Finances
Top 5 Investment Options
for Young People
Cabbage. Scrilla. Cheddar. Cash. No matter what you call it, you need to understand what to do with it. That is assuming, of course, that you have extra money lying around to save and invest.
Key
$ - $50
$$-$250
$$$ - $1000
To save money to invest, you must buck our generation’s money trends. There is a natural money cycle for any young adult. This may look familiar to you. It goes a little something like this: receive your first paycheck, commit to multiple monthly payments (car, apartment, cell phone), start spending more than you make, and then finally take the time to figure out what the hell you are doing.
As you may know, that whole process is quite depressing. Let’s assume for a moment that you do exactly the opposite of what most people do. You figure out what to do first, you spend less money than you make, and you don’t commit to multiple monthly payments. If you did this than you would actually have money to invest. And once you have that money, here are some good places to invest it. As you can imagine, there are positives and negatives to every investment decision so we listed those too.
Money Market Account (typical rate of return: 1.25%): There is nothing less sexy than a boring old savings account. But the truth is that a boring old savings account is a vital player in your financial life. However, you can scrap the boring savings account, and pick up a money market account at your local bank or even online. They pay a higher rate of return than typical bank savings accounts, but are essentially just as safe.
Big ups: You can get to your money whenever you need it.
Doh: Relatively low rate of return. $
CD (typical rate of return: 1.5%-3%): Certificates of Deposit (CDs) are a very safe way to invest, but they still will give you a pretty low rate of return. Your money gets locked up for a set period of Key
$ - $50
$$-$250
$$$ - $1000
Big ups: Better returns than a money market account.
Doh: Your money is locked up, and there are penalties to get back at it before a set date. $$
Stocks (typical rate of return: -100%-and up): This is where things start to get interesting. When you buy a stock, you end up owning part of a company. When the company does well, then you do well. When the company does poorly, then you drink more (kidding). You can invest in stocks online for cheap. But don’t start investing in stocks until you have at least three months of expenses saved in your money market account. This is high-risk stuff. The most brilliant people in the world lost half their money last year by investing in stocks. Tread lightly.
Big ups: Chance for unlimited returns. Good cocktail party conversation.
Doh: You can lose your ass! $$$
Mutual Funds (typical rate of return: -100%-and up): Mutual funds are groups of stocks managed by someone other than you. Conventional wisdom has always contended that this is a safer way to invest your money. The tough part about investing in stocks is that you never know when to buy and sell. A mutual fund takes care of this for you. This is the best place for you to put money, other than a money market account, on a monthly basis.
Big ups: You get professional management of your money for a relatively low cost.
Doh: There are over 20,000 funds to choose from. $$
Paying off Debt: (typical rate of return: Priceless): Yes, you have heard this one a million times, but there is a reason that you keep hearing it. It is the absolute best thing you can do when you are in your twenties! By paying off debt, credit cards, student loans, and car loans you are investing in your future ability to have a life. There is nothing sadder than someone in their thirties, forties, or fifties hating life because of the debt they ignored in their twenties.
Big ups: You will have the ability to invest more money once you have eliminated monthly debt obligations.
Doh: Frankly, it’s not that exciting. However, once you have paid off your debt, you will be on top of the world. $$$
/ By Pete the Planner
www.petetheplanner.com/blog and www.GreenCandy.com