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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?"
The *first* thing I would encourage you to do is live frugally. You don't need a car for many places in the country you would go to college. You don't need the latest and greatest computers or TVs or goodies and the more money you can save now, the more it will help you out. It was tough while I was an undergrad, but everything I could was saved and invested in some stocks which over time have paid off.
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....
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Don't ask slashdot. Or any other IT geeks.
Go ask a financial professional. There are tons that give free first time consultations.
Some of the online ones like ING Direct are paying close to 5% interest now, and if you got your loans when they were at super low rates, it might be a fairly safe and convenient way to make some money.
Try bankrate.com
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
Walk into your bank and invest in a mutual fund. It's easy and free to do, you will get plenty of advice, and there is someone managing your investment for you. Best of all, you can pick a mutual fund that is more aggressive or steady depending on your willingless to possibly lose some to gain more.
And to boot, you can withdraw your investment at any time. Usually takes 1-2 business days to take effect.
For he today that sheds his blood with me shall be my brother.
There is no future - drink all the beer you can now!!
Why pay intrest when you dont have to and realize that you do not neet to buy all the toys now.
Undetectable Steganography? Yep, there's an app fo
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.
I browse Slashdot at +3, Funny
Really you are stuck as you wont make a lot of monies no matter what you do. I recommend against any high risk investments; they are 15-20% return for a reason and it's a simple one: you may not get your money back. Also compounding is out of the question as you need access to it. So out right I'd suggest finding a short term investment (with a bank is best) of six to twelve months and put 80% of what you have into that. In Australia, where all of my advise is customised too - I believe the UK should be almost the same though the US may differ (do you guys trust your banks?), at the moment you can get a very nice deal around the 5 to 20k deposit for six months to a year for 6 to 8.5% interest depending on who you go with and the term. Note that the penalties for withdrawing money within the time frame are huge which is why you keep 10 to 20% of your capital out of it for that Just In Case situation.
:)
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
I ate your fish.
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.
Linux - Because Mommy taught me to Share.
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.
Small potatoes make the steak look bigger.
...there are some really amazing oppurtunities for investing in Africa. I just sent a cashier's check for $12000 to Prince Oolando Bothsqanta to pay the minimal fees needed to free up his vast fortune from Swiss banks. In return, I will earn approximately $4 million dollars in the course of the next 12 months.
I'll let you know how it turns out!
Cloud City Digital: DVD Production at its cheapest/finest
First off, get over yourself. Brandishing about the fact that you have a full ride and that your tuition bill is minimal is load of self-important horseshit.
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.
Yes! I listen to NYC Speedcore and do math at 3AM. I suggest you try it too.
To invest your student loan proceeds until you can use them.
No. The stock market performs around 10% on a rolling average of several decades...In the short term your returns can be anything from 300% to losing all of your money. Even a diversified fund in low risks stocks can lose you money rather quickly. For example a close friend currently has several hundred thousand dollars in a spread fund and last month was upto 22% return but this month is all the way down to 6% return on his rolling average. This is not the sort of worry a uni student really needs...Secure low risk returns are always good and I do agree with you about real estate - well chosen investments there always return good rewards.
I ate your fish.
Spend it on merry girls, hearty wittles, and fine wine.
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.
Obama likes poor people so much, he wants to make more of them.
HELLO. MY NAME IS XABBU UGABE. I HAVE RECENTLY COME INTO POSSESSION OF A LARGE MONEYS LEFT TO ME BY LATE RELATIVE. I DO NOT KNOW FOR SURE HOW MUCH IT IS BUT I DO KNOW THAT IT IS A LOT PERHAPS 30 OR 40 MILLION. I AM IN NEED OF ASSISTANCE TO OBTAIN THIS MONEYS.
THE MONEY IS IN A BANK IN RUSSIA. UNFORTUNATELY, MY COUNTRY IS CURRENTLY FIGHTING WITH RUSSIA SO I CAN DO NO BUSINESS WITH THEM UNLESS I PUT SOME MONEY DOWN FIRST. I AM WRITING TO YOU HOPING YOU WILL HELP ME OUT. I NEED FOUR THOUSANDS DOLLARS TO PAY BEFORE I GET THE 30 OR 40 MILLION. I AM A HONORABLE MAN YOU HAVE MY WORD THAT I WILL PAY YOU BACK VERY HANDSOMELY. IN ABOUT A MONTH A LARGE CUT WILL BE WIRED TO YOUR PERSONAL ACCOUNT. PLEASE INCLUDE YOUR BANK ACCOUNT NUMBER SO I CAN DO THIS. PLEASE SEND MONEY AND INFORMATION RIGHT AWAY AS CONDITIONS IN OUR COUNTRY ARE WORSEN.
THANK YOU VERY MUCH FOR YOUR KINDNESS IT WILL BE REPAID.
YOUR TRULY
XABBU UGABE
Here's a better plan...
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.
Who did what now?
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.
Some things to consider are how much risk can you afford (e.g., could you afford to loose it all on a bad investment?) and how long you can wait for the investment to start showing returns (e.g., 2 years vs 40 years). Lower risk investments include CDs, quality bonds, etc. The spectrum gets more risky as you look at money markets, mutuals, stocks, derivatives, options, etc. With longer term investment horizons, you might be able to take advantage of longer term trends, ammortize risk over a longer period of time, take advantage of compounding power, etc. Diversifying your investment can help reduce risk as well.
As others have suggested, it's always a good idea to get professional advice. I'd add that no matter how good the advice you get, it's still your responsibility to make the investment decisions. So you also need to do your own research. You'll probably make mistakes at the begining. But any investment mistakes you make at this point in your life are probably smaller and easier to deal with than if you wait and start investing later in life.
One source I'd recommend is to read the works of Benjamin Graham http://en.wikipedia.org/wiki/Benjamin_Graham. He's considered the "Father of Value Investing". His analysis of areas such as the conditions that triggered the great depression and "investing" versus "speculating" are a great read.
Best of luck!
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?
It won't be as easy or cheap to do later in life, especially the second part.
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.
My two things:
1) As you point out, the federal government is paying the interest on your loans. That means the bill is being footed by US citizens(people like me). The loans are provided to pay your educational expenses, and investing is not really an educational expense.
2) There is nothing wrong with investing the money wisely while you have it. You should do it in a way that is not risky and leaves the money accessible. I'd use a money market account. If you're lazy, go set up a paypal money market account, if you want security go to a local bank or credit union.
Going back to point one, if you're taking out loans in considerable excess of what you are using for college expenses each semester and hoarding the cash (whether invested or not), you're either breaking the law, breaking the contract on the loan, or simply venturing into the cold land of ethically questionable behavior.
I'm not experienced like the grand poster in investing, but last year I opened up an account with ING for savings. I figured that as a college student, I needed to start saving enough money to make sure I'd be mobile when I graduated, without going into debt.
The current Annual Percentage Yield is 4.35%. Right now I have about $3,000 in my account, and my monthly interest earned so far is $9.01. Putting money in or pulling it out of your bank account is very easy; it takes a couple of days for the transaction to go through, and there's no low limit you need to be concerned about. They also have a very handy feature that will deposit an amount from my bank account on a cycling time period, so right now I have it automatically set to take a certain percentage off the top of my paycheck (which comes biweekly), so I won't be as tempted to spend it.
I think they also have a pretty rewarding referral program, but I'm bad with those. I just feel awkward trying to advertise things to people.
We are currently in a war, a long war. Many companies are currently profiting. Lets see which companies will profit in the future if the current mindstate of the world stays the same?
1. Weapons companies.
2. Security and surveillance companies.
3. Drug companies.
4. Alcohol, Tabacco and Firearms companies.
5. Datamining companies.
6. Cosmetics
This is just 5 examples. The point is, you should invest based on the emotions of the current society and population. People have chosen death, misery, pain, through all sorts of different means. Some are smoking tabacco, some are alcoholics, some are gamblers, but the key to success in investing is to profit from human vices, and from popular emotions.
Example, when racism increases, it helps the cosmetics industry. When obesity and weight becomes the new race, it helps the dieting and supplement industry. Both of these help the bio-tech industry, and genetics, stem cell research and other related fields, in the future will profit from cosmetics.
Example #2, Disease, expect the avian flu, madcow disease, cancer and heart disease to become more popular and bet on the companies which treat but do not cure the disease. Once again related to stem cell research which certainly could cure the disease but wont.
It's also safe to assume, that if the world ignoance/homophobia level stays the same as it is today, homosexualiy will eventually be declared a disease, and there might eventually be a drug which can cure it. This would be a drug to invest in if it's ever released in the same way that viagra was a drug to invest in when it was released, or the breast implant. In the future there might be a pill which can make breasts large or small, turn skin from white to black and back to white again, and all sorts of other cosmetic things which now surgery is required for. If this happens, it makes sense to invest.
Never bet against human nature. Always bet on humans to remain self destructive and ignorant, thats the secret to profit. Expect a future with even more homophobia, racism, sexism, agism, and other isms, and expect the hate industry to merge with the drug industry.
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
Keep in mind that inflation seems to end up around a factor of 10 over 25-30 years. So, in 55 years you have $190 which is roughly $1.90 in present money for every dollar you invest now.
Allow me to put it in to terms that make sense to a typical male, slashdot-reading, college student:
At the strip club, $40 will get you two lap dances now or three lap dances and a beer when you're 75. On the other hand, should you die at 60, you get the choice of two lap dances before you die or none at all if you wisely invested.
At the end of the day, investing pays the salaries of the people who do the investing for you, makes the very best investors very rich, is a gamble for most, and a good way to not really do much beyond keep up with long term inflation plus a little bit for those who want to play it safe.
Another more boring suggestion: Spend $1,000 on presentation skills classes. Spend $1,000 on a great suit that gives you the confidence of knowing you look the part. Spend $250 on getting a professional to help you with your resume when you graduate. Then sail through the interview for a job paying $5,000-10,000 more every year than you would have got otherwise. As your career continues to build from there, compounding over time, there aren't many better investments you can make. I don't know of many other investments that can pay five times over the initial investment every single year.
You won't lose your money if you invest in oil companies. You won't lose your money if you invest in tabacco companies. You wont lose your money if you invest in alcohol companies. You wont lose your money if you invest in surveillance companies.
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 funds wont lose money.
I can always be wrong, but if I had the money, I'd invest in Haliburton.
Forget paper investments. Buy underpriced goods and resell them. Sidestep eBay type items, mailable things, and look for "motivated sellers" who need cash fast. Develop an eye for spotting bargains. They're not rare. (Example: giveaway or cheap furniture listed every day on craigslist, always at a premium in college towns first day of school.) People who are moving usually just want a quick sale. Haggle for a lower price when you're buying, refuse to haggle when you're selling. Do 3 deals a year making 25% profit and you can nearly double your money. What do you think banks and brokers do with your money? They buy and sell and give you a cut.
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.
What was once true, is no longer so
GenKreton, I am a finance guy (who enjoys reading Slashdot). I have never posted before, but I thought I should at least give you my opinion since I have extensive experience in personal/corporate finance. First off, there were a lot of good suggestions in the responses (ETFs, brokerage accounts, lifestyle decisions, advisors, etc). But the most important thing that I can tell you is that you need to put together a full financial profile of yourself (either by yourself or with someone's help). That would include understanding your constraints in the following categories: (1) Liquidity (do you have any need for a large chunk of cash at any point in the near- to medium- term future or can you stash away your cash for the long term?) (2) Legal (are there any legal reasons you can/cannot invest in certain securities, etc.?) (3) Taxes (all sound investment strategies at least begin to understand your tax profile and try to steer you towards a strategy that maximizes after-tax returns) (4) Time horizon (you're in college so your time horizon is still the rest of your life... this is more important who is, say, retiring in 3 years) and (5) any specific or unique circumstances you might be facing (grad school? volunteer work for a year after college? etc)... Taking these five factors together can help identify your return AND risk objectives (how willing and/or able are you to take on risk?). Sorry for the very long response, but sound financial planning is a big picture thing, and I don't want you to throw your money into a basket of stocks for example, becuase one person told you that was a good idea. They (a) don't know your specific circumstances and (b) are only offering one choice, which is really no choice at all. Anyway, I hope this helps.
Step 1: Buy a bunch of pot!
Step 2:
Step 3: Profit!
I hear and I forget. I see and I remember. I do and I understand. -Confucius
Normally I wouldn't comment unless I have something useful and productive to say, but on behalf of all people paying their student loans back for years and years, what you are doing is LAME. If you don't need the money (and if you are thinking about investing it you clearly don't) you should not take the loan. Taking an unneeded loan just pushes up the rates on all the rest of us who do (or did).
If you really are living on this loan just leave it in the bank. You are not going to get much more interest on it with anything safe during the time period you are going to need the money. If you try to invest it you are likely to lose it all. Given your lack of social awareness (and legality) of your ideas on the loan I imagine you'd be the type to default on paying back, which would also hurt those of us who are.
Student loans are for paying school investments, not screwing around. I don't even know how you got a hold of it, usually they disburse the money straight to the school. Plus if you are on interest free loans, those loans are given to people with the greatest need (most of us had to take interest bearing loans) and if you are not needing it you should being returning it.
Maybe I should be less harsh on you since I don't fully understand your situation. But it's just very hard on a lot of people to pay for school and you really come off as a jerk with the way you are asking this question. Most people have to scrap and beg to get enough money to pay for tuition, books and all the expenses of being a student. My dad had to borrow money against his 401K to help me finish my last year in college. So if you have money you don't need you really should give it back. And if you do need it you shouldn't be fooling around with it. No investment is going to be much better than the bank over the course of a semester or a year unless it is a very high risk opportunity. Even putting the money in a mutual fund or money market account isn't so smart, since the rate is generally not much more than a few percent over a basic savings account and neither are FDIC insured.
Just enjoy being in school and being one of the lucky ones without money woes. Time to worry about investing and so forth when you are done.
Peace, or Not?
I found myself in much the same conundrum--overall, I needed to finance my education with loans, however I knew I would need to have a small contingency fund for when I graduated. Many people can't rely on just moving back home for a few months while they look for a job. Alot of students count on having that rainy day fund.
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
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 bubble. Babyboomers are already looking to sell their large homes for smaller ones so that they can use the equity to retire (travel, etc). This will soften the housing market. While a total collapse in the next decade is unlikely (but not impossible) buying property as a form of investment is foolish. For most people who do not wish to make property investment a full time job, a simple money market fund is almost certainly a better investment: There is less risk, and the short term returns are often similar.
No. Purchasing may be a better choice. What is the deffinition of better? Will purchasing save money? What is the risk of purchasing versus an insured investment? Will the potential home owner have the time and money to maintain the property? This is a complex equation with many inputs. For some owning is far and away a better choice. For others renting may be a better choice.
Even in terms of clear dollars renting may be be a financially better option. Saving up for a larger down payment may be better option then buying today. Calculating these numbers to determine the best time to buy is not trivial and requires a number of assumptions and flat out guesses.
Home ownership as an investment is a terrible myth. Paying a mortgage versus paying rent is often financially better. However simple home ownership versus renting is not clear cut. There are many costs associated with owning a home from the manageble, predictable costs such as taxes, to large, unexpected costs such as major repairs. There are quality of life benefits to owning your own home, but quality of life does not translate into money.
Owning and manageing a number of properties as a full time job is a different matter. That can and often does translate into real wealth.
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 will make more of them to make sure that at least one survives until adulthood. This, in turn, means that there's going to be a huge housing boom in the future - the larger families need bigger houses, and once the children have grown, they too need homes.
And don't forget the inevitable flight to the countryside that starts when the superbug starts spreading.
IMHO giving in to such demands should be a capital offense, as should not taking the whole prescription of antibiotics, since both endanger every human in the planet.
And, just to clarify: I don't think people should be forced to take antibiotics, but if they begin taking an antibiotic prescription, they do have an obligation to take it to the finish, since doing otherwise endangers other people's lives. In other words, you can do it or don't, but you can't leave it half-finished.
Forget magic. Any technology distinguishable from divine power is insufficiently advanced.
You won't lose your money if you invest in oil companies. You won't lose your money if you invest in tabacco companies. You wont lose your money if you invest in alcohol companies. You wont lose your money if you invest in surveillance companies.
;) ).
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?
"What do you think?" "I think 'What, do you think?!'"
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 (warning: .pdf) by the St. Louis Federal Reserve Bank, that $200US at retirement might have the same purchasing power as that $1US now.
YMMV.
--The usual disclaimers apply
So, first thing is to pay off credit-card debts. You don't get a deduction on the interest and it's hard to beat a sure 9%-21% return on your money. If you take care of your credit score, then you will be able to borrow the money back later when you need it.
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.
"God fights on the side with the best artillery." - Napoleon, Marshal of France - speaking truth to power
If you have the money I would say pay the tuition. Less debt you have the better off you are.
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...
Your entire first sentence is a blatant oxymoron. Let me get this straight, you borrowed massive amounts of money, thousands of dollars, to cover "all your costs" [which you state are minimal,] to graduate with money in the bank? First off, if you have minimal expenses for college, you should be taking advantage of that by investing the money you earn, not the money you borrowed [which as a previous poster stated, is illegal]. Second, I understand living is an expense, but get a job like a responsible person and pay your way. Third, if you don't need to touch your money for three or four years, it may be smart to use a minimal cost savings account through someone like ING Direct. They don't have physical banks or tellers, so they save $ and pass it on to you in the form of higher interest rates for your savings. Ex: Average savings account interest yield today .25%, ING's is 4.35%. That's insanely better.
Here's a plan, may or may not work for you but its working for me. I didn't take a single loan out for college. I had one meager merit scholarship, and I worked part time during nites and weekends, and full time over summer and winter breaks. I paid my way through college with the miniscule help of my parents, and I graduated in four years. I now have a substantial salary at a significant software company, and I still live at home. While some of my friends are blowing their new influx of cash on their own new apartment and new car, mocking me for choosing to stay at home for 3 more years, I will be buying a house while they pay rent on something that holds no equity.While other friends are forced to live at home to pay off 30k-40k (sometimes higher)in student loans, I have managed to put 20K in the bank in 12 months, while still living comfortably with plenty of spending money in my pocket each week. Not to mention the fact that I'm not spending a single dime on my Master's degree, which I am getting part time. Now picture just turning 25 years old, with 60k in the bank (to be used as a down payment on a beautiful new home), 3 yrs full-time experience in my field, a fantastic rewarding job at a major company, and a Masters in Computer Science. Not to mention all that was done without a single ounce of debt to my name (or my parents). I think you will see better plans involve NOT borrowing money.
Check out Primerica 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:
Wow, I guess I have a lot to say on this subject. Disclaimer: As probably most /. posts, I am not qualified in any way to make the following statements. Do your own due diligence and check everything I say.
:)
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 great idea, but unless you can count on lots of long-term appreciation don't buy a bigger house than you need.
2. However, if you CAN find a cheap enough place, note that: the principle part of your payment you're investing in the long-term, so don't compare that part to your mortgage and you get a tax deduction for the entire amount of mortgage interest, so reduce that part by your taxes (and you won't pay gains on the first $250,000 of profit, either).
So my rule of thumb is that if your 30-year mortgage, before tax advantages is only 25% more than your rent it's probably a good deal. This does not assume any significant appreciation, but it doesn't apply in a town that's dying or if you're in a coastal city right now and there really is a huge housing crash.
Also if you HAVE any equity in your house when you buy it and have good credit you can lock-in a home equity line of credit, not borrow from it, and have a guaranteed credit reserve at minimal or no cost.
3. I'm going to arbitrarily define a long-term investment as one where you can reasonably guarantee you won't need the money for 5 years. Generally I wouldn't get into the stock market without that kind of horizon, which I don't think you have now. Because a volatile investment can go down with little reason, and often if it goes down without a great reason the right answer is to hang onto it. So don't do this unless you're sure you have enough of a liquid reserve and then you have maybe twice that
4. However, if you want the short version of doing pretty well with relatively low risk in stocks go to fool.com If you want the shorter version: buy S&P500 and Russell index funds. Generally avoid most mutual funds.
5. There are three basic strategies I'd address to having available, relatively short-term money. How much of it does depend on whether you have the bank of Mom and Dad for a really big emergency...
And really it's a tiering process... you should have SOME very liquid cash, some that's a little less liquid, etc.
One option is certainly a money market. Another is a short-term CD. You might look into some treasury securities.
6. A technique for investing in vehicles that have a slightly longer term than you like is to invest, say 1/4 of your cash in a 3 month CD, then in a month invest another quarter and in two months another. (Leaving 1/4 as cash) Then everytime a CD matures you can roll it into another (many banks will do this automatically) but at any given moment you have to wait no longer than 1 month to get your money.
7. Roth IRAs. If your cash now is from actual earned (taxable) income, you are probably eligible for a Roth. And if you are, you should be putting money in it up to your income or the Roth cap. Things to know:
A Roth is a tax designation, NOT a vehicle. So you can have a "Roth savings account" or a "Roth CD" (but you can't mix it with your other money, of course)
Because you contributed after-tax money to the Roth, you can generally withdraw anything up to the entire amount you contributed without penalty*. (You can't ever withdraw the INTEREST until your retire, though) This makes a Roth unique among retirement tax options in that it can double as a liquid reserve (if it's in a liquid vehicle)
*(You still don't especially WANT to withdraw it, because what you can't do is ever put that money back into the Roth. If you withdraw it you are essentially in the same position as having never put it in, but because there are caps on per-year Roth contributions there's a big incentive to start early and keep contributing.)
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There must be a bunch of DaveRamsey crasies with mod points. His central tenet is potential suicide in modern banking. Yes, live on a budget. Yes, live within your means. Yes, pay off most of your debts.
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 may as well have a 400 (bottom of the barrel). Keep two credit cards open, use them regularly (gas, groceries) and pay them off each month.
If you make a big purchase (house, car, student loan) get a low interest loan. You can pay it off quicker than necessary, but make sure it's on the books for at least a year. Don't want a mortgage and have the cash? Get a 5 year balloon an put the cash in a CD - the rates should cancel, or you'll end up a couple bucks ahead, and it'll look great on your credit report.
Remember, if you're not a multi-millionaire with cash-safe investments, you're going to need financial help at some time. Suprise medical costs can bury you financially, as can possible legal action. Don't get caught paying two or three times the going interest rate because you wanted to be "Dave Ramsey Debt Free". I've got news for you - if you pay your CC every month, and have more cash in the bank than you owe on your house, you're still debt free.
Is it just my observation, or are there way too many stupid people in the world?
I've always been jealous of the way the banks and credit card companies lend out so much money at high interest.
Now, there are micro-lending options for consumers - this business is still in its infancy, but its worth a look:
http://www.prosper.com/ (U.S.A. only)
http://www.zopa.com/ (U.K. only atm i think)
I personally have over a hundred loans out to various borrowers, and even if many (%20+) of them default, I'm still beating the return I'd get from a money market account. They are legitimate, unsecured loans, and adversely affect borrowers credit ratings if they are delinquent.
They've been in the news a lot recently too: http://news.google.com/news?q=prosper.com
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