24 y/o - wondering what type of investment is best.

**cindyg86** · 02-09-2011, 09:17 PM

Additional information:

I just did an "Asset Allocation" tool and it says I should invest the following ways...

50% Large-Cap Stocks
20% Small-Cap Stocks
20% Foreign Stocks
10% Bonds

Again, any insight? And how does one go about choosing funds? They all seem pretty much the same to me.

**disneysteve** · 02-10-2011, 05:35 AM

None of us can tell you what your risk tolerance is but I can tell you that I agree that at 24, you should be a lot more aggressive than 80% bonds, 20% stocks. I think the breakdown in your 2nd post would be just fine. You can use BND for the 10% bonds. Get a Total Stock Market index. That will cover the 50% and 20%. Then get a Foreign Stock index for the remaining 20%. So 3 funds would take care of things for you.

**littleroc02us** · 02-10-2011, 07:11 AM

I have a different approach, you have 60k in student loans? Start paying them now and take a job also to pay them. Investing can wait.. IMO no debt is good debt, don't let anyone tell you otherwise.

**jpg7n16** · 02-10-2011, 07:43 AM

What are the interest rates on the loans?

**cindyg86** · 02-10-2011, 06:44 PM

Thanks for the responses!

DisneySteve - Yes, I was thinking of reallocating where my money is going to be a bit more aggressive. I've always been hesitant to engage in a large amount of risk (in anything, really... not just finance) but I think given my age I will invest more aggressively as I have adequate time to recoup any losses. Thanks for the advice - it's must appreciated!

LittleRoc - I agree with paying off loans as quickly as possible as well. That is certainly in my game plan. I'm aiming to allocate additional payments once I have a full-time job and start paying on the loans. That's why I'm currently only allocating $100 month toward investing - it's a relatively modest amount and allows me to save extra funds for other payments. While I agree with the no debt is good debt philosophy, I would rather not wait to invest while I am paying off my school loans. As I've been told quite often, even waiting five years can set you back.

JPG - The interest rates vary between 6-8%.

**jpg7n16** · 02-10-2011, 06:51 PM

Then I would take the company match only, then start 'investing' in my student loans. Starting with the 8% ones.

You can only deduct the 1st $2500 of student loan interest, so it's like any other 8% debt.

Why take the risk in the stock market and hope for 7-11% when you can get 8% 'guaranteed'? It's guaranteed cause you are guaranteed to lower your interest expense over the alternative of not paying it down.

**cindyg86** · 02-10-2011, 07:54 PM

I don't currently have a full-time job. I won't graduate until June... I'm currently working two part-time jobs that offer no investment benefits.

Rather than continue to put off saving for retirement, I decided to start with the most readily available venue to me at the moment -a Roth IRA. Until the time comes when I work for a business or agency that offers a company match, I will continue to invest in the Roth IRA (and will continue to do so but will most likely scale down the percentage of my income invested to focus on maxing out a match).

And yes, I will certainly focus on paying down the 8% interest rate loans before the others.

Thanks!

**jpg7n16** · 02-10-2011, 09:41 PM

Originally posted by cindyg86 View Post

I don't currently have a full-time job. I won't graduate until June... I'm currently working two part-time jobs that offer no investment benefits.

Oh some part time jobs do offer 401ks. But since it's not available, just go straight to paying down student loans.

Rather than continue to put off saving for retirement, I decided to start with the most readily available venue to me at the moment -a Roth IRA. Until the time comes when I work for a business or agency that offers a company match, I will continue to invest in the Roth IRA (and will continue to do so but will most likely scale down the percentage of my income invested to focus on maxing out a match).

And yes, I will certainly focus on paying down the 8% interest rate loans before the others.

Thanks!

And I meant before investing in a Roth. Don't invest in a Roth. Pay down the loans instead. You'll get a very good guaranteed return, whereas the Roth wouldn't.

**disneysteve** · 02-11-2011, 05:49 AM

Originally posted by jpg7n16 View Post

And I meant before investing in a Roth. Don't invest in a Roth. Pay down the loans instead. You'll get a very good guaranteed return, whereas the Roth wouldn't.

I agree. A guaranteed tax-free 8% return is tough to beat. It makes more sense to pay down the high interest debt than to put money in the Roth. Think of it this way. Would you borrow money at an 8% interest rate to fund your Roth? If not, what you are proposing is essentially the same thing. Your Roth would have to earn 8% just to break even.

**littleroc02us** · 02-11-2011, 06:54 AM

Originally posted by disneysteve View Post

I agree. A guaranteed tax-free 8% return is tough to beat. It makes more sense to pay down the high interest debt than to put money in the Roth. Think of it this way. Would you borrow money at an 8% interest rate to fund your Roth? If not, what you are proposing is essentially the same thing. Your Roth would have to earn 8% just to break even.

Agreed!

**snshijuptr** · 02-11-2011, 09:14 AM

If you want to continue your Roth IRA, then lower the contributions to the minimum Sharebuilder allows.

If you have private student loans, begin overpaying on those now.

If you have unsubsidized Stafford loans, begin paying the interest on those now. I believe you can do this without triggering payments, if not, see below.

If you have subsidized Stafford loans, put as much money as you can in a high yield savings account (might as well use ING since you already use Sharebuilder). When you graduate and get a job, immediately dump all the money into your highest rate loan.

Your expected market return will be around 6-8%. Since you are focused on retirement, we are thinking about your long term net worth. If you have $1000 compounding in the market at 6% and $1000 compounding in a student loan at 8%, you are losing money each year.

Year ROTH(6%) Loans(8%) Net Worth
Year 1 $1000 - $1000 = $0
Year 2 $1060 - $1080 = -$20
Year 3 $1123 - $1166 = -$43

By the time you hit retirement you will have less money by investing in the market, at positive 6%, than you would if you invested in your student loans, at negative 8%.

**humandraydel** · 02-13-2011, 09:46 AM

Originally posted by cindyg86 View Post

I went with the "Automatic Investment" planner from ShareBuilder. This is how my $100 month investment currently stands:

VANGUARD TOTAL BOND MARKET ETF (BND) - $82.00
S&P 500 INDEX SPDR (SPY) - $18.00

Be careful with ShareBuilder. Do they still charge $4 per transaction? If so, you are paying $8 out of $100 just to invest in those 2 funds.

But actually, I agree with the other advice - pay down the 8% student loans.

**MrPolarZero** · 02-13-2011, 09:26 PM

You might want to stay on that level of invest for probably a year or so. That way, you will be able to assess first how much you will be willing to go through (considering the factors that will come in, such as the kind of job that you will get by that time).

**Hector** · 02-17-2011, 01:38 PM

Where did you open the IRA? What is the trade commission?

If I am investing $100/month, I wont think about diversification.

If I have opened account with regular broker, I wont buy security every month. I have $100 to invest and I opened my account at scottrade (one of the cheapest). They charge $7 for a trade. What is the point in paying 7.5% in commission?

24 y/o - wondering what type of investment is best.