[skitlets]

Well, Head-Fi has been the most knowledgeable online community I've ever been apart of, so I suspect quite a few of you have experience in investing. I've spent the majority of my day looking over how to begin an initial investment with a low minimum. I'm still a college kid but this summer, for the first time, I'll actually be able to save up a little bit of cash, perhaps $1,000 to $1,500. The rest I'll keep in a relatively high savings account (3.25%) should unexpected school expenses arise.

Now, I've learned only a bit about investing after scouring the internet. From the information I've gleaned, I want to put my money into something with liquidity since I'll never know what might happen during my school years, so something I'll see returns on in the next 2-5 years.

Bonds are out of the question since they incur penalties for early redemption.
Stocks are out, since I don't have the time to follow the market closely. (I've to prep for the LSATs and if all goes well, I'll be in law school in two years; I predict law school to eat up most of my time)

So, I figure mutual funds might be the best bet since they are managed and are usually diversified, but do I choose actively managed mutual funds or index funds? I've read only good things about index funds and how they beat out the majority of other mutual funds but is highly determinant of the market since they attempt to mirror it. Is now a good time to try to index the market? Almost all 5 Vanguard funds listed on their main site are down for the short term, though up for 5 and 10. If index funds are a solid route to follow, which ones? Vanguard funds require about $3,000 minimums which are twice as much as I'd have to start with. I haven't done much reading on indexes outside of Vanguard.

I'm calling on economists and other pros to help me out! Are any of my initial understandings flawed? Should I build up more capital and dump them into safer CODS and savings accounts before I take any risks? Help please!

 

[GASTAN]

cool deal, u did your homework.
indexing is the way to go and Vanguard is the biggest family.
(I would just suggest of making money during your studies rather than drawing them from your savings)
If $3000 is ninimum, then u may want to "borrow" $2k from parents (maybe you can sell it to them as a good idea) or check some indexx ETFs, they may have no limits (but you pay some brokerage fees as if u'd buy stocks)
also try google://lazy portfolios (See Paul B. Farrell. @ marketwatch) to see some portfolios (you rather invest to more than one fund) with lower requirements of investmen

 

[diogenes]

I would suggest trying a paper portfolio (http://library.thinkquest.org/3096/44paper.htm) to develop a greater understanding of how you react to changes in value.

In addition, I would caution you not to invest any money you need.

 

[Uncle Erik]

A savings account is the first step and index funds are great. Pay as few fees as you can.

I still like real estate. I stayed out of the bubble and when prices get to about where they should be (next year or two) I'll buy more income property. You might not be ready to get into it right now, but keep it in mind for the future. When prices are at market levels, you can make good money and get a nice spread of deductions.

 

[jh4db536]

personal taxation is not my specialization, but here are a few things to look into.

Hold long positions for over a year to get 15% long term capital gain tax treatment on taxes opposed to short term capital gain (rape if you are in an high income bracket).

Real estate is good because you get $250k max appreciation deduction or $500k (married) on 1st or 2nd residence. So that's like tax free gain.

municipal bonds are exempt from income inclusion for tax purposes.

i never thought about investments from this perspective before my major. When uncle %^&ing Sam is taking 25-35% from your income....that's a lot of money to avoid forking.

3.25% minus tax so you actually get less. what's the risk free rate these days? even those have to pay tax on =\

 

[skitlets]

Thanks for the replies guys! About muni bonds, etc. and ways to try to minimize taxes, I'm definitely not into the higher tax brackets so I don't need to worry much about them. I'll keep taxes in mind for the future, along with other investment avenues, such as real estate. In fact, I'm not even sure if I'll break into 10k working this tax year! You are right about savings accounts not producing much, especially if inflation rises. I might look into Series I bonds after I build up some savings. I still want to have a solid amount in my savings should something awful happen (like losing financial aid), so caution heeded diogenes!

For index funds, does anyone have any particular specialty? Which market should I follow, the S&P500? I think there was one fund that indexed the ENTIRE American market. Are funds that deal in stable foreign markets a good choice with the falling dollar?

 

[breakfastchef]

Your bank probably has a brokerage division. Set up a free meeting with a financial specialist. He will help you identify important issues such as risk tolerance, investment horizon, savings goals, etc. Go the free route before you even consider jumping into the market.

That said, no-load mutual funds and ETFs are easy to buy, generally have active managers and are good choices if you do not want to constantly watch you portfolio.

 

[diogenes]

Quote:

Originally Posted by breakfastchef /img/forum/go_quote.gif Your bank probably has a brokerage division. Set up a free meeting with a financial specialist. He will help you identify important issues such as risk tolerance, investment horizon, savings goals, etc. Go the free route before you even consider jumping into the market. That said, no-load mutual funds and ETFs are easy to buy, generally have active managers and are good choices if you do not want to constantly watch you portfolio.

To go with the opposite, I would weight someone’s advice you directly pay for a bit higher than a free advice (especially) in investments. Might be worth it to you.

However, it seems you are college, I am sure they have a personal investing type course, which should have a lot of good advice concerning fees etc. I doubt they will teach robust valuation procedures, but it might help you get an idea about the investing ecosystem.

 

[skitlets]

I'll probably go to the bank branch a couple blocks away to check on different savings accounts, although WaMu doesn't seem to offer much aside from that 3+% savings. Some of the CDs don't even offer that high of an interest rate. I also realized a couple of my friends are econ majors here at school, looks like I'll be bugging them!

Oh, and can anyone explain the differences between ETFs and Index Funds? It seems the two are pretty similar but ETFs can be traded like stocks, and as such, seem a little riskier and have higher fees.