying off a 19.75% credit card balance will reap you more money than any average investment. Let me repeat that, because most people are retards and don't get this point. Do not put a cent of money into a mutual fund or stock until your debt level equals $0.00. Capiche?
2) Open an ING Direct savings account. It's free, it pays high interest, and it's secure. (I've been a customer with the Canadian version of ING Direct for more than 7 years.) Keep your spare cash there. This includes any money that you make on co-op work terms (or summer jobs, etc.).
3) Build up a sufficient supply of cash in your ING account -- enough to pay for the next 2-4 terms (or whatever you feel comfortable with). This is your "margin of safety" cash -- don't touch it. It's used in the event that you lose your job, crash your car, etc.
4) At this point, you have no debt, and you have reached your "margin of safety" amount. Once you have built up an additional $3k to $5k on top of your margin of safety, open up a discount brokerage account (e.g., E-Trade).
5) Now, start to build a "couch potato portfolio". Buy an S&P500 ETF (called a "SPY"der, in the States) from iUnits/iShares. (I recommend waiting until you have $3k to $5k to minimize the effect of brokerage commissions, as a percentage of the amount invested.)
6) Every subsequent $3k to $5k that you save is then used to build up a diversified portfolio of (a total of) 3 or 4 ETFs covering the S&P500, the NASDAQ, MSCI EAFE, and possibly a Japaense/European/Canadian index. Over time (as the evidence suggested at http://www.bylo.org/ [bylo.org] would suggest), your low-cost ETF portfolio will outperform a vast majority of actively-managed mutual funds, and it requires relatively little maintenance on your part. This is exactly the kind of portfolio you want to build as a student -- you want an investment platform that you can put on "cruise control" while you focus on more important things (like studying, partying, getting a girlfriend/boyfriend, etc.).
By the time you're ready to move on to more advanced stock/bond investing, you will probably know that there are better forums for these kinds of questions, and you will go there. Good luck.
Re:My Advice (Score:3, Insightful)
Firstly, I don't think a savings account is particularly good at its stated purpose. Given that you don't intend to need the money in the account at the drop of a hat, you could put the same amount in a money market fund (low to no commission if you go directly through the provider) and earn a couple points more per year. The do
Re:My Advice (Score:5, Informative)
I've also dealt with ING Direct for a number years (and in real US dollars even!) and they were the first thing that came to my mind as well for the situation asked about here. You can move money in and out of the account as fast as your bank will clear the transactions, making it fine for use as backup cash, and the interest rates soundly thrash most other savings vehicles.
Comments about clearing debt and such before investing are spot on, but I think the timeline outlined here is a little conversative. It's not that hard to extract money from the stock market when it's in a liquid stock like SPY, where you don't lose much in the buy/sell spread to enter and exit the transaction. If you needed emergency money, you can get it out of a good brokerage account in a few days by closing your position and wiring/ACH'ing the proceeds out. As such, waiting until you have lots of money on top of a large safety net may not be necessary for those willing to tolerate some additional risk. If your debts are paid off, you have a full term worth of cash, and another $3K on top of that, putting that $3K into a relatively safe stock market investment instead of a savings account would be aggressive, but not crazy. Stashing 2-4 terms worth of money probably makes sense to a really long-term student like our poster here, students doing a shorter tour of duty will have graduated before they meet that standard.
That said, I'm a little torn on the subject of investing in ETFs like SPY right now though. If this were early 2003, where the stock market was fairly priced by historical standards, then I'd say jump on that. But the current S&P is showing a lot of the signs of a peaked market right now; it's been going straight up for over three years, it's already recaptured most of the lost ground from the
It's also worth noting that while Graham's "Intelligent Investor" is a great book, it's hard to follow some of its principles while trading ETFs. Compared to the relatively easy way you can characterize the intrinsic value of a regular stock, it's not as clear what the intrinsic value of a an ETF like SPY is.
Invest in beer and chicks (Score:3, Informative)
What you want are U.S. Treasury Bonds (Score:3, Interesting)
First, you should buy a book on investing. Not some get rich quick book, but a real investing book. I have no suggestions here.
Second, what you seem to be looking for is a nearly 0 risk investment that yields better than a bad savings account. You should contemplate US treasury bonds.
Right now they yield around 5%. These bonds are typically considered "risk free" in that, as long as the U.S. government is around, they will print you dollars to pay you back. Of course, if there's lots of inflation that money they print for you will buy a lot less, but then again, you have the same exact problem with your savings account. You can do practically the same thing with a bank issued CD, but treasury bonds are fungible on the open market, unlike CDs. That means, if you have a 5 year note treasury bond, you can sell it on the open market before it matures, or you can wait for it to mature. With a CD you will pay a penalty (which will negate the benefit of having had it in a CD) if you try to cash out early.
Last I checked, you can buy the bonds in $1000 lots from the fed government. In short, you buy the bond for some amount less than the face value, (e.g. $950) and then in a defined amount of time (based on the maturity you select (3 month, 6 month, 2 year, 5 year, 30 year) it will pay you the face value ($1000). You should check out the Treasury website. This is extremely easy for US citizens, and I think it's still doable for those outside the US.
Either of these options though is substantially safer than investing in stocks, mutual funds, private bonds, etc. Of course, as always, you should be wary of what you read on a message board, and no investment is 100% safe, and that includes savings accounts. I'm not a professional and I could be wrong about anything I just said.
Buy and Sell (Score:3, Interesting)
Aim for stability (Score:3, Insightful)
Basically, since you're dealing with a short term investment, you want to aim for stability, but since a student's financial situation is also topsy-turvy, you want flexibility too. With that you really have a limited set of options. Here are the four best, in order from lowest return to highest:
1) conventional savings account -- maximum flexibility, minimal return.
2) high-yield savings -- something like an ING Orange account, which places minimal limits on transactions, is FDIC-backed, and has a respectable interest rate compared to a regular savings account.
3) money market account -- not federally insured, but higher returns and most let you make a few withdrawals without penalty, so you can get at some of your money if you need it earlier than planned.
4) certificate of deposit -- returns at about the same level or slightly better than the money market option, but your money is locked in for the length of the CD, unless you want to pay a hefty penalty. This is your best option though if you know for sure that you won't need the money until a given time.
Realize that all four aren't exactly lucrative options... right now the max you'd probably get is between 4.5 to 7% interest on the latter two options. And the savings account option is barely an investment in terms of return... I get a paltry 0.55% on my savings, but hey, it's stable and I can get at my cash whenever I want.
I noticed alot of people were critical of trying to invest while taking out student loans. As long as you're not taking out the loans for purposes of investing them, there is nothing wrong with what you're doing. The federal financial aid process is designed to take into account your existing assets and projected earnings during the school year you are receiving a loan for. If you already have or earn funds that you would like to invest, there is really no restriction on this, so long as you can prove that the balance of your loans was applied to legitimate educational and living expenses as defined in the terms of your loan.
I also fail to see why some people consider the possibility of investing while taking out student loans to be illogical or unethical. It's financially prudent to at least retain a reasonable sum of reserve funds at all times, especially if you know you will need that money later, for when you can't rely on loans to help cover your expenses. It's really just a question of finding a reasonable balance between holding on to money now and saving yourself from later costs from interest on your loans.
To those who think it's unethical to retain funds in a sound investment while taking out taxpayer-backed loans, it's quite clear that these people don't understand the basics of how loans work. When you buy a house and get a federally-backed loan, they don't expect you to empty your entire checking and savings account, 401k, and kids' college fund before giving you the loan. That would obviously be counterproductive, as you'd simply manage to send the person careening into an instant bankruptcy. So why should you have to completely bankrupt yourself to pay for your education? Clearly anyone who makes such a criticism does not understand basics of how things like student loans, credit and mortgages work--and clearly you shouldn't listen to their advice!
And BTW, "federally backed" loans does not mean taxpayer funded for the most part. The system of loan guarantees is funded with seed money from the federal government--thus from the taxpayers--but once the money is placed in the system, it is recycled into new loans over and over again, and the default rate is sufficiently low so as not to trigger growth in the federal inputs into
Dump the debt, find your horizon (Score:4, Informative)
Second, recognize that an investment's risk is proportional to its expected return. You can make just a little bit in a savings account (check out ING direct, which is paying around 5% right now), with no risk to your principal. Or, you may make a lot by speculating in stock options, but you stand an enormous risk that you'll lose everything. You can solve mucch of the risk problem by diversifying, but you cannot completely cure it. It's hard to diversify without a lot to invest.
Third, look at your time-horizon: how soon do you need the money? Over the long-haul, the stock market will out-perform "safer" investments. A broad-based stock mutual fund with minimal expenses will allow you to at least track the market. The Vanguard S&P 500 index is very low-cost and tracks the S&P 500.
Ignore advice about whether the market is in a "Bubble" or not -- if there was a general consensus that it was true, it would cease to be true because everybody would sell.
Fourth, DON'T, whatever you do, DON'T buy an insurance product like whole-term life insurance, universal life insurance or annuities. Insurance sales people take massive commissions straight out of your payments. And insurance companies, by law, are very limited in what they can invest in. As a result, you throw away a big chunk of money and then don't get a great return. If you need life insurance, buy a level term life policy from a financially sound company and invest the remainder. Doing that will give you the same insurance benefits, but a better return.
Five Things (Score:3, Interesting)
Pay the Tuition stay out of Debt (Score:4, Informative)
Check out Dave Ramsey www.daveramsey.com he has some great ideas about debt and never having them again. My wife and I started the plan this year and it is a great feeling to be paying down debt and getting rid of payments. Its amazing how much we are paying in interest that would could be using for something else.
His plan is pretty simple. Get on a written budget and STICK TO IT. You have X dollars comming in budget them ALL and dictiate where it goes. Use all cash! We put money in envelopes and when the cash is gone we are done with that catagory for the month. This usually takes up to 3 months to figure out what you are doing and to get it right.
Cut up the credit cards!
Save 1000 dollars in the bank for an emergency fund.
Start listing all your debts smallest to largest and pay off the smallest ones 1st. This helps with a mental good feeling of getting rid of payments. It worked for us! We feel great when we pay off another one. The car should be payed off in 2 months.
Don't go out to eat, don't go on vacations till you get the debt taken care of.
Once you are out of debt then you start saving for a house, retirement, etc. Check out his website he lists it all. We are very happy and hope to be out of debt within about 2 to 2.5 years INCLUDING all the stupid stuid loans... Then off to save for a house...
What is it with you DR nuts? (Score:3, Interesting)
NO, do not cut up all of your credit cards.
NO, do not avoid loans like the plague.
Here's where his philosphy falls flat: Many insurance companies and all financial institutions need a FICO credit score to put in their system so they can evaluate you and produce a rate. If you don't have a credit score, you m
It's a whole picture thing (Score:3, Informative)
Check out Primerica [primerica.com] they do a free Financial Needs Analysis (FNA) for you and will come back with a long term (retirement) as well as short term (what to do with what's in your bank) assessment. They also base the recomendations on things like - when you want to get married, own a house, retire etc. It's tailored to you not to some actuary table.
Things to note:
Re:ING DIRECT (Score:2)
I totally agree with you that this type of savings account would be a great option for a student that needs to keep the funds liquid. The return is decent and its about as safe as you can get.
Re:Don't buy dollars (Score:2)
Re:Buy a house (Score:3, Interesting)
Incorrect. Purchasing is usually less expensive then renting. However in some markets properties are renting at an effective loss (see sibling). Many property owners are living the property ownership myth and haven't done the math. Purchasing also increases risk (i.e. the roof suddenly needs replaceing).
Most of North America is in the midst of a housing bubb