• Go to page :
  • 1 2
  • Text Only
Voting History
rated:
I am a college student, but have managed to save up several thousand dollars. I want to set aside about two thousand so that it can grow and add money to it whenever I can. This isn't my emergency fund, and I am willing to be exposed to some risk. After doing some reading, I think that an ETF or Mutual fund would my best bet. I dont have enough money or interest to invest in stocks, and I think (correct me if I am wrong) I can expose myself to more risk then CD's, and bonds.

I started looking at mutual funds, and it was difficult to find one that out preformed the S&P 500. Since Mutual funds charge anywhere between 0.5 to 2 percent a year to be managed, that takes a chunk out of my money. The only benefit I can see of having a mutual fund is that since its managed, it could prevent me from losing less if something goes wrong. However, I'm not even sure about that.

Learning that only 11 percent of Mututal funds outpreformed the S&P 500, I decided to look at an ETF that tracks it. If I buy SPY, which just tracks the SP 500, it will preform better then mutual funds, pay dividends, and charge less for management.

Is this good reasoning? I realize that the S&P 500 is at all time high, but Goldman Sachs predicted it would continue to grow to steadily grow till 2015. My other reasoning was that even if it took a dip, its bound to go up again in the long term (3-5) years.

Also, I signed up for E*Trade after reading some good reviews of it. I couldn't find anything that was wrong with it, anything I should be looking out for?

Member Summary
Most Recent Posts
3x leverages ETFs are decay in value. You either double short the bull and bear together or use options to bet on direct... (more)

bbmak (May. 24, 2013 @ 1:37p) |

The lure of investing in 3x ETFs over the long-term is understandable. If the market trends upward in the long term, why... (more)

clarkkentorkalel (May. 24, 2013 @ 3:11p) |

Update:

I will open a Vanguard brokerage account and put in 2000 dollars. I will put 1500 of it in Vanguard's VOO that tr... (more)

Vimak (May. 28, 2013 @ 8:34p) |

  • Also categorized in:

3-5 years is not the long term. Stocks can crash and take 10 years just to get back to their previous level (see 2000-2010). If you think you need the money in 3-5 years, stick it in short-term bond funds, CDs, or a high-yield checking/savings account. If you don't think you'll need it 'til much, much later, then by all means SPY is a good way to track large cap stocks.

Bogleheads.org

Read one of the recommended texts.

If you have earned income put the money into a Roth IRA. Take a look at vanguard.

I agree with TheKa, 3-5 years is short-term. If your investing for 10+ years you are on the right track. Congrats! Not many young people get such an early start. You are correct in regards to mutual funds vs S&P500, most funds don't beat the market, so go with the market.

I don't have an E-Trade account so I can't comment on that. I do like ShareBuilder and TradeKing.

Unless you like paying taxes, look into a Roth IRA. You can take the principle out whenever you want, but there are usually penalties on taking out the gains before retirement. In exchange, all the gains you make are tax free. It's a great deal for young people.

Market timing is kinda tricky, but in this case it's pretty obvious...buying at or near all-time highs is a high risk proposition.

You can invest in Schwab's S&P 500 index fund for free with expenses of less than 1/10th of one percent.

http://www.schwab.com/public/schwab/investing/investment_help/in...

Vimak said:   
I started looking at mutual funds, and it was difficult to find one that out preformed the S&P 500. Since Mutual funds charge anywhere between 0.5 to 2 percent a year to be managed, that takes a chunk out of my money. The only benefit I can see of having a mutual fund is that since its managed, it could prevent me from losing less if something goes wrong. However, I'm not even sure about that.

Learning that only 11 percent of Mututal funds outpreformed the S&P 500, I decided to look at an ETF that tracks it. If I buy SPY, which just tracks the SP 500, it will preform better then mutual funds, pay dividends, and charge less for management.

Is this good reasoning? I realize that the S&P 500 is at all time high, but Goldman Sachs predicted it would continue to grow to steadily grow till 2015. My other reasoning was that even if it took a dip, its bound to go up again in the long term (3-5) years.



Mutual funds do not outperform the market in the long term. This must have been only one year, probably 2012 when the mutual funds were stepping over each other to buy AAPL when the hedge funds where selling.

If you want to invest in a mutual fund, I recommend one of the low cost vanguard funds that track the market.

Mutual funds will not prevent you from losing less money in bad situations. If the market takes a -10% loss, the mutual fund would end up down a little more maybe -10.2%. Managed just means that some guy picks and rebalances the fund once in a while. Mutual fund managers are not exactly the brightest in the industry. The good ones get recruited by investment banks, hedge funds, and private equity. Now don't get me wrong, we are talking averages here. Peter Lynch was a genius and he managed the best mutual fund there ever was.

I would becareful establishing a cost basis here for going long. Summer is cyclically a down time.

I know exactly which article you read yesterday about GS. read some of their other articles, they don't think the economy is doing so great. What they said is the fed will keep rates low at least until 2015.

Precisely. No individual investor approach outperforms the market in the long term, so the best an individual investor can do is invest in the market itself, through super low-cost total market index funds.

That is simply not true. Becareful of absolutes. However it is true 99.99999999% of the time, so good advise.

bicker1 said:   Precisely. No individual investor approach outperforms the market in the long term, so the best an individual investor can do is invest in the market itself, through super low-cost total market index funds.

Advice

i would like to say penny stocks but not today, when i was 18 i took 3k, bought 100k shares in a company at .03cents and made it into 15k when the economy crashed in 2008, i would have made 70k if i didnt pull out so early to purchase a sports car, the mistake of my life...

I even asked my parents to borrow 10k to invest money in the company, but they thought i was just young and crazy, i would made them 200k plus if they trusted me

with 2k, i would invest it in the tech sector, they are doing pretty good right now. You probably can double your money in 6 months to a year.

at your age, you can take the risk and you want to make big money in the short term. S&P is more like long term but with only 2k, its pointless investing in that right now unless you are investing 10k plus

RiceBOX said:   i would like to say penny stocks but not today, when i was 18 i took 3k, bought 100k shares in a company at .03cents and made it into 15k when the economy crashed in 2008, i would have made 70k if i didnt pull out so early to purchase a sports car, the mistake of my life...

I even asked my parents to borrow 10k to invest money in the company, but they thought i was just young and crazy, i would made them 200k plus if they trusted me

with 2k, i would invest it in the tech sector, they are doing pretty good right now. You probably can double your money in 6 months to a year.

at your age, you can take the risk and you want to make big money in the short term. S&P is more like long term but with only 2k, its pointless investing in that right now unless you are investing 10k plus


10k seems like an arbitrary amount to be "worth" investing in the S&P 500. If the opportunity is appropriate (in terms of risk, return, opportunity cost, etc.), the only thing that should matter is cost of entry (in this case almost none since ETFs can be had for just a few dollars). IMO S&P 500 investing either makes sense at 10k and 2k or it makes sense at neither.

ETA: Also dropping 100% of your savings into one high risk investment seems more like gambling than anything else, no matter how painful those missed opportunities might be...

RiceBOX said:   i would like to say penny stocks but not today, when i was 18 i took 3k, bought 100k shares in a company at .03cents and made it into 15k when the economy crashed in 2008, i would have made 70k if i didnt pull out so early to purchase a sports car, the mistake of my life...

I even asked my parents to borrow 10k to invest money in the company, but they thought i was just young and crazy, i would made them 200k plus if they trusted me

with 2k, i would invest it in the tech sector, they are doing pretty good right now. You probably can double your money in 6 months to a year.

at your age, you can take the risk and you want to make big money in the short term. S&P is more like long term but with only 2k, its pointless investing in that right now unless you are investing 10k plus


I did something similar when I was young with small cap/tech stocks and turned about $2K into $10K or so. But looking back I was more lucky then good. If I could do it over again I would have opened a Roth and put it all in a total stock market index funds. Or if I wanted to take on some more risk I could have pick a small cap index fund.

Goldman Sachs is known as the Vampire Squid of Wall Street for a reason. Do the opposite of what these banksters suggest is a good general rule--they may be right when it is in their best interests, but have been known to run against the interests of their advisees.

If you have the stomach, go for broke. Just buy a speculative stock like NFLX, AAPL or GOOG would have been the ones and may still be. Today, it might be FB, LNKD, or AMZN. By the time you graduate and have worked a few years, you'll have near nothing or a nice chunk of change, versus maybe $2,500 or $3,000.

macosx said:   If you have the stomach, go for broke. Just buy a speculative stock like NFLX, AAPL or GOOG would have been the ones and may still be. Today, it might be FB, LNKD, or AMZN. By the time you graduate and have worked a few years, you'll have near nothing or a nice chunk of change, versus maybe $2,500 or $3,000.

Large cap companies like that aren't likely to become a "nice chunk of change" because their high rate of growth has already occurred (law of large numbers). If a large company continues to grow at 30% every year, it would eventually become bigger than the US economy.

For example, Apple's market cap is 414 Billion... for it to simply double it would need to go to an $818 Billion valuation. Google would need to go from 300 Billion to 600 billion. Possible? Sure... Probable? No.

just want to point out a few things.
1. mutual fund is just a fund that buys a bunch of assets. In your context you actually meant ACTIVE managed mutual funds don't outperform a passive mutual fund that track s&p index.
2. SPY also exists in mutual fund form, go check Vanguard for more details.
3. As many poster have mentioned 3-5 year is pretty short so if you are certain you'll need the money in that time span, I would not invest in equity.

IVV better than SPY, I think IVV distribution is better for tax-purposes.

http://www.etfmarketpro.com/the-s-and-p-500-decison-spy-or-ivv.h...

Treffen said:   You can invest in Schwab's S&P 500 index fund for free with expenses of less than 1/10th of one percent.

http://www.schwab.com/public/schwab/investing/investment_help/in...


Schwab also has a ETF solutions tool that will determine your risk tolerance so that it will then recommend an asset allocation.
You can then input the amount to invest and then it will automatically purchase the diversified etf portfolio automatically.
So the 2k for a young individual with high risk tolerance would be:

Large Cap50%
Small Cap20%
International25%
Fixed Income0%
Cash5%

or Aggressive Risk Profile Allocation from the ETF Select List


Category: largecap SCHX Schwab U.S. Large-Cap ETF Large Blend
$39.49
$39.47/$40.25 50% $987.25 49% PDF Commission Free
Category: smallcap SCHA Schwab U.S. Small-Cap ETF Small Blend
$44.44
$43.34/$48.41 20% $399.96 20% PDF Commission Free
Category: international SCHE Schwab Emerging Markets Equity ETF Diversified Emerging Mkts
$25.82
$25.43/$26.23 5% $77.46 4% PDF Commission Free
Category: international SCHF Schwab International Equity ETF Foreign Large Blend
$29.41
$29.41/$29.49 20% $382.38 19% PDF Commission Free

Total ETF Investment* 95% $1,847.05 92%
Cash Allocation 5% $152.95 8%
Total Investment 100% $2,000.00 100%

bicker1 said:   Precisely. No individual investor approach outperforms the market in the long term, so the best an individual investor can do is invest in the market itself, through super low-cost total market index funds.
How exactly do you invest in index funds?

RiceBOX said:   i would like to say penny stocks but not today, when i was 18 i took 3k, bought 100k shares in a company at .03cents and made it into 15k when the economy crashed in 2008, i would have made 70k if i didnt pull out so early to purchase a sports car, the mistake of my life...

I even asked my parents to borrow 10k to invest money in the company, but they thought i was just young and crazy, i would made them 200k plus if they trusted me

with 2k, i would invest it in the tech sector, they are doing pretty good right now. You probably can double your money in 6 months to a year.

at your age, you can take the risk and you want to make big money in the short term. S&P is more like long term but with only 2k, its pointless investing in that right now unless you are investing 10k plus


Most penny stocks are completely manipulated in various fashions. If you think you were smart with that investment, maybe you need to do some research on penny stocks in general.

Schwab ETFs are amongst the lowest cost to own and can cover the broad market. The best part is that if you have an account with them they trade free. That means when you have an extra 50 or 100 bucks you can buy in. I would try to fund my retirement first if I were you. Take any company match if you can then look at a ROTH from vanguard or the like. Good luck

Thanks for all the advice and input. I've started to do some more research about starting a Roth IRA as that seems to pop up alot. If I understand correctly, I wouldn't have access to the initial capital until I am 60 without penalty, but I could withdraw my gains without taxes or fees? So, if I understand correctly, if I start a Roth IRA with 2 grand, invest it in, lets say an ETF that tracks the S&P500, and in a year from now its worth 2100 dollars. I could take the 100 dollars out with only having to pay a the fee to sell the ETF?

Also, just to clarify, when I said that I'd need the money in 3 to 5 years, I mostly meant that my plans for after college aren't certain and I could see a situation were I could need the money and would need to take it out of whatever I was investing it on. For example, if I decide to travel for a few years after college, or in an emergency. I realize that I could happen to be "down" when this happens, but I imagine that as longs as its an ETF that tracks the S&P 500, or something similar, it would only be a few hundred dollars out of the original two grand.

You have it backwards. You have access to the initial capital anytime but can't withdraw the earnings without penalty until retirement.

I wish i was playing the market in college. Make sure that you focus on learning how the market works instead of profiting from it, chances are you will lose, its just part of the learning process.

Vimak said:   Thanks for all the advice and input. I've started to do some more research about starting a Roth IRA as that seems to pop up alot. If I understand correctly, I wouldn't have access to the initial capital until I am 60 without penalty, but I could withdraw my gains without taxes or fees? So, if I understand correctly, if I start a Roth IRA with 2 grand, invest it in, lets say an ETF that tracks the S&P500, and in a year from now its worth 2100 dollars. I could take the 100 dollars out with only having to pay a the fee to sell the ETF?

Also, just to clarify, when I said that I'd need the money in 3 to 5 years, I mostly meant that my plans for after college aren't certain and I could see a situation were I could need the money and would need to take it out of whatever I was investing it on. For example, if I decide to travel for a few years after college, or in an emergency. I realize that I could happen to be "down" when this happens, but I imagine that as longs as its an ETF that tracks the S&P 500, or something similar, it would only be a few hundred dollars out of the original two grand.


You have it backwards, with a Roth IRA you can access the contribution ($2000) at any point but not the gains ($100)

ETA: Sorry, already answered above. Evidently I can't read this morning.

Great advice to look at Vanguard, the lowest cost fund provider out there. I'd recommend the STAR fund, it beats the S&P by a bit and only requires a $1,000 investment. https://personal.vanguard.com/us/funds/snapshot?FundId=0056&Fund...

xerty said:   Unless you like paying taxes, look into a Roth IRA. You can take the principle out whenever you want...

What?? Do you a source to back this up? I've never heard this before.

dmikester10 said:   xerty said:   Unless you like paying taxes, look into a Roth IRA. You can take the principle out whenever you want...

What?? Do you a source to back this up? I've never heard this before.
Maybe my sarcasm meter is broken. This is one of the first things you hear about why a Roth is so cool. Your contributions were already taxed, so you can withdraw them anytime without penalty. Earnings can only be withdrawn on retirement.

Vimak said:   Thanks for all the advice and input. I've started to do some more research about starting a Roth IRA as that seems to pop up alot. If I understand correctly, I wouldn't have access to the initial capital until I am 60 without penalty, but I could withdraw my gains without taxes or fees? So, if I understand correctly, if I start a Roth IRA with 2 grand, invest it in, lets say an ETF that tracks the S&P500, and in a year from now its worth 2100 dollars. I could take the 100 dollars out with only having to pay a the fee to sell the ETF?

Also, just to clarify, when I said that I'd need the money in 3 to 5 years, I mostly meant that my plans for after college aren't certain and I could see a situation were I could need the money and would need to take it out of whatever I was investing it on. For example, if I decide to travel for a few years after college, or in an emergency. I realize that I could happen to be "down" when this happens, but I imagine that as longs as its an ETF that tracks the S&P 500, or something similar, it would only be a few hundred dollars out of the original two grand.

I was about a year out of college when I opened up a SchwabOne account with $5K (I remember saving up for months to reach the minimum). I invested in some individual stocks & broad based mutual funds. Over time, moved the money to low cost index funds & ETFs. That $5K has grown to over $30K in just under 20 years.

Every time I was tempted to take some money out of the account to take a trip or buy something, I always found a way to save up and pay for those things out of 'current' earnings. My present self is very thankful to my just-out-of-college self for putting that money away and not touching it.

I saw a a few comments about a bond fund, be careful with those. Interest rates are LOW LOW LOW, we have to be pretty near the bottom. And if they start to go back up bond funds will sink. Try a floating interest rate fund/bond instead. That's my addition...

Just open a Vanguard account and throw it all in one of their ETFs, then you can add to it whenever you want for free trade. Good luck and congrats for starting so early!

cheezedawg said:   dmikester10 said:   xerty said:   Unless you like paying taxes, look into a Roth IRA. You can take the principle out whenever you want...

What?? Do you a source to back this up? I've never heard this before.
Maybe my sarcasm meter is broken. This is one of the first things you hear about why a Roth is so cool. Your contributions were already taxed, so you can withdraw them anytime without penalty. Earnings can only be withdrawn on retirement.


No sarcasm at all. My wife and I both have Roths we contribute to monthly and this is the first I've heard of this. Of course we would never take anything out of our IRA's until retirement anyway. But that is good to know.

cbdo2007 said:   Just open a Vanguard account and throw it all in one of their ETFs, then you can add to it whenever you want for free trade. Good luck and congrats for starting so early!

Agreed, I just opened a VAnguard account when I found out that it is free to add money to their ETF's. Wish I knew this earlier, I would have saved all the trade fees from Fidelity!

dmikester10 said:   cheezedawg said:   dmikester10 said:   xerty said:   Unless you like paying taxes, look into a Roth IRA. You can take the principle out whenever you want...

What?? Do you a source to back this up? I've never heard this before.
Maybe my sarcasm meter is broken. This is one of the first things you hear about why a Roth is so cool. Your contributions were already taxed, so you can withdraw them anytime without penalty. Earnings can only be withdrawn on retirement.


No sarcasm at all. My wife and I both have Roths we contribute to monthly and this is the first I've heard of this. Of course we would never take anything out of our IRA's until retirement anyway. But that is good to know.

Just google "withdraw roth contributions" and you'll get a lot of second hand sources. Here is a link to IRS Publication 590 where it is explained.

timgruppi said:   cbdo2007 said:   Just open a Vanguard account and throw it all in one of their ETFs, then you can add to it whenever you want for free trade. Good luck and congrats for starting so early!

Agreed, I just opened a VAnguard account when I found out that it is free to add money to their ETF's. Wish I knew this earlier, I would have saved all the trade fees from Fidelity!

Fidelity has commission-free ETFs as well.

http://online.wsj.com/article/SB10001424052748704713004576209022...

Comparison of brokerage commission free etf's. Schwab vs fidelity vs vanguard vs ETrade

Skipping 14 Messages...
Update:

I will open a Vanguard brokerage account and put in 2000 dollars. I will put 1500 of it in Vanguard's VOO that tracks the S&P 500 at an expense rate of 0.05%. This is a large cap holding, and will serve as the core of my portfolio. To expose myself to small and mid cap stocks, and with it more risk but potentially higher return, I will put 500 dollars in Vanguards VXF at an expense rate of 0.14%. This ETF consists of 2,962 stock, and none of them overlap with VOO or the S&P 500. Since I will have a Vanguard account, there wont be a commission to buy or sell the ETF and dividends can reinvested.

Now the only thing I remain uncertain about is whether to start a Roth IRA at Vanguard or to start just a regular brokerage account. I understand the benefits and drawbacks of the Roth IRA. I pay taxes before contributing, and dont have to pay capital gains tax when I withdraw it once I'm over 60 (yikkes - hard to imagine that with my 21st birthday coming up). However, how do taxes work with a regular brokerage account? Lets say that in 3 years I sell my ETFs, and I've made 500 dollars. How much of that is taxed away? Is there any tax initial capital investment?

In case its relevant, I am a college student and made around twelve grand this year.

Thoughts on the first section? Could anyway explain the pros and cons of using a regular brokerage account?

Thanks

Edit: Also wanted to add, I found MorningStar very helpful. They have a 14 day free trail, definitely worth trying it out if you are in a similar boat.



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

TRUSTe online privacy certification

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2014