$13,000: What Do I Do With It?

[Restrikted]

Recently I fell into some money, a little more than $13,000 in total. Now, I'm 18, and going off to college in 4 months. My parents want me to put it towards college, which will cost roughly $90,000 all together, but I want to put my money to work, instead of just sitting in a bank account. I was thinking about investing in something, or maybe putting it into the stock market. Does anyone have some reasonable ideas as to what I should do with it?

[Shamou]

Going to College in 4 months... costs, $90,000... net worth $13,000. And you wonder what you're going to do with it...???

.

[Mayo]

If your going to college that means you will be investing in your education.. that 90K will probably make you 1,5 to 2,1 million dollars in your life time, take 200K in first 10 years of your working life and put it in fund that returns 20% increase of fund and you got 40K every year in profit on that savings that means cca. that 90K will make you 2-5 million dollars in your life if you invest your time and money wisely... maybe even more..

[Lychee]

Invest/save 75% or 100% of the money.

[Restrikted]

I know you all think that putting it towards my education is the smart thing to do. But think about this, $13,000 will only cover 14.4% of my bill, which will get me through only 1 semester at college. Since I qualify, I was planning on taking out a student loan for 100% of my college expenses, and pay it off after I graduate. Instead of just chucking 13 grand towards college, I would rather let that money build up some (by investing) and walk away 4 years later with a considerable amount more. It kind of goes on the "rich get richer" idea.

[RaymondChao]

Originally Posted by Restrikted

Recently I fell into some money, a little more than $13,000 in total. ... 18, and going off to college in 4 months. My parents want me to put it towards college ... but I want to put my money to work, instead of just sitting in a bank account ...

I'll speak from my viewpoint, 24m, NYC/US. (Older members here may have better advice from a more mature viewpoint, but here goes, and I'm welcome to constructive responses too.)

-
I'd say, don't contribute the 13K you have for college. i.e., go to college, but what's the point of using the 13K you have to put a small dent of the total 90K you anticipate? You can get loans/financial aid at a reduced interest rate specifically for higher education with deferment options, don't tie the 13k you have to it.

As for the money, it's a good platform for you to begin thinking about how you would like to contribute to society and use your time. Really, what everyone says about money is true - money is just a materialization of your inner abilities. I've been struggling to figure that out, and still haven't successfully done so, so best of luck to you. If you have any good ideas, write out a detailed plan and use the 13K as seed money. Otherwise, leave it in the bank to gain 5% interest, and perhaps start reading up on safe but aggresive funds, e.g. Motley Fool Stock Advisor, or open up a RothIRA.

[RT Wolf]

If you're planning on investing it int he stock market, then you have to plan to keep the money in there for at least a year. Four months is too short, anything could happen, including going up or down. Your time horizon in the stock market should be at least 1 year, but 3-5 years (or even longer) is much better.

Index funds for you is probably hte best option, in the long term.

[Angela]

If you can get a higher yield by investing (which you can probably do in the stock market) than the rate you'll be paying on the student loan, then I'm with you on investing the entire wad, and this would be an excellent time to begin a Roth IRA. I would probably keep $1k in a short-term CD as an emergency fund. Plus, on your student loan, factor in whatever period before which you start accruing interest on the loan, as that will make your loan "cheaper". Take some business/finance classes -- who knows what kind of business ideas you'll come up with in the next four years?

I would not leave the whole chunk in a money market for four years.

Don't forget to pursue grants! Free Money!! There are grants out there for everybody.

Congratulations on your upcoming adventures in college, and best wishes to you!

[Mayo]

I really can't advise you on anything regarding the school because i plunked high... so ...

But if you REALLY want to start producing money then you have to produce a business, it does not have to be LLC or INC... just YOU and your ability that you can produce and market something with minimal financial investment in it...

I raised 40 K for my business and plunked first time, now i go with 0 investment and only my time and ability to produce a product that will have great impact on my financial part and even bigger impact on my personal life (foreign travel, 10 hour work week,...)

Tell us what kind of college are you enrolling in?

BR,
Patrick

[Restrikted]

Originally Posted by RT Wolf

If you're planning on investing it int he stock market, then you have to plan to keep the money in there for at least a year. Four months is too short, anything could happen, including going up or down. Your time horizon in the stock market should be at least 1 year, but 3-5 years (or even longer) is much better.

I wasn't planning on just leaving it in the market for the 4 months before school, I was going to leave it in for the 4 years at school.

And I'm going to be attending Penn State University - University Park, in the fall.

[mustard76]

In my opinion, your goal should be to graduate with as little debt as possible. If you have to worry about making your payments on a $90k loan you'll have less options when you graduate. You'll be forced to take the first high paying job offered to you whether you want it or not, whether it is a good learning opportunity for you or not. What if you decide to go the self-employment route? What if you want to start a business? Those loan payments will be a drag.

[RT Wolf]

Ah, I see now. Thanks for clarifying.

You'll get responses from different people based on their personal values about money, which can arise from different things, including personal expereince. Some people's values include not getting into debt, while others are education, and my personal top value is my goal of financial independance. So I would recommend investing that money, not just for the four years, but essentially forever. Start now and you may be able to retire in say twenty-thirty years rather than then 45 you can expect now. Money grows at a ridiculous rate by the magic of compound interest. Here's an example:

In the following table, Investor A starts investing 2000 dollars at the age of 26 and doesn't let up until retirement at 65. Investor B only invests a total of 14,000 but starts seven years earlier in life and for a shorter period of time. The investment compounds at 10% a year and you can see the effects.



So, you're gonna have to figure out which one (or few) is/are your top value(s). Here's a nice little compound interest calculator:

Compound Interest Calculator

For now, I recommend you stick to 10% return, which you should be able to get with index funds. You can go higher than that, but that's a different ballgame. I know this may not mean that much to you right now, but 13,000 at 10% interest left alone for 47 years (assuming you're 17 and the retirement age remains at 65, which it probably won't) you would have 1,146,567.31 dollars.

I would recommend looking around for good books on personal finance. Whether its just a simple Personal Finance for Dummies, The Automatic Millionaire, or whatever. Here's a quick summary of Rich Dad, Poor Dad: Rich Dad, Poor Dad Summary - WikiSummaries, free book summaries .

Learn how to manage your money, and that information may become the most useful you have in terms of return on time invested. Information on personal finance and sensible investing could make you tens of thousands (or more) extra dollars over the next few decades. So, learn about this stuff and make your own decisions. And its not all about penny-pinching or living for tomorrow, its a lot easier to enjoy your money now, knowing that you're secured for the future.

Here's another starting point:

Fool.com: Want to Be a Millionaire? You Can! [Teens &Their Money]

And this one:

Fool.com: True Teen Stories [Teens &Their Money]

More articles here:

Fool.com: Teens & Their Money Main Page [Teens & Their Money]

[Jill]

Originally Posted by Angela

If you can get a higher yield by investing (which you can probably do in the stock market) than the rate you'll be paying on the student loan, then I'm with you on investing the entire wad

Angela beat me to it! But let me say it in another way:

If whatever you decide to invest the money into provides a lower percentage of interest than you have to pay on your student loans, then it would be a foolish investment. You'd essentially be losing money.

So if you can find something that for 100% sure will make you more in interest than you'll be paying for the student loans, then go for it.

If not, you'll actually be losing money by not putting it into college to reduce your loans (and ultimately the interest) you will be paying off.

[Vincentboucher]

become a shareholder of the millionaire business inc, actions were 1,75$ two weeks ago, now they are at, 2,10$ ....we just signed one of the 600 contract of minimum of 15 000 000$... It's going to be more than google.

[Restrikted]

Originally Posted by Vincentboucher

become a shareholder of the millionaire business inc, actions were 1,75$ two weeks ago, now they are at, 2,10$ ....we just signed one of the 600 contract of minimum of 15 000 000$... It's going to be more than google.

The millionaire business inc? I googled it, but couldn't find anything on it, what is it?

[benj]

Originally Posted by Vincentboucher

become a shareholder of the millionaire business inc, actions were 1,75$ two weeks ago, now they are at, 2,10$ ....we just signed one of the 600 contract of minimum of 15 000 000$... It's going to be more than google.

Haha, and be very careful about investing on the basis of tips from people you don't know (especially if they have a vested interest ie. having just invested themselves).

At the very least, get some education about the stock market first...by a few good books and be wary of what you read on the internet and in the papers. If you're thinking about trading (as opposed to investing) find out what market makers are and how they affect prices.

[Restrikted]

Well, if I were to invest in the stock market, I would only invest in a company that I really liked. But so far I've been right on picking stocks %100 of the time, even though I only called 2. I made the call of a lifetime (Google) way back in 2003 (yes I was only 14), begged my parents to invest in their IPO in 2004 when it came out, but they didn't and I missed out on that treasure trove. Then last year I knew Nintendo's stock would rise significantly with the Wii coming out, but I didn't have the money I have now, so I only made like $200 off of it. Unless I can find another Google, which I probably won't, the odds are against me investing a lot of my money in the market. What I would love to do though is to find a group of people who have a cool and innovative idea for a start-up, and give the money to them in return for partial ownership of their idea.

[Vincentboucher]

Originally Posted by Restrikted

The millionaire business inc? I googled it, but couldn't find anything on it, what is it?

go in the thread in the business `your futur networth

[Bloggeries]

I appreciate what you are trying to say however the 10% STEADY over that number of years is very unlikely. To those not familiar with investing 10% is not an easy goal so when people say measuring "conservatively at %10" I feel like screaming. If you want a guarantee and conservative it's more like 3-5%... Which throws all those examples out the door.

You tell me an investment that will give 10% annually for 40 years and every investor in the world would signup. Unfortunately that is the major problem with those examples


[QUOTE=RT Wolf;70709]Ah, I see now. Thanks for clarifying.

You'll get responses from different people based on their personal values about money, which can arise from different things, including personal expereince. Some people's values include not getting into debt, while others are education, and my personal top value is my goal of financial independance. So I would recommend investing that money, not just for the four years, but essentially forever. Start now and you may be able to retire in say twenty-thirty years rather than then 45 you can expect now. Money grows at a ridiculous rate by the magic of compound interest. Here's an example:

In the following table, Investor A starts investing 2000 dollars at the age of 26 and doesn't let up until retirement at 65. Investor B only invests a total of 14,000 but starts seven years earlier in life and for a shorter period of time. The investment compounds at 10% a year and you can see the effects.

[Lucas]

Go to another country for 6 months before school starts.

[RT Wolf]

Originally Posted by Bloggeries

I appreciate what you are trying to say however the 10% STEADY over that number of years is very unlikely. To those not familiar with investing 10% is not an easy goal so when people say measuring "conservatively at %10" I feel like screaming. If you want a guarantee and conservative it's more like 3-5%... Which throws all those examples out the door.

You tell me an investment that will give 10% annually for 40 years and every investor in the world would signup. Unfortunately that is the major problem with those examples

Looking back at my post, I just realized I didn't mention the investment (it happens when you repeat something over and over and over again). The investment would be index funds. Some more info here:

Index fund - Wikipedia, the free encyclopedia (short and succint)

and Index Investing: Introduction (longer but prolly easier to understand)

And no, even though these have been around since the 1970s and are one fo the biggest funds, most people overestimate their own ability to beat hte market (optimism bias, the only people who are realistic about their abilities like that happen to be the clinically depressed), thus people try to beat the market but usually don't do so well.

Spread the word. Index funds is where its at.

John Bogle (the creator of the first index funds) has writen many books on the subject. A nice easy-to-read one is The Little Book fo Common-Sense Investing.

You can get more details here, if you're interested in figuring out time periods specifically:

http://www.moneychimp.com/features/market_cagr.htm

[m0vingon]

I'm just curious as to whether you would still qualify for student loans once they find out you have this money? I know where I live students loans would tell you to cash it in to pay for school.

If that's not an issue, I'd say invest it for the long term. It's not going to earn you a lot of money in the short term, but over the long haul, investing at your age is a very smart thing to do. Kudos to you for not going out and spending it all like many others would have done!

[mustard76]

Originally Posted by m0vingon

Kudos to you for not going out and spending it all like many others would have done!

I second that. Give yourself a pat on the back. You are in the top 1% of your peers just by asking this question. When I was your age I was thinking about...err...let's just say other things.