Slashdot Mirror

← Back to Stories (view on slashdot.org)

Investing Tips for College Students?

Posted by ryuzaki0 on from the for-the-financially-minded-among-us dept.

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?"

27 of 740 comments (clear)

  1. Live frugally first! by BWJones · · Score: 4, Informative

    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....

    --
    Visit Jonesblog and say hello.
    1. Re:Live frugally first! by rblancarte · · Score: 4, Insightful

      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

      --
      It is human nature to take shortcuts in thinking.
    2. Re:Live frugally first! by kingkongrevenge · · Score: 5, Interesting

      Real estate, mutual funds, and the stock market are the worst possible investments you could make right now.

      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/10 1705/image010.gif

      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.

  2. Talk to the pros by macx666 · · Score: 4, Insightful

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

    1. Re:Talk to the pros by WhiplashII · · Score: 4, Informative

      Although be careful - the financial professional's first obligation is to enrich himself, otherwise he is self-selecting to not be a finance professional.

      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...)

      --
      while (sig==sig) sig=!sig;
  3. Reality check by mr_infiniti · · Score: 5, Funny

    There is no future - drink all the beer you can now!!

  4. Pay down any credit or loans. by arthurpaliden · · Score: 5, Insightful

    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
  5. Loan type? Interest rate? Payoff schedule? by psoriac · · Score: 4, Insightful

    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
  6. Get out of debt by miracle69 · · Score: 5, Insightful

    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.
    1. Re:Get out of debt by GenKreton · · Score: 4, Insightful

      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.

    2. Re:Get out of debt by serutan · · Score: 4, 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.

      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.

  7. Sounds crazy but... by heldlikesound · · Score: 5, Funny

    ...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
  8. Believe it or not it's illegal by KingOfBLASH · · Score: 4, Interesting

    To invest your student loan proceeds until you can use them.

  9. Percentages are misleading... by cloricus · · Score: 5, Informative

    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.
  10. Good advice: by megaditto · · Score: 5, Funny

    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.
  11. HELP NEEDED TRANSFERRING FUNDS by colman77 · · Score: 5, Funny

    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

  12. My Advice by vorwerk · · Score: 5, Insightful

    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.

    1. Re:My Advice by greg1104 · · Score: 4, Informative

      I wanted to add some confirmation and some slight different suggestions to this excellent set of advice.

      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 .com bubble bursting, and there have been some sell-offs on massive volume this summer. There's certainly some room for it to keep going, but I'd hesitate to recommend that as a passive investment vehicle at the moment--there are a lot of signs the best part of the move is now history. You don't want to be one of those people who buys into the stock market just as it hits its peak, only to watch your money get chipped away for years by a bear market.

      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.

  13. Re: What a crock of self-important crap by Black+Parrot · · Score: 4, Funny

    > First off, get over yourself. Brandishing about the fact [...] is load of self-important horseshit.

    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...

    --
    Sheesh, evil *and* a jerk. -- Jade
  14. Re:What a crock of self-important crap by Clover_Kicker · · Score: 4, Funny

    > College is hard work

    You're doing it wrong!

    Go to all your classes, do all your assignments, get Bs.

    That leaves lots of time for partying.

  15. Don't put it in stocks or stock funds by akratic · · 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:

    • 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?

    1. Re:Don't put it in stocks or stock funds by ScottSCY · · Score: 4, Funny

      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's more ethical than downloading music from the internet without paying for it, which most people here on slashdot seem to think is ok.

    2. Re:Don't put it in stocks or stock funds by mstahl · · Score: 4, Informative
      Ethics: It's money that was given to achieve an end, to hamstring yourself by not trying to do something worthwhile with the money in order to facilitate paying it back, is a waste. It shows well on the article writer that they are wanting to do that. Anything less is lazy.

      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.

  16. Re:Mutual fund by sickofthisshit · · Score: 4, Informative

    Most banks will offer you some fund with a huge sales load or marketing fees, because that's what pays the bills for the bank. They generally don't get the management fees (the managers of the fund do).

    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.

  17. KingKong's post... by Brickwall · · Score: 5, Insightful
    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.

    --
    What was once true, is no longer so
  18. Re:Now is the best time to invest! by FuturePastNow · · Score: 4, Interesting

    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.
  19. Pay the Tuition stay out of Debt by raal · · Score: 4, Informative

    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...