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Q: I am a freshman in college and have some questions regarding my financial situation. First, I am fortunate enough that not only do I have a scholarship that covers my college tuition, but I even get a decent amount of money from my university every semester. I also work part time for a very competitive wage.
As of now (one semester) I have already saved $10,000 but am in need of advice on what to do with it. I have considered taking at least some of it and purchasing a Roth IRA; I would feel comfortable putting $2-$3,000 away and not seeing it again until I am old. I have also recently considered placing my money in a High Interest Checking Account, such as the Charles Schwab account offering 4.00% APY. This is an obvious safe investment and is still a competitive interest rate, considering I am making less than .5% on my money now.
Is this the best thing to do with my money right now considering my situation? I am open to any and all investment suggestions as I have next to no experience investing.
A: Those are great questions and congratulations on being so far ahead of your fellow college students financially speaking.
I am not a licensed investment advisor so I won't give you specific recommendations. I strongly urge you to be patient and educate yourself financially before doing any investing.
If I were in your situation, I certainly would consider fully funding a Roth IRA for long term growth realizing that money is tied up for a long time. However, that initial investment could theoretically grow to a million dollars or more by age 70.
With the rest of the money, while I was deciding how to invest it, I would open an online savings account (they are currently paying about 4.5%, which will go lower as the Federal Reserve Cuts rates). I'd be sure the savings account I open is easily accessible via online electronic transfer, does not charge fees and has no minimum deposits or account minimums. Emigrant Direct is one such online savings account that I happen to use personally.
I would view this money as my emergency account for now and keep it in a safe place only to be used in urgent situations.
As I got more educated and confident with investing, I'd start to test the waters with some of the money. Right now the markets are treacherous so it is not prudent to jump in with no knowledge. This money could also seed a business or be a down payment on a first home. There are money options so patience, learning how to grow money and a long term view are very important things for you to focus on.
Keep us posted.
Mike Schiano
Mike's new show can be heard online at www.youngmoney.com/radio.
