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]

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).

[MonkeyMama]

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.

[photo]

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.