Investments for a young college student

Investing in yourself has a far greater return than anything else you can invest in. I'd suggest focusing on completing your education, and trying to get though without student loans. Leave some time available to get involved in some organizations, meet some people, and consider doing an internship.

If you really have money left over after that, and some of that money is earned, then consider an IRA account at a bank or brokerage. Since you are investing with a very long time horizon, look for a moderately aggressive mutual fund, or go with a broad index. Vipers might do the trick for you (they are an exchange traded fund, which is like a mutual fund, but trades like a stock).

If you have any time left over, it would be good to read a book (or two or three) about personal finance. I'd hate to see you invest in something that you don't understand just because I said to in a newsgroup posting. You really want to know what you are doing here because the financial salespeople can really take you for a ride otherwise.

-john-

Investing is something you can study - not unlike any other subject, there are basic principles. Two authors widely recommended are Benjamin Graham ("Security Analysis," 1962) and Jeremy Siegel (who wrote "Stocks for the Long Run"). Warren Buffett made a comment to the effect, "Learn all the accounting you can." (Be sure to use a dictionary to look up any word you do not fully understand.)

Many here and elsewhere are content to turn over the portfolio to someone else, whether a mutual fund or private asset management. Others' approach is to carefully select and manage one's own portfolio. In all cases, the more you study and understand of this private property world of capitalism, the easier you will find it to make your own informed decisions.

The advice to save money and stay debt-free is great advice. When you have savings, you have something to invest. Just a rule of thumb comment, echoing what John A. Weeks III wrote - don't dump your savings into something you do not fully understand. (Too bad the big banks hadn't heard that piece of advice :-)

Good luck to you, and check back here frequently!:-)

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-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

Note that most of what DD here is talking about is the security-selection part of investing. The truth is, that's only one part of a much bigger picture. For many people, selecting stocks is the *last* thing they need to worry about - first and second are cash and debt management (ie. spend less than you earn, make sure to pay off "bad" debt, etc). Third and fourth are things like making sure you have adequate/appropriate insurance (starting with health and liability, probably followed by disability and, depending on our situation possibly life).

*Then* comes asset allocation - how much should go into different categories of investment (stocks, bonds, cash, real estate, etc). After all of that is were Graham comes in - and even then, only if you want to spend time researching and managing the portfolios.

Even if you plan on investing in individual stocks, whether by selecting them yourself or by using separate accounts or something, most folks at least start with mutual funds. An individual simply cannot construct a diversified long term portfolio through individual stocks with too small an amount to invest.

Anyway, none of this is meant to discourage you from learning about stocks. After all is said and done, some of us actually have a lot of fun with that part - certainly a lot more fun than the spending less than we earn part - but my point is to suggest that there are other priorities which I strongly believe come well ahead of security analysis and stock selection.

Some stuff, though - basic accounting - is very useful both for understanding businesses (and stocks) and for applying those processes - balance sheets, income and cash flow statements - to your personal financial situation, too. In fact, drawing up your personal financial statements is often the best starting point - it's exactly where you'll figure out (a) if you're spending less than you earn; (b) what you're net worth is; (c) how your assets are spread out; etc. - and from there you can start to make the rest of the plans.

True enough!

[my normal suggestion for complete beginners is Eric Tyson's book, Personal Finance for Dummies. Don't be insulted by the silly name or bright yellow cover. It's a great book.]

Here is one of the best set of guidelines to financial success I have ever seen. Seven clear, simple rules that basically cover it all.

Scott Burns is a long time financial columnist for the Dallas Morning News and other papers.

-- Doug

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

I'm going to go against the grain here. It's not often that I so completely disagree with my esteemed coposters, but here goes.

Don't do it. Like John said, you're making the best possible investment right now by investing in yourself. I spent nine years in college and grad school (much to the chagrin of my advisor). It's expensive, there aren't a lot of opportunities to earn money and you never know when unexpected expenses are going to come up. Take your money, put it in an FDIC-insured savings account and count yourself lucky for having a cash cushion. E-Trade is still giving 4.4% APY on their savings account. Heck, given the recent volatility of the market, you could do a lot worse over the next few years.

Also, I want to echo what John said about student loans: the fewer, the better. That's especially true since Congress fixed the interest rate on Stafford loans to 6.8%. In comparison, my wife's med school loans are consolidated at 2.875% and they're scheduled to be reduced to 1.875% in a few years. Back in the day, student loans were a steal. But now... it's better to avoid them if you can.

--Bill

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.