You want to make sure that you are protected in case of an emergency lay off or other unforeseen circumstance, and I-Bonds offer you the option of deferring the interest.

There is a lot of good advice in the Reader Comments. I would also recommend that you search “retirement savings” or “investment” on Google News.

Best of luck to you.

Dono

It is just an approach for a model for a retirement accoount but anyone can open target account without it being connected to your retirement.

Of your examples CDs are the safest because they are fully insured savings instruments rather than investments.

Concerning your other examples, they are all tools and the amount of risk varies by the types of investments that you make with these tools. For example mutual funds can invest in short term goverment securities with are on the risk free end of the spectrum and other mutual funds can invest in any number and/or type for risky investments albeit emerging markets, commodities, high risk sectors etc. The key is to unstand your time horizon and risk tolerance and choose investments that match those perameters.

Of course you can always invest in individual equities. I would suggest that you ensure you have a specific plan and metrics for choosing which individual stocks to buy, and more important when to sell. For example in the late 1990s everyone thought they were great stock pickers in that virtually all the large cap stocks were rising like rockets. But then when 2000 hit, these “great stock pickers” had no idea when to sell, because they really did not have any idea why they initially bought the stock. The buy seemed to be based on the greater fool theory, i.e. I will buy it today and sell tomorrow for a profit to a greater fool than I.

Be careful, be cautious, keep the long term perspective, and remember that the majority of the time vanilla index funds beat funds managed by “expert stock pickers” the vast majority of the time.

First and foremost, thank you all for providing such sound advice. I shall consider and discuss all of the possibilities before making my decision.

I have to admit, I had not kept in mind the possible need for money in the short-run, which is something that probably required some experience or foresight to consider.

Since I am so inexperienced with these possibilities, I must post a concern that rose as I was reading these suggestions: on a spectrum between stability on one end and higher returns on the other, where would you place mutual funds, roth ira, cds, investing in stocks, EFT, etc.

I do have some experience picking stocks (and tremendous interest). Perhaps as an alternative to mutual funds, I could try to build my own diversified portfolio. While I understand the higher risks associated with such a decision, I believe that since I’m young, if I were to fudge on my choices, then at least I have time to recover financially.

Once again, thank you all for your comments.

Putting your money in an online savings account like ING also makes it harder to get to than keeping it at the same brick and mortar bank as your checking account (which, with the exception of WaMu, wouldn’t give you a respectable interest rate, anyway) and gives you FDIC, if that’s a concern of yours. Money market funds are considered to be perfectly safe, but they are investments and as such are not insured.

Since you are young and have limited income, I’m not sure I would recommend putting money in a retirement account or other long-term vehicle without knowing more about your financial situation. If you don’t have a financial safety net, you need to have your savings somewhere where it won’t lose value in the short term and where you won’t incur a penalty for withdrawing it early. That being said, the earlier you start saving for retirement, the better. It might be best to do a little of both–just don’t sock away more in long-term investments than you can afford to be without in an emergency.

If your parents are still paying for everything, then your best bet might be to start socking away as much as you can for retirement while you don’t need the money for much else.

I would start with something simple like $50/month to a mutual fund. The thing is you will probably need to build up a cash balance first (at a bank). You need a minimum of $1k to open the Vanguard STAR fund at Vanguard (which would not be a good long-term retirement investment at your age, but is more aggressive than cash or a c.d.). Once you build $3k you can move your money to another (more appropriate) Vanguard fund (Target retirement fund? Stock Market Index?). This is the strategy I am using with my kids as I love Vanguard, lowest minimums overall, and once they have enough will invest more aggressively.

Also, I believe with simply a $50/month investment you can open a T. Rowe Price fund. They also have Target Retirement Funds which are a great start. I have personally been looking at T. Rowe as well for the automatic investment plan.

I would also recommend saving up some cash in a bank, maybe doing that first. But a lot of the power in retirement compounding is just starting with something small very young. IT does not take much to get started. & commit to investing a little more every year.

If you are out of college I would aim for 10% income to retirement. Before then I think money can be REALLY tight and it is more important to take on less debt to get through. Not clear from your question, so throwing out my personal opinion. I think at your age starting is more important than the 10%. Though 10% to your retirement should certainly be your eventual (minimum) goal.

Banks are not good places to invest.

My recommendation is to make sure you have some emergency money - experts recommend savings equal to three to six months of salary.

Then you can consider investing. The question you must answer is to determine the time line of your investment. If you will need the money in five years or less, than savings is where that money must stay.

If your investment horizon is more than five years then mutual funds are the answer. For this part of the solution you don’t need to get real fancy - Vanguard offers some great, low cost index solutions. I would suggest a total market fund, and and international index fund to start out with. Then just keep packing the dollars away and your investment pile will grow.

The final point is that we often have many investment goals with different time frames. For example, at your age you may be considering purchasing a car, and a few years from now perhaps a house. These types of goals should not be mutual fund based because short term volatility could harm you greatly.

I applaud you for your desire to grow your next egg at such an early age. Keep working at it and you will achieve the financial success that you desire.

Investing that money into banks will sacrifice a LOT of return from your long-run investments. Only invest money in banks, that you think you will need in the next couple of years.