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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?"
To invest your student loan proceeds until you can use them.
This is probably the wrong place to be asking this question, and the advice being given on these boards are enough proof of that (e.g. "walk to your bank and invest in a mutual fund" - first banks don't administer mutual funds - they can't legally do so - and third, mutual funds are not risk-free investments).
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.
Real estate, mutual funds, and the stock market are the worst possible investments you could make right now.
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Real estate is caught up in a speculative bubble that will probably pop in the next couple years, bringing terrible pain.
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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.
Ok, the parent was making a joke, but the satisfaction of human vices is almost always profitable. Check out Vice Fund, which according to its site has a three year return of 20.74%.
Give a man fire, and you warm him for the night. Set a man on fire, and you warm him for the rest of his life.
"Real estate, mutual funds, and the stock market are the worst possible investments you could make right now."
Ummm.. you are aware of the fact that there are mutual funds that invest in bonds, TIPs or fixed assets, yes? Not all mutual funds invest in stocks.
"If you want to buy stocks anyway, mutual funds are the worst possible way to do it. Fees and active trading will kill you."
Now, I don't have anything against ETFs, but ETFs are not quite mature enough to have products in every nitch. Futhermore if you want someone to actively manage your account, ETF's won't do it for you, and mutual funds would be the way to go. If the concern regarding mutual funds are high fees, then go with Vanguard, which charges a whole 1/3 of 1% per year on average. A cost that hardly breaks the bank to have someone manage your funds. If actively trading, and ringing up short-term gains and losses are the concern, you could find specialized mutual funds that invest long term and are specifically designed to avoid short term gains and the taxation that accompanies it. I would not recommend investing directly into stocks, unless you are investing into a number of diversified companies to reduce risk.
Both of the parent's ideas on how to play the market (commodities and shorting NASDAQ) are high risk propositions that is not suitable for short-term investing. Furthermore, the parent stated that he is not bearish on stocks because they are at the end of a bull market, yet recommends commodities that, by most measures, is on the tail of one of the largest bull markets it has ever had.
Financial Professionals are just like any other business. Some are crap and charge far to much, and some provide solid advice at reasonable cost. Making generalizations regarding financial professionals is just as silly as making generalizations about doctors, lawyers or mechanics. Some screw you, and some provide good service for the cost.
For the record, as the fed slows raising interest rates, the bond market is going to do very well. I personally recommend investing in a broad basket of bonds, from treasury bills to high-yield. The best way to do this is to pick up some bond ETFs or a multi-sector low cost mutual fund.