$20,000-where to invest?

[heartsong]

My 21 y.o. son received a $20k Navy Reserves sign-up bonus. What would be the best advice I could give him about investing this? He's paying for his schooling and living expenses from his day job.

thanks!

[jIM_Ohio]

Originally Posted by heartsong

My 21 y.o. son received a $20k Navy Reserves sign-up bonus. What would be the best advice I could give him about investing this? He's paying for his schooling and living expenses from his day job.

thanks!

How long until he withdraws the money?
If the account is worth less than 20k on withdraw, what are the consequences?

My suggestion if money will NOT be withdrawn within 10 years is put the money in 100% equities. 50% large cap, 10% mid cap, 10% small cap, 30% international.

When gains come into account, I would send them to a money market account. Over 7 years, I would expect there to be 20k in money market and 20k+ in the funds which can keep growing. There is a risk that this will not happen, though.

Might make sense to do 50% in equites and 50% in money market if not comfortable with risk above.

[atomicrc11]

Is any of this going to be for retirement? You say he is paying for college with his current job, therefore he has earned income, so why not put up to $5k into a Roth IRA? This would give a good foundation for retirement and allow some of the money to start growing tax free while the rest can be accessed more easily.

[heartsong]

Thank you for your replies. My son has already started a Roth IRA with a few hundred dollars in it. Currently, he just plunked his $20k into a 5% savings account, until he knows what to do with it.

Could he invest 1/2 of it into something like money market and put the other 1/2 ($10k) into something more liquid that pays more than 5% interest? What would that be?

I don't know if advising him to purchase a home right now is a good stragety. The real estate market seems to be in a slump...however that might be the best time to buy!

Your thoughts?

[heartsong]

He is turning 21 on 1/16. What would be a great book for someone his age to read and digest? He's so overwhelmed with the whole investing topic that he's content to allow it to sit and earn 5% interest, currently.

[jIM_Ohio]

Originally Posted by heartsong

Thank you for your replies. My son has already started a Roth IRA with a few hundred dollars in it. Currently, he just plunked his $20k into a 5% savings account, until he knows what to do with it.

Could he invest 1/2 of it into something like money market and put the other 1/2 ($10k) into something more liquid that pays more than 5% interest? What would that be?

I don't know if advising him to purchase a home right now is a good stragety. The real estate market seems to be in a slump...however that might be the best time to buy!

Your thoughts?

YES, he could deposit 50% into a savings account (10k) and 50% into more high performing type investments.

My suggestions- for a taxable account, use a "total market index (wilshire 5000 index)" and an international index of some sort- divided equally for both (25%).

Or, 50% into money market account and 50% into Permanent Portfolio (PRPFX). Permanent portfolio owns some domestic stocks, some foreign stocks, some US bonds, some foreign bonds (like swiss francs) and also some gold, silver and similar commodities. It is a mutual fund.

In either case, the investment of 50% could increase by 7%,10%.20%+. It could also drop between 5 and 30% each year. Long term it should return close to 9%, which is quite good.

I would expect the 5% return on the money market/savings to go down considerably (2-4% type returns) within next 2 years. This is an opinion based on historical performance.

[atomicrc11]

If your son is considering using the money in less that 10 years, but more than 5 years, a balanced fund like Vanguard Star (VGSTX) or Fidelity Balanced Fund (FBALX) would be a good choice. He would get market exposure but also have some bonds as well. Of course as with any fund, you may lose money.

[illinigamer]

I second the recommendation for a Roth IRA and would go so far as to suggest also making a $4k contriubtion for 2007. In my opinion, the Roth IRA is the best vehicle a young person can use to start building a wealth.