College Age Investing

[Texsox]

So #1 son has $3,500 in a subsidized college loan that will not come due for at least three years, possibly five or six. He also has $6,000 in very liquid assets and I don't mean beer.

 

Minimum I'm suggesting to him he needs a low risk vehicle to park $3,500 until graduation.

 

Ideas?

 

College is basically paid for. He will have some living expenses that his benefactor (me) might not pay for, so he needs to budget for that. He is looking for part time work, but we'll see how that develops.

[DrunkBomber]

A CD?

[Texsox]

A CD?

 

That's the default. I am seeing some rates around 4%. I am also thinking he needs to toss some in the market. His team won the stock market game in middle school, we'll see what the "pucker factor" does when he's investing his own money

 

His student loan is subsidized, so he will not be charged any interest until he quits school, so that is not a factor.

 

I'm thinking he puts $3,000 in a CD to cover the loan and takes the $500 difference and buys some stocks, probably adding from the balance of the money and maybe dear old dad will make a gift so he has a decent starting point.

[jasonxctf]

european focused mutual fund.

[StrangeSox]

european focused mutual fund.

 

A lot of people are liking international funds (Euro and Pacific/ Asian) right now. He can try picking an individual stock or going with a mutual fund or ETF.

[Texsox]

A friend of mine who has become a Dave Ramsey devote, strongly is advocating paying off the loan, regardless of interest. His theory is in four years it will be too tempting to use the capital for other expenses or purchases and not pay off the loan. Plus if Murphy pays a visit (must be a Dave Ramsey catch phrase) you really not going to save that money towards the loan.

 

His approach is a couple three thousand in a 401K and/or IRA after paying off the loan.

[3E8]

Would be a great time for him to get started in stocks/commodities. He's young and can afford risk as he learns. I would make it very clear to him that it's important he put in the time and research before he buys rather than just take the 'hot tip' as already offered in this thread

[southsider2k5]

If it is something that he HAS to have that $3500 at the end of that time period, DO NOT invest in ANYTHING to do with stocks. No mutual funds, no commodities, no ETFs, nothing like that. There is the very large chance that you can lose money in those investments.

[Texsox]

If it is something that he HAS to have that $3500 at the end of that time period, DO NOT invest in ANYTHING to do with stocks. No mutual funds, no commodities, no ETFs, nothing like that. There is the very large chance that you can lose money in those investments.

Right, which is why I suggested just parking it in a CD.

 

I am leaning towards suggesting to him

$3000 in a CD to pay off the loan in 3-5 years

$1000 in a 401K/IRA

$500 Savings account

$500 invest with an estimated horizon of 6-8 year. About the time he gets out of college and needs a car/house/start a business/etc. He would be adding to this with income.

$1000 current spending needs. Single speed bike, new desk, chair, etc.

[southsider2k5]

Right, which is why I suggested just parking it in a CD.

 

I am leaning towards suggesting to him

$3000 in a CD to pay off the loan in 3-5 years

$1000 in a 401K/IRA

$500 Savings account

$500 invest with an estimated horizon of 6-8 year. About the time he gets out of college and needs a car/house/start a business/etc. He would be adding to this with income.

$1000 current spending needs. Single speed bike, new desk, chair, etc.

 

Good plan. The rest of the suggestions would be fine ideas if it was OK if he lost money. That is the number one rule of investing. Only invest what you can afford to lose.

[Texsox]

Good plan. The rest of the suggestions would be fine ideas if it was OK if he lost money. That is the number one rule of investing. Only invest what you can afford to lose.

I was very encourtaged that as we were discussing investing ideas, I mentioned his team won the Stock Market game two years in a row. He replied, we won by picking one stock and taking a huge risk. All or nothing. Far different then this, dad. (implied: you moron, how could you even compare). One year he picked Timberland because he couldn't think of anything else and was wearing Timberland hicking boots.

 

I am considering setting this up like an investment club with him controlling the investments. That way I can toss in some also, but later pull mine out if necessary. Grandma and grandpa might also wish to join in.

 

He is so far ahead of where I was at that age. I would have travel brochures spread out, my golf clubs and running shoes packed, and blow through that money in a heart beat.

[southsider2k5]

I was very encourtaged that as we were discussing investing ideas, I mentioned his team won the Stock Market game two years in a row. He replied, we won by picking one stock and taking a huge risk. All or nothing. Far different then this, dad. (implied: you moron, how could you even compare). One year he picked Timberland because he couldn't think of anything else and was wearing Timberland hicking boots.

 

I am considering setting this up like an investment club with him controlling the investments. That way I can toss in some also, but later pull mine out if necessary. Grandma and grandpa might also wish to join in.

 

He is so far ahead of where I was at that age. I would have travel brochures spread out, my golf clubs and running shoes packed, and blow through that money in a heart beat.

 

A bit of knowledge about those games, that is how they are won. Investing in real life is NOTHING like that. He'd be broke in a month. Taking risk is fine, but shoving all your chips in only ensures that you will lose all of your money sooner or later.

 

Heck I can't really talk, because my most successful investment strategy to date has been to function as a market-maker in a very specific niche market. So far it has worked like crazy. Risk-wise it is a really stupid idea.

[Texsox]

A bit of knowledge about those games, that is how they are won. Investing in real life is NOTHING like that. He'd be broke in a month. Taking risk is fine, but shoving all your chips in only ensures that you will lose all of your money sooner or later.

 

Heck I can't really talk, because my most successful investment strategy to date has been to function as a market-maker in a very specific niche market. So far it has worked like crazy. Risk-wise it is a really stupid idea.

 

Agreed, I even mentioned my concern to the teacher that this was feeding that win today, instant gratification, in our society. I thought having a local expert evaluate the portfolios later would have been a good idea, even if it was just a couple.