Investing Tips for College Students?

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?"

Comments

Talk to the pros

[macx666]

Don't ask slashdot. Or any other IT geeks.
Go ask a financial professional. There are tons that give free first time consultations.

Pay down any credit or loans.

[arthurpaliden]

Why pay intrest when you dont have to and realize that you do not neet to buy all the toys now.

Loan type? Interest rate? Payoff schedule?

[psoriac]

You don't provide enough information about the kind of loans you have taken out. Do you really need to have "thousands in the bank" to live? Perhaps you could try to reduce your cost of living instead.

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.

Get out of debt

[miracle69]

You borrowed money to invest. Think about that for a minute.

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

[GenKreton]

I would agree with you except for two things

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

[serutan]

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.

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.

My Advice

[vorwerk]

I've been a university student for ~11 years (bachelor's, master's, and finishing up my PhD). As university students, we tend to have little income and fairly regular (tuition) payments. (Although, scholarships and occasional co-op work terms/internships can produce "spikes" of surplus cash, and the question then becomes how to manage this influx optimally.)

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./ When done, read everything at: http://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/ 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:Live frugally first!

[rblancarte]

Let me 3rd this statement. You are getting way ahead of yourself if you are looking to invest and spend your money. Hang on to it. As someone who had to work their way through college, you can never have too much of a cash reserve, just in case. A couple of times, I found myself in situations where I had no cash and needing money bad. Usually this accompanied a trip to the bank of Mom & Dad. But still, if I could have done it on my own, I would have.

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

Don't put it in stocks or stock funds

[akratic]

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:

• A high-interest savings account
• A money-market fund at a major brokerage (keep in mind that these are not FDIC-insured)
• Six-month Treasury bills or a two-year Treasury note. You can buy them directly from the government at Treasury Direct
• Pay back the loan

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?

KingKong's post...

[Brickwall]

Please mod this up. I've already posted, so I can't. But this post accurately encapsulates what's happening in the markets. I have managed a low 7 figure account for my wife's family for the last 12 years. I missed the wild ride at the end of the 90's because I didn't trust it, but the good news is I maintained my capital. I bought gold, oil, and money markets in 2000, and they have all done well for me.

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.