College Student, No-debt, $20,000 Need Advice

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l Taz l
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Joined: Mon Sep 05, 2011 2:36 pm

College Student, No-debt, $20,000 Need Advice

Post by l Taz l »

I am new to investing and I am looking for some financial advice. I am a 20-year old college student, with no debt, and I recently received $20k. I want to invest the money, but I do not know what I should do. I currently have a mutual fund with some money, and a emergency fund with around 4 months of my yearly salary.

I have thought about investing in a traditional IRA, stocks, or a vanguard mutual fund.

My question to you is, if you were in my shoes what would you do with the money?
livesoft
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Post by livesoft »

I would take a few bucks of it and buy some of the books on the recommended reading list and then read them.
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kilowattcorn
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Re: College Student, No-debt, $20,000 Need Advice

Post by kilowattcorn »

l Taz l wrote:I am new to investing and I am looking for some financial advice. I am a 20-year old college student, with no debt, and I recently received $20k. I want to invest the money, but I do not know what I should do. I currently have a mutual fund with some money, and a emergency fund with around 4 months of my yearly salary.

I have thought about investing in a traditional IRA, stocks, or a vanguard mutual fund.

My question to you is, if you were in my shoes what would you do with the money?
If you have taxable earned income, max out a contribution to Traditional IRA (such as the Vanguard Tradtional IRA account). This will offset some of your income tax.

Put the rest in a low-cost fund account of your choosing. If you have nothing else to do with the money, the Target Retirement accounts are a nice way to not worry about it, and is appropriate for both your taxable accounts and IRA. If you think you'll spend it soon, be sure to pick a fund that does not have a minimum holding period.

If you want to dabble in stocks, you can open your Vanguard accounts with a brokerage option too. Vanguard's trading commissions may be slightly higher than Schwab or others, so if you think you'll trade a lot, shop around.
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interplanetjanet
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Re: College Student, No-debt, $20,000 Need Advice

Post by interplanetjanet »

l Taz l wrote:I am new to investing and I am looking for some financial advice. I am a 20-year old college student, with no debt, and I recently received $20k. I want to invest the money, but I do not know what I should do. I currently have a mutual fund with some money, and a emergency fund with around 4 months of my yearly salary.
I'd start by asking if you would have a likely need for this money in the next 5 years - would school costs be a potential issue, might you need it if you go to grad school, etc. If your timeline for the money may be short, you are best off putting it in investments that are either guaranteed or very stable - these can be CDs, series I saving bonds, a rewards checking account, and so on.

-janet
Breezy
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Post by Breezy »

Hi there,

I think I would keep it in CDs and consider it your emergency fund. That puts you in a very, very solid position. You could put $5K in a Roth IRA now and another 5K in January (assuming you have at least that much income) so it can grow tax-free and you're less likely to spend it in the future, but you could if you needed to.

If you do set it aside as an emergency fund, from here out, any money you save can be invested more aggressively.
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kilowattcorn
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Re: College Student, No-debt, $20,000 Need Advice

Post by kilowattcorn »

l Taz l wrote:I am new to investing and I am looking for some financial advice. I am a 20-year old college student, with no debt, and I recently received $20k. I want to invest the money, but I do not know what I should do. I currently have a mutual fund with some money, and a emergency fund with around 4 months of my yearly salary.

I have thought about investing in a traditional IRA, stocks, or a vanguard mutual fund.

My question to you is, if you were in my shoes what would you do with the money?
I keep thinking about this post and I'm going to amend my advice.

You already have an emergency fund. Presumably your salary is enough to live on and you're comfortable and not otherwise under any kind of financial pressure.

The first thing you should do with the money is pay off any debts you have (financial aid?). For most people, debt is a continuous source of stress, even if it is small.

Then, think about how you might use it to better yourself in a lasting way. You're only 20 and will have a college degree and you have a long salary-earning future in front of you so it would be a mistake to focus solely on long-term investment. Here are some examples of things you could consider:

- if you're overweight, hire a personal trainer, buy a bicycle, etc.

- if you're addicted to tobacco or other drugs, put yourself in a program to help you stop.

- if you have any chronic body pain, see the appropriate healthcare professional about it.

- if your little inner voice tells you that you have problems expressing emotion, get a dog.

- if you're ignorant about money management, buy one or more of the books listed on the wiki and internalize them and talk to other people who have money about it.

You are young enough that you can reprogram yourself for long-term health. Smart investments in yourself will reduce your long-term expenses more than enough to offset a year of returns from following the traditional savings advice.

After you've done those things, then you should stash the money away in one of the Bogleheads-compliant savings options.
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Watty
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Post by Watty »

At your age the most important thing over the next few years is getting the rest of your financial situation off to a good start and staying out of debt. If you don't need the money for college then you will likely need it when you graduate to move into an apartment and furnish it as well as things like buying a car so you would need to put is someplace that is safe.

Usually the best thing would be to put the money a safe money market fund or CD until you plan to use it but these are paying essentially zero interest right now. An alternative for money that you will not need for at least a year is to put $10K into iBonds that are currently yielding almost 5%. There are some restrictions and the rates will change in a few months so you should research this soon. If you search this board you will find several recent threads about iBonds. In a few years when you need the money you can cash the iBonds early with only a small penality.
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muddyglass
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Re: College Student, No-debt, $20,000 Need Advice

Post by muddyglass »

l Taz l wrote:I am new to investing and I am looking for some financial advice. I am a 20-year old college student, with no debt, and I recently received $20k. I want to invest the money, but I do not know what I should do. I currently have a mutual fund with some money, and a emergency fund with around 4 months of my yearly salary.

I have thought about investing in a traditional IRA, stocks, or a vanguard mutual fund.

My question to you is, if you were in my shoes what would you do with the money?
first, congratulations on having no debt and being interested in investing at such a young age. time is on your side.

if i were in your shoes, i'd read a lot of books on investing plus read a lot of the threads on this forum before making any major moves with the $20,000. there's a good list of recommended books linked to on the main page. i'd come up with a suitable asset allocation that fits my personality and needs and then stick with it, re-balancing when appropriate. i'd also slowly put my money into the market a little at a time while i do more and more reading, and become more and more comfortable with handling my own investments. this is pretty much how i invested my first $20,000 when i started out.
Curlyq
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Post by Curlyq »

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Last edited by Curlyq on Thu Oct 18, 2018 1:22 pm, edited 1 time in total.
Redwing
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Re: College Student, No-debt, $20,000 Need Advice

Post by Redwing »

l Taz l wrote:I am a 20-year old college student, with no debt, and I recently received $20k. My question to you is, if you were in my shoes what would you do with the money?
I wish I were in your shoes, but there are no do-overs in life.

But I do have a 20-year old college student with no debt that has recently accumulated half your windfall.

This is the advice I would give him:

First, stand there and do nothing. Keep the $20k in a savings account. Don't spend it, don't invest it, don't do anything. Keep it safe.

In your spare time read the books recommended by livesoft.

Consider enrolling in, or auditing a class in personal or corporate finance, or micro or macro economics, or engineering economics at your college. Look at the syllabus and seek out topics like NPV, mortgages, cash flow, mutual funds, stocks, bonds, interest rates, marginal utility, taxation, etc.

If you are comfortable with advanced algebra and can manipulate an excel spreadsheet and can devote 40 hours of research over the next 10-14 weeks you will be well on your way. There is no free lunch.
pete82
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Location: ATX

Post by pete82 »

do you need this $ for current or future tuition?
"What everybody else knows is not worth knowing." - Gerald M. Loeb
rylemdr
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Joined: Wed Jun 15, 2011 6:10 am

Re: College Student, No-debt, $20,000 Need Advice

Post by rylemdr »

kilowattcorn wrote: I keep thinking about this post and I'm going to amend my advice.

You already have an emergency fund. Presumably your salary is enough to live on and you're comfortable and not otherwise under any kind of financial pressure.

The first thing you should do with the money is pay off any debts you have (financial aid?). For most people, debt is a continuous source of stress, even if it is small.

Then, think about how you might use it to better yourself in a lasting way. You're only 20 and will have a college degree and you have a long salary-earning future in front of you so it would be a mistake to focus solely on long-term investment. Here are some examples of things you could consider:

- if you're overweight, hire a personal trainer, buy a bicycle, etc.

- if you're addicted to tobacco or other drugs, put yourself in a program to help you stop.

- if you have any chronic body pain, see the appropriate healthcare professional about it.

- if your little inner voice tells you that you have problems expressing emotion, get a dog.

- if you're ignorant about money management, buy one or more of the books listed on the wiki and internalize them and talk to other people who have money about it.

You are young enough that you can reprogram yourself for long-term health. Smart investments in yourself will reduce your long-term expenses more than enough to offset a year of returns from following the traditional savings advice.

After you've done those things, then you should stash the money away in one of the Bogleheads-compliant savings options.
This is a completely new way to look at things.

I know this is an investment forum, but your advice is very good nonetheless.

Well done :)
John Galt
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Joined: Thu Jan 20, 2011 11:44 am

Post by John Galt »

I would do:

$10,000 in Total Stock Market Index Admiral
$10,000 in Total International Index Admiral
wilked
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Re: College Student, No-debt, $20,000 Need Advice

Post by wilked »

kilowattcorn wrote:
l Taz l wrote:I am new to investing and I am looking for some financial advice. I am a 20-year old college student, with no debt, and I recently received $20k. I want to invest the money, but I do not know what I should do. I currently have a mutual fund with some money, and a emergency fund with around 4 months of my yearly salary.

I have thought about investing in a traditional IRA, stocks, or a vanguard mutual fund.

My question to you is, if you were in my shoes what would you do with the money?
I keep thinking about this post and I'm going to amend my advice.

You already have an emergency fund. Presumably your salary is enough to live on and you're comfortable and not otherwise under any kind of financial pressure.

The first thing you should do with the money is pay off any debts you have (financial aid?). For most people, debt is a continuous source of stress, even if it is small.
College Student, No-debt, $20,000 Need Advice
Looks like he/she is all set there.

My thoughts are to funnel it all in to a Roth, $5k/year at a time. $5k now, $5k in 4 months, and then $5k a year after that.

The missing $5K? That is your travel fund. Decide on an exotic place that you would love to go (Australia, Africa, Asia) and start planning your trip...
redbeard123
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Joined: Tue Apr 12, 2011 11:07 pm

Post by redbeard123 »

put it into a roth for this year and as january changes do it for next year, make sure you earn at least 5k in both years to justify the contribution. Go to wikipedia and teach yourself how to invest.
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