Some advice on where to put your saved money.
1. Bank Passbook or Statement Savings Account.
You may need $100 to open a typical bank account, which is a good place for your first $500 or so. After that, better-yielding alternatives are available.
Advantages include safety of principal and liquidity.
Note the minimum balance required to avoid fees.
2. Certificates of Deposit (CDs)
Minimum denominations are often $250 to $500.
CDs pay a fixed rate of interest (usually higher than passbook rates) for a fixed period. Generally, the longer you tie up your money, the more interest you earn. Penalties are levied for redemptions prior to maturity.
3. Christmas (Holiday) Clubs.
Banks pay little or no interest on "club" accounts and most stopped providing gifts years ago. Major advantages, however, are reinforcement of systematic savings with weekly coupon books and the ability to save small weekly amounts (e.g., $5 to $10 minimums).
4. Corporate Bonds.
Thes are IOUs issued by a company and typically sell for $1,000.
Investors receive a fixed amount of interest at regular intervals, generally every six months, until the bond matures.
Then they get back their principal.
Conservative investors should choose investment-grade securities.
5. DRIP stocks
Almost 1,000 publicly traded companies allow investors to buy stock directly from the company through dividend reinvestment plans (DRIPS).
Minimum investments are very affordable, often just $100.
For additional information, consult the book No Load Stocks by Charles Carlson.
6. Employer Retirement Plans.
Specific plans are 401(k)s for corporate employees, 403(b)s for school and nonprofit employees, and Section 457s for county and municipal government workers. Savings come right out of your paycheck. Minimum per-paycheck savings could be as little as $10 per pay period or 1% of salary. Study the investment options available to plan participants, and select some growth products (e.g., S&P 500 index funds, growth funds, growth and income funds) if retirement is 5-10 years (or more) in the future.
7. Growth and/or Income Mutual Funds
Owning shares in a mutual fund gives you an ownership interest in the stocks (growth funds), bonds (income funds), or other securities that comprise its portfolio. The fund hires a professional manager to make investment decisions. Many funds require initial deposits of $2,000 or less.
Subsequent deposits are generally much lower (e.g., $100).
Funds that require more than $2,000 often accept less for IRAs, sometimes as little as $500. Check the fund prospectus for details.
8. Individual Retirement Accounts.
IRAs are not an investment per se but, rather, a place to put products (e.g., CDs, mutual funds) selected for retirement savings.
Check
Internal Revenue Service for maximum annual contribution limits.
Minimum investment amounts vary according to the investment selected, but can be as low as $250 to $500. You don't have to save the $2,000 all at once.
9. Money Market Mutual Funds
These are a type of mutual fund that invests in short-term (a year or less) debt obligations issued by governments, government agencies, and corporations.
The minimum initial investment is often $1,000 or less, and limited check-writing (e.g., minimum check size of $250 to $500) may be available.
Although the short maturity of investments in a money market fund's portfolio helps keep share prices stable, they are not insured.
People concerned about high taxes can buy shares in a tax- free money market fund issued by their state of residence.
Money market funds should not be confused with money market deposit accounts (MMDAs), which are a bank product and carry FDIC insurance.
10. Treasury Notes and Bonds
Treasury Securities are issued in denominations of $1,000.
You can purchase them directly from the Federal Reserve Bank, through its Treasury Direct System, or through a bank or brokerage firm, where you will be charged a fee of around $50.
11. Unit Investment Trusts (UITs)
Sold by brokerage firms, unit trusts are a portfolio, usually of bonds and mortgage-backed securities (e.g., Ginnie Maes), that are sold to investors in small pieces called units.
The cost of a unit is generally $1,000.
Unlike mutual funds, however, UITs are not professionally managed.
Instead, the securities in the portfolio are simply held to generate interest, which is distributed proportionately to investors.
When the bonds in a UIT mature or are called, investors get back part of their principal. When the last bond in the portfolio is redeemed, the trust ceases to exist.
12. U.S. EE Savings Bonds.
EE savings bonds can be purchased at banks and through employer payroll deduction plans.
They are purchased for one-half of their face value (e.g., $25 for a $50 bond) and come in denomintions including $50, $75, $100, $200, $500 and $1,000.
Interest is added to the value of the bonds every 6 months according to a formula based on the current yields available on Treasury Securities.
Inflation-indexed I bonds are sold at full face value (e.g. $50 for a $50 bond) in the same denominations as EE bonds.
13. Zero Coupon Bonds
"Zeros" are bonds issued by governments or corporations that sell at a deep discount to face value (generally $1,000).
Unlike other bonds that pay semiannual interest, they don't pay out anything until maturity, at which time an investor receives $1,000.
The "phantom income" (interest) that is earned until then accumulates and is taxable each year.
Investors with a 15-to-20 year time horizon can purchase a $1,000 zero for around $200 -$300, depending on the interest rate earned.
21 yrs old and Need a Plan!!!! Help?
