College Student Looking to Begin Saving

[ccmonson]

I'm currently a rising senior in college, and I want to begin saving and investing my money now. I feel there's no reason not to. My tuition is paid for, and my costs of living are minimized to $600-700 per month. I want to start saving approximately 5% of my income, or possibly up to 10%. My main question is this: currently, I have about $15,000 in loans taken out, primarily subsidized, but partially unsubsidized. The unsub loans have accrued around $400 in interest over the past few years. The interest rate is %3.4 on the subsidized, %6.8 on the unsub. It is my understanding that since the interest rate is so low and even tax-deductible, it would be more financially sensible to invest, as the stock market returns, on average, %10 a year. First of all, would you agree with this? Second of all, since my income is so small, will I be able to diversify my investments enough to reach this level of return? This is my general investment plan:

40% US Stocks (20% high risk, 50% average risk, 30% low risk)
30% International Stocks (same as above)
20% Mutual Funds and ETFs
10% Passive Income Investments (vending machines, etc.)

Will I be able to achieve this amount of diversity while only investing ~$300 every quarter, and will this amount of diversity be enough to reach a 10%+ annual return? Would I be able to reach that return with any less diversity?

[Hector]

Originally Posted by ccmonson

Will I be able to achieve this amount of diversity while only investing ~$300 every quarter, and will this amount of diversity be enough to reach a 10%+ annual return? Would I be able to reach that return with any less diversity?

why do you think that stock market will return 10% annual return? why don't you look at stock history for last 20-30 years and to see what was the annual return?

also, do you know that pass performance is not the guarantee of future result?

[Frugal]

You are lucky you pay only 3.4% interest on subsidized. are these Staffords? I only got subsidized, and they are at 6.8% interest locked in, and it is not fun trying to pay them off. I would begin saving as soon as possible.

[mcfroggin]

10% annual return is high. If that is your goal, start your own business and invest in that.

[danieldroga]

It is good that you are planning to save money even if you are just a college student.

[MonkeyMama]

I agree that 10%+ return is pretty optimistic.

Overall, I would focus on saving cash until you are out of college. Just depends on your overall situation. With the higher interest student loans - I'd make those a priority. (My general feeling with college is to focus on degree, pay off loans, etc. Investing is getting ahead of ones self - for the average college student).

If you are intent to start investing, you could start putting the money in a retirement fund. I'd recommend a ROTH IRA. Does your employer offer a 401k plan? T. Rowe price allows you to open an account with $100 and subsequent investments of $100. Say, $100 per month. You would invest in a *fund of funds* since you do not have enough to diversify. Their Target retirement funds are very good (a chunk of my own investments is in T Rowe retirement 2040 something or other). I share because you need a much bigger chunk of change for most the rest - to open an account.

As much as I don't agree with saving for retirement while racking up student loans (assuming you are in your 20s), I do think it is good to get in the habit of setting aside a set percentage to retirement. Hard for me to answer because I don't know your big picture. (If you don't have a penny to your name - I'd build up a bit of a cash cushion).

[artwest]

It is pretty easy to find Mutual Funds that have been around for a while (20+ years) and have averaged 10-12% growth over the life of the fund, HOWEVER, it is MUCH more important to be debt free.

In my opinion you should pay off those student loans as quickly as possible. Then begin saving.

[artwest]

It is pretty easy to find Mutual Funds that have been around for a while (20+ years) and have averaged 10-12% growth over the life of the fund, HOWEVER, it is MUCH more important to be debt free.

In my opinion you should pay off those student loans as quickly as possible. Then begin saving

[MonkeyMama]

Originally Posted by artwest

It is pretty easy to find Mutual Funds that have been around for a while (20+ years) and have averaged 10-12% growth over the life of the fund

I can't argue with that -very true - BUT I still think it's pretty optimistic to expect 10%+ returns.

People lose sight of the risk that comes with higher returns. It's not guaranteed.

[artwest]

10-12% is not guaranteed, however, when you find a fund that has been around for 60 years, has averaged 10-12% growth over the life of the fund and has had 50 years with growth and only 10 with losses, that is pretty solid.

I still think that it is much more important to be debt free. I would pay off those student loans.

[photo]

Originally Posted by MonkeyMama

Overall, I would focus on saving cash until you are out of college.

I agree. Saving for the long-term is good, however, when you graduate, you may need cash for a security deposit for a new apartment or a professional wardrobe (which doesn't have to cost a fortune), and other unforeseen expenses. After you have a paycheck, then you can allocate more of your money into investments.