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Tuesday, March 22, 2005

What to do with 1K, 5K, or 10K of savings and in your twenties?

I see on financial forums a lot of students graduate from school and wonder what the best investment is for their one or several thousand dollars of savings. The best suggestion anyone can give is to park your money in a liquid, high interest-bearing bank account while you read up on different types of investments and find your risk tolerance. There are several banks with very high paying interest rates like Emigrant Direct (3.25% APY) and ING DIRECT (2.80% APY). The biggest mistake you can make is to look at the stock market and without any research, sink your money into it and think you can double your money in a short period of time. That type of behavior is called blind gambling. If you don't know what you're doing, don't do it. It is very important to prevent disastrous mistakes that can hinder your financial success. I know... I've been there (more on that another time). With that said, I hope you take the time to plan your goals. Park the money in a high interest savings account to gain interest while you do some research Find your risk level. If you can tolerate high volatility, you could read up on the stock market or real estate investments. If you don't have the stomach for much volatility or the time to do tons of research, go with mutual funds, high-rate CDs, or safe bonds. Ultimately, you're going to be the best financial planner for yourself. It doesn't have to take up much time. Spend a few hours planning for your future and it'll make a big difference in the long run. And take an hour or two every month to keep your focus in check. You can do manage your finances while looking for a job or working full-time.

4 Comments:

At 8/17/2005 06:38:00 PM, Blogger your math teacher said...

Actually, I think the best thing to do with that extra money is to open a ROTH IRA account. This way, you can take advantage of compound interest.

 
At 8/17/2005 07:48:00 PM, Blogger Smarty said...

I'm very pro of opening tax-shelter accounts. Of course, if you don't need the money for a long time, then put them in a ROTH. However, sometimes you may to be liquid or perhaps if they have already max'ed out the ROTH, then you may put them in a savings account while you figure out what to do.

 
At 10/30/2006 07:57:00 PM, Anonymous Anonymous said...

So i've got 20k from a recent bonus, and won't need to touch it for about 10 months. After that I might use it for a down payment on an apartment. My money is currently sitting in a 5% savings account, but thinking about putting some of it in an higher yielding closed end bond fund. Any other suggestions for increasing my yield while not risking too much of my principal?

 
At 10/30/2006 11:39:00 PM, Blogger Smarty said...

If you could tolerate some risk, you may consider putting them in low-beta high-yielding dividend stocks. Do some research, you should be able to find a few companies that are expected to do well over the next 10 months. Otherwise, hunt for the highest yielding CDs. I recently opened a 6.00% 13-month CD with WaMu.

 

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