So I'm paying myself first, what do I do with it?

Question

I've just begun shaving 10% off of my paycheques. It is sitting in my "high interest"(roll eyes) savings account. Now what do I do with it? I'm 20, still a student in engineering for the next 2 years. I could definitely use the money for school. Right now I'm carrying ~4000 LOC at prime+2, which I also intend to pay down to at least under 1000 this summer. But I do really want to start investing small now, to get into the habit as well as try to pick up some knowledge. Not sure what is the best way to start?

Answer 1

An IRA is a good choice.  I think a Roth would be better from what you tell us.

The only people who should invest in individual stocks, or play the bond markets or attempt forex are those who have at least a Masters in Finance...and preferable some CFA level.  

If not, invest in index and or mutual funds.  Pay a small fee and let a team of hardworking MBAs, CFAs and PhDs with decades of experience pick the stocks/bonds/whatever for you.

Answer 2

Brokers and investors usually say: What is the best time to be an investor?

The answer is: "Any time!"

Truly, you will be OK if you invest all the time. Just make sure you avoid excessive risks like putting all your money into one risky investment, which is performing well at the moment, but may loose 50% in value overnight, etc.

You are young, so you can invest into risky portfolios, but always diversify. For example, if you invest into energy stocks, put some money into healthcare also. If you buy small caps, buy some blue chips also, etc.

Better yet, get a financial advisor. They work on commission, but this comission comes out of the money they make for you. I think its worth it.

Answer 3

I think it is best to have a financial adviser.  Make sure you do plenty of homework, and try to get referrals from people you already know that are good with money(good at saving an investing, not good at spending it on sports cars).  

You are probably going to want to look into a mutual funds, or individual stocks, or bonds(later on down the road since the bond market is in the tank right now).  Don't throw everything in all at once.  You have the right idea to start off early, but also start off slow just in case you do make some mistakes.  You should definitely consider looking into a Roth IRA for retirement.  

Go over to the business area of your college and talk to some finance professors.  Get recommendations of advisers from them, get their advice, maybe even take one of their classes as an elective.

Answer 4

I think sharebuilder.com would be an excellant place to start. ( I don't work for them) This is a relative easy way to invest without investing much money. A good way to understand the power of "growing" your investments and understanding how to amke good decisions .Good luck!

Answer 5

Pay off debt.

Store 3-6 months of emergency funds in a liquid account like a money market account of a checking account.

Put the rest of the money in a ROTH IRA.

Investopedia.com is free and full of information.

Answer 6

Definately work your debt down. Often people lose money when they start investing.

I'd suggest you first manage a mock portfolio, before you risk real money. Having a mock stock portfolio, lets you learn from your mistakes without actually losing any money. You'll learn if you buy too early or too late, whether you're better off with growth stocks or value stocks etc.. You'll know if you tend to focus too much on a few sectors, making your portfolio volatile. Xearn.com is a great site to manage a mock portfolio. You can also see what others are investing in on xearn.

A great book for a beginning investor is Intelligent Investor by Benjamin Graham.

Answer 7

10% is a very respectable sum, might I suggest a Whole Life policy as an early start is cheaper.

also allow your self another 10 % and start a small part time wholesale bussiness on the side ,partners from different areas of town or state in the engineering Field would make quite a resourse pool. And ply your profit into Your school expences. and write off a corresponding portion of everything.