Out of college student investing
Hello Terry, I will graduate from college next year with a BS in Chemistry but I already have a job that pays more than minimum wage. In the course of 4 years I have invested $9,000 hoping for long term gains for my future. I still live with my parents, as they don't mind my contributions to the bills, but I don't plan on moving until I saved enough to pay for Condo without the burden of a mortgage. So my question is, in the next year with me saving for a home, and not having that much expenses, how much of my income should go into the stock market? Also, for my future career, how much income should I place in a separate savings account?
Terry Says
Wow, first -- Congratulations! You are showing others how it is done! Now, I want to give you some perspective on the stock market. Please pay attention, because you will need this knowledge to have the self-discipline to stick to a long term investing plan. Over the LONG RUN, the stock market has been a fabulous investment. In fact, there has never been a 20-year period going back to 1926, where you would have lost money in a diversified stock market investment (think, the S&P 500 stock index fund), with dividends reinvested. That includes scary periods like 1929-49, or 1970-1990, etc. And that even includes the impact of inflation. In fact, the AVERAGE annual return (including dividends) has been roughly 10 percent. BUT, there have been shorter term periods where you would have been exposed to huge losses in the stock market. Just think, from August 2007 to March 2009, the stock market fell 57 percent! You have come to maturity in the past 10 years, where stocks are up about 250 percent from their March,2009 lows!! But that has been an extraordinary period -- not likely to be repeated. So here is your issue: You are saving some of your money for a condo. And I assume you don't want to wait 20 years for that! But you want to invest another part of your money for the long run -- perhaps for your retirement. That's the long-term plan. I surest you open an Individual Retirement Account at Fidelity or Vanguard, and invest in their S&P 500 stock index fund. You can put away a maximum of $5,500 a year -- if you earn that much. But you can start with perhaps $1,000 and add $100 or $200 per month from your earnings. The trick is to stick with that plan, even when the market is falling. But you will need some cash at least for a down payment on the condo. So open a money market deposit account in a bank, and accumulate cash there. You won't earn much interest but you won't lose any money. And it will be ready and available when you need it! Keep saving as much of your income as you can -- in both categories. Over the long run, your investments mean your money is working for YOU as hard as you worked for it!
