Thu 10 Mar, 2005 05:20 pm
i am a 21 year old student and was told by my teacher's to start investing in a private investment account due to the new S.S. reform. i would just like some help on what would be the best way going about this since i haven't the faintest idea on starting.
Two pieces of advice.
1) Invest as much as you can. You should always take part in any 401K plan you are offered by an employer-- especially as many employers match (and this is free money). Any money you invest for retirement should be sacred (i.e. don't even think about withdrawing it).
2) Vote Democrat.
Your teaching is probably a bit premature to say you should invest due to SS reform since no reform has been passed (or even introduced to the Congress!) yet but it's a wonderful idea to begin investing early in life.
As a 21 year old student you probably don't have a whole lot of avaialble cash but there are things you can do.
Start with some basic ideas and work toward what you want.
What would you be investing for? Retirement? Buying a future home? A Future child's education?
Prioritize and put your savings first. There is an old saying that a person's expenses will grow to match what they have to spend. It true to a large extent. Save up front and you won't get used to spending the money.
Also, how much money do you have left after tuition, books, etc.. for school?
Fill in the blanks and people can give you some ideas.
well as for the moment i am looking at retirement..but it wouldn't hurt to know the paths for home investment or college savings for my future children.
it's correct that i don't have much available funds currently..i could say i ahve about 1300 in my savings account.
but it is at times hard for me to raise my savings amount due to bills, phone, car insurance, school related expenses.. etc. any helpful tips/ideas?
I'll give you the routine I was taught some years back.
Start small. Put $25/month into a savings account. for now. Being coinsistant is more important than the quantity right now. You'll get used to not having that $25 every month.
If your income increases, increase the amount you save every month. Once you finish school and aret working a full time job that will be easier. If you get a $200/month raise you increase your monthly savings deposit by $50 etc... (I like to increase the amnount by 50% of the raise)
At the end of your first year go to your bank and open an IRA (probably a "Traditional IRA" for now.) and transfer the bulk of your savings into your IRA acount.
Once you graduate and are working full time you want to work towards a few targets. Just keep your monthly deposits going into your savings account and then shuffle the funds from there to your other accounts as you decide you want to (except for your 401K - you're employer will take that out of your check and you can't hold it.)
Emergency Savings: You want enough in a savings acount to cover all your bills for 4-6 months (in case you find your self unemployed!). Put this in an interest bearing savings account. Figure out what all your monthly bills total up to and multiply that by 4. That's your low end target for this account. Set that much aside and leave it alone. Just do a recalculation once a year when you do your tax returns and see if you need to increase it a little.
Retirement Plan: Use a 401K through your employer if they have one. You also want your own IRA account - two eventually, a Traditional and a Roth IRA. If you leave your employer you want to transfer the balance in your 401K with them to your IRA. Ideally, max out your 401K and the Traditional IRA until (with luck!) you reach the point where there are no additional tax benefits to adding to those. Then put anything else into the Roth IRA. I hear a lot of professional investment advisors use 20% of your annual income as the total target for retirement savings.
House Account: At some point you'll decide you want to buy a house/condo, etc.. You can shuffle some $$ into this account as you start thinking about it. You can buy long term CDs to start with and earn better interest than a standard savings acount. As you get closer to deciding to buy something shorten the terms on your CDs with the plan that you'll be able to cash them in and use them as your downpayment.
Education Savings: If/when you have a child open a savings account and a 529b account. Whatever you put in the 529b will earn interest tax free as long as it's used for educational expenses when it's taken out. Start one account for each child as they are born.
Lastly, go to some investment seminars or Adult Ed courses. Don't buy anything anyone tries to sell you at one - EVER! Just go for the knowledge.
As you start going through all of these steps you'll need to consider lif insurance too. Talk to some insurance professionals and find out what is out there. Talk to several before doing anything. Start with your bank where your accounts are.
I am not a big believer in whole life insurance. I would much rather invest the money, than pay premiums.
When my son was a kid, my husband bought term life insurance, which is cheap, and made it so that it would end when my son reached his majority. In that way, If something happened to him while my son was still a minor, there would be funds available.
All in all, I believe that we did the right thing.
Others will have differeing views but I tend to agree with you. I only buy term policies to cover specific events. I just reduced one of my policies because my daughter is now close to finishing college. She'd get enough to cover her last year, her living expenses for that year and a few thousand beyond that but that's it. I have another policy that would be enough to pay off the mortgage on the house that I own as well. I've never bought a whole life policy and doubt I will at this point.
thanks for all the guidance. very helpful.
So many options
If you have the ability not to mention the drive to attack saving at your age you are way ahead of where most of us were.
So with that being said there are lots of things out there and many paths to take. Is this in fact for retirement? Or will it be used for a house in a few years? If it is for the grey haired days ahead I would keep it pretty simple. If you have a job and your employer has any sort of 401k with matching that is always the best first choice. After that things get a bit fuzzy but most would say fund a Roth IRA next. I imagine you probably fair pretty well with taxes as a student so until you start earning a lot you now have a whole world to choose from. 401 is nice to avoid a bit of taxes after Roth if you wish to save more, but find a nice mutual fund and just make contributions as you can. That leaves lots of options open for anything down the road. Take it from me and millions of others, just starting now will make a world of difference.
When it comes to money time can be your best friend, or vice versa.
Two cents to follow (if investing in the stock market):
Being from Norway myself I don't know how the various US savings plans work, but if you intend to invest in the stock market your best bet is not to invest directly, but to buy into some fund. Since you won't be spending all your time looking for good investment opportunities, you should have your money managed by someone who will. If you take the time to dig up a good broker you can expect to consistently beat the index. And look for broad mandates, if you work with the premise that professionals will do a better job than you in deciding where to invest your money it makes no sense to shackle them by forcing them to invest only in the IT sector or some such. Personally I have a lot of my investments in Skagen Global, a small Norwegian fund that has averaged 20% growth a year since it's creation in 1990.
Look at as many funds as possible before settling on one (or a couple), and check their performance for as long as the broker currently working for them has been running the fund. Don't focus on the exerpts of history they try to throw at you, focus on the entire history of the broker running the fund.
Another way of determning the risk level of a fund is to look at it's performance relative to the reference index in bear versus bull markets. Skagen Global for instrance has historically declined by 80% of the decline of the index in bear markets, and appreciated by 177% of index apreciation in bull markets. This is not a very high risk fund. Skagen Kontiki, where I am also invested, has declined by I think 122% of index decline in bearmarkets, and appriceated by I don't know how much in bull markets. This fund operates on higher risk in emerging markets and is harder hit in difficult times. It has averaged a stunning 30% a year since it was started, but doesn't have too long a history to it. I'm only invested in this fund because it is run by the same people that have done well over a number of years with Skagen Global.
Also, there are multiple rating agencies for funds which might be helpful in deciding which ones to look into. Do invest some time in digging up good funds, if you intend to invest a decent amount of money it may well pay better than any wage you will ever get in your life.
Oh, and don't buy high and sell low like too many do, buy when the ratio of reported net worth to stock price is high, and either sell when it is low, or ride out the fluctuations.
thanks for all the suggestions everyone