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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Stochastic on May 27, 2015, 10:46:39 AM

Title: Investing while saving up for grad school?
Post by: Stochastic on May 27, 2015, 10:46:39 AM
Hello fellow Mustachians,

I stumbled on this lovely blog around a week or so ago and have since been feverishly devouring the wisdom contained in MMM's posts.  I have already made some (small) modifications to my lifestyle and plan on making many more in the weeks, months, and years ahead. 

Before I ask my questions, some background on myself:

I'm currently 24 and am working as a research assistant in several different labs.  During the day I earn an hourly wage, and in the evenings and weekends I volunteer my time to a research project which I am overseeing.  My income is quite low at the moment, roughly 25K annual take-home pay.  I have chosen to forego a higher salary in order to gain research experience which I hope will serve me in graduate school. 

I will be applying to several graduate programs at the end of this year, both Master's and PhD programs.  Each have their own distinct advantages and disadvantages.  My understanding is that Master's programs generally have higher admissions rates (15-30%) vs PhD programs (2-10%).  Most MS programs only last 2 years while as these days doctoral programs take 4-6 years.  It is also very common to follow this up with a lengthy, low paying post-doctoral fellowship.  MS programs are generally unfunded, although there are opportunities to receive scholarships and teaching assistantships.  Competitive PhD programs are usually fully funded.  Reading about the possibility of attaining financial independence has made me rethink my career trajectory--I will get to this later. 

I have always been a relatively frugal person, but reading MMM has kicked my frugality muscles into overdrive.  I am currently paying $400 in rent (this will bump up to $415 next year) and roughly $60 for all utilities and internet.  If I can convince my roommate not to use AC, I can probably reduce this.  I live in a university town, so the only way I could find housing for significantly less would be by moving farther from my place of employment.  I cook all my meals, so my goal is to spend no more than $200 monthly on food (this would be lower but I buy a lot of produce since nutrition is a top priority for me.  Plus I subsist on a 3000 calorie diet due to working out 5-6 days a week).  I currently spend around $30-$40 a month on gas.  This is because I like to visit my family every 4-5 weeks or so, and they unfortunately live 85 miles away.  I use public transportation on most days and am currently hunting for a good bike on Craigslist so that I can reduce my driving further. 

Fortunately, I am not saddled with student loans or any other debts.  After college I spent the bulk of my time volunteering for a research project, and it is only in the past year that I have been able to work a decent number of payed hours weekly.  As such I am somewhat behind given my age--I only have approximately $12,000 saved up.  Realizing that this money was depreciating sitting in a savings account, I perhaps foolheartedly invested $10,500 into a Betterment account.  In retrospect I should have consulted with this forum before making such a move.  I know that it's wiser to manage your own investments to minimize fees, but I'm still learning about the basics of investing and feel more comfortable having a robo-advisor manage my 'Stache for me for the time being.  I hope to transfer this to Vanguard accounts in the next year or so once I've read some investment books. 

Having typed up that wall-of-text, let me get to my questions:

1.  How should I invest my savings for the next year or so while I've saving up for grad school?  I don't know if it's good idea to put my money into an IRA given that I may need it to pay tuition and other expenses in the next few years.  Should I continue putting my money in Betterment, or is there a savvier alternative?  If I use Betterment, what allocation of stocks and bonds should I use?

2.  Given the lack of funding in academia and the surfeit of PhDs in the United States, I'm seriously reconsidering pursuing a doctorate.  Master's programs are looking more attractive since after completing one in two years I could potentially get a job earning 50-70K.  Since I'm learning to live the Mustachian way of life, this would be sufficient for me.  My goal is to become at least semi financially independent by the time I'm 40 in 16 years.  I don't know if I can achieve this if I spend 5 years working on a PhD and then 2-4 more years in a post-doctoral position.  Plus, the kind of academic/teaching positions I'm interested in are very hard to come by and don't pay particularly well.  Given all this, is pursuing a Master's degree the more sensible choice?

I'm new here and am just beginning my journey towards FI, so I welcome any and all advice.  Thanks for taking the time to read my ramblings!
Title: Re: Investing while saving up for grad school?
Post by: matchewed on May 27, 2015, 10:51:49 AM
1. Short term funds should be put in a savings account.

2. Depends on your options. What are the career prospects for your bachelors, if you get a masters, and if you get a PhD? Weigh the costs and the outcomes and come up with a plan that jives with your goals.
Title: Re: Investing while saving up for grad school?
Post by: Stochastic on May 27, 2015, 11:01:59 AM
1. Short term funds should be put in a savings account.

2. Depends on your options. What are the career prospects for your bachelors, if you get a masters, and if you get a PhD? Weigh the costs and the outcomes and come up with a plan that jives with your goals.

Thanks for the input.

I won't need to pay tuition costs for at least another year, so I feel bad just having a bunch of money sitting in a savings account in the meantime. 

My career prospects would be quite a bit better if I had an M.S. (I'm a psychology and biology major.  I envy all the CS and engineering grads :P ).  A PhD would be beneficial if I pursued a more lucrative field such as Industrial-Organizational Psychology or Neuropsychology.  Otherwise it doesn't seem worth it from a strictly financial perspective.

Title: Re: Investing while saving up for grad school?
Post by: matchewed on May 27, 2015, 11:07:37 AM
1. Short term funds should be put in a savings account.

2. Depends on your options. What are the career prospects for your bachelors, if you get a masters, and if you get a PhD? Weigh the costs and the outcomes and come up with a plan that jives with your goals.

Thanks for the input.

I won't need to pay tuition costs for at least another year, so I feel bad just having a bunch of money sitting in a savings account in the meantime. 

My career prospects would be quite a bit better if I had an M.S. (I'm a psychology and biology major.  I envy all the CS and engineering grads :P ).  A PhD would be beneficial if I pursued a more lucrative field such as Industrial-Organizational Psychology or Neuropsychology.  Otherwise it doesn't seem worth it from a strictly financial perspective.

But if you need that money in a year you actually want it to be there rather than lost to some short term loss in the market when you needed it. Liquidity and safety is the most important thing for a short term goal. That means a savings account. Don't make decisions based on how you feel but on the realities of the situation.

Cool on the career prospects but you should really commit to paper and analyze those prospects based on what you want to do and how much these careers would pay. This is just an ROI analysis based on your goals and anticipated timeline(s).
Title: Re: Investing while saving up for grad school?
Post by: NorCal on May 27, 2015, 11:11:20 AM
I would say a CD over a savings account, but the difference will be small.

Between a Master's and a PhD, I recommend talking to several people that are coming out of the programs you're looking at.  Your field may be very different than others, so general comparisons are tough.  Ask graduates of these programs what the job market is like, and what they wish they would have done differently.
Title: Re: Investing while saving up for grad school?
Post by: Stochastic on May 27, 2015, 11:15:23 AM
1. Short term funds should be put in a savings account.

2. Depends on your options. What are the career prospects for your bachelors, if you get a masters, and if you get a PhD? Weigh the costs and the outcomes and come up with a plan that jives with your goals.

Thanks for the input.

I won't need to pay tuition costs for at least another year, so I feel bad just having a bunch of money sitting in a savings account in the meantime. 

My career prospects would be quite a bit better if I had an M.S. (I'm a psychology and biology major.  I envy all the CS and engineering grads :P ).  A PhD would be beneficial if I pursued a more lucrative field such as Industrial-Organizational Psychology or Neuropsychology.  Otherwise it doesn't seem worth it from a strictly financial perspective.

But if you need that money in a year you actually want it to be there rather than lost to some short term loss in the market when you needed it. Liquidity and safety is the most important thing for a short term goal. That means a savings account. Don't make decisions based on how you feel but on the realities of the situation.

Cool on the career prospects but you should really commit to paper and analyze those prospects based on what you want to do and how much these careers would pay. This is just an ROI analysis based on your goals and anticipated timeline(s).

Would you recommend putting my savings into CDs, money market accounts, or short term bonds or something that will keep up with inflation while still offering liquidity and safety? 

It's hard to do an ROI analysis with career paths given that there are so many unknowns.  Tuition and costs will vary from school to school as will cost of living.  It's also difficult to predict PhD completion times.  It's not unheard of to take six or even seven years to complete a dissertation.  Also, who knows what the research funding landscape will look like 5-10 years from now.  This lack of stability in academia is making me rethink my options.
Title: Re: Investing while saving up for grad school?
Post by: Stochastic on May 27, 2015, 11:23:16 AM
Between a Master's and a PhD, I recommend talking to several people that are coming out of the programs you're looking at.  Your field may be very different than others, so general comparisons are tough.  Ask graduates of these programs what the job market is like, and what they wish they would have done differently.

Yeah, that's what I've been doing.  I'm also going to start lurking at the GradCafe (http://www.thegradcafe.com/) to get a better sense of this.  Most of my friends are getting PhDs in Genetics and Molecular biology.  They have the advantage of being able to land jobs in industry if they don't want to go into academia.  I'm interested in cognitive neuroscience and cognitive psychology, fields that don't have such clear ties to "alternate academia."  This is why I've started looking into other fields such as Neuropsychology, Industrial-Organizational psychology, and even Speech-Language Pathology.
Title: Re: Investing while saving up for grad school?
Post by: matchewed on May 27, 2015, 11:25:10 AM
1. Short term funds should be put in a savings account.

2. Depends on your options. What are the career prospects for your bachelors, if you get a masters, and if you get a PhD? Weigh the costs and the outcomes and come up with a plan that jives with your goals.

Thanks for the input.

I won't need to pay tuition costs for at least another year, so I feel bad just having a bunch of money sitting in a savings account in the meantime. 

My career prospects would be quite a bit better if I had an M.S. (I'm a psychology and biology major.  I envy all the CS and engineering grads :P ).  A PhD would be beneficial if I pursued a more lucrative field such as Industrial-Organizational Psychology or Neuropsychology.  Otherwise it doesn't seem worth it from a strictly financial perspective.

But if you need that money in a year you actually want it to be there rather than lost to some short term loss in the market when you needed it. Liquidity and safety is the most important thing for a short term goal. That means a savings account. Don't make decisions based on how you feel but on the realities of the situation.

Cool on the career prospects but you should really commit to paper and analyze those prospects based on what you want to do and how much these careers would pay. This is just an ROI analysis based on your goals and anticipated timeline(s).

Would you recommend putting my savings into CDs, money market accounts, or short term bonds or something that will keep up with inflation while still offering liquidity and safety? 

It's hard to do an ROI analysis with career paths given that there are so many unknowns.  Tuition and costs will vary from school to school as will cost of living.  It's also difficult to predict PhD completion times.  It's not unheard of to take six or even seven years to complete a dissertation.  Also, who knows what the research funding landscape will look like 5-10 years from now.  This lack of stability in academia is making me rethink my options.

It's for about a year or less right? I wouldn't worry about inflation in that time frame unless current inflation was already high, but then that (usually) corresponds with higher interest rates on savings accounts anyway.

Well you're going to have to put some numbers behind it at some point. Or are you doing this because you just want to? Even if you are you should have some low-ball and high-ball numbers to run with. Just because there is uncertainty doesn't mean that educated guesses and predictions cannot be made. I would probably wave people away from academia for a profession as it seems generally pretty saturated in most fields. I could very well be wrong about this. Have you tried to look at other professions outside of it?
Title: Re: Investing while saving up for grad school?
Post by: NorCal on May 27, 2015, 11:37:10 AM
Between a Master's and a PhD, I recommend talking to several people that are coming out of the programs you're looking at.  Your field may be very different than others, so general comparisons are tough.  Ask graduates of these programs what the job market is like, and what they wish they would have done differently.

Yeah, that's what I've been doing.  I'm also going to start lurking at the GradCafe (http://www.thegradcafe.com/) to get a better sense of this.  Most of my friends are getting PhDs in Genetics and Molecular biology.  They have the advantage of being able to land jobs in industry if they don't want to go into academia.  I'm interested in cognitive neuroscience and cognitive psychology, fields that don't have such clear ties to "alternate academia."  This is why I've started looking into other fields such as Neuropsychology, Industrial-Organizational psychology, and even Speech-Language Pathology.

Even more important, find a way to connect with people at the actual schools you want to go to.  The options available to grads of programs at different schools varies dramatically.

In my personal example, I got an MBA after I left the military, and a bunch of my friends did too.  My career path has nothing in common with my friends that went to different schools.  Each school just had different companies recruiting there and different local job markets.  Some ended up going to schools with almost no job options.
Title: Re: Investing while saving up for grad school?
Post by: forummm on May 27, 2015, 11:53:04 AM
You should really know WHY you want to go to grad school before you think about anything else. What's the  REASON you are considering more school? Is it wanting higher pay? More complex work? Different work?

Ignore everything else until you have really-well articulated answers to that.

I'm happy to discuss more when you have those answers. Grad school, and a PhD program in particular, is a serious commitment of resources (mental, time, opportunity cost, tuition, etc). It can definitely be worth it, but I wouldn't recommend it to everyone. A PhD is a very different animal than a BS.
Title: Re: Investing while saving up for grad school?
Post by: Stochastic on May 27, 2015, 12:31:28 PM
You should really know WHY you want to go to grad school before you think about anything else. What's the  REASON you are considering more school? Is it wanting higher pay? More complex work? Different work?

Ignore everything else until you have really-well articulated answers to that.

I'm happy to discuss more when you have those answers. Grad school, and a PhD program in particular, is a serious commitment of resources (mental, time, opportunity cost, tuition, etc). It can definitely be worth it, but I wouldn't recommend it to everyone. A PhD is a very different animal than a BS.

My primary motivation is definitely not just higher pay.  I've been involved in a several research positions both during undergrad and post-graduation, and this has given me some perspective on just how demanding and competitive the research world is, especially if you aren't working in an area that's well funded by the NIH.  I've long been fascinated by human cognition and the underlying biology that enables it.  This interest is what led me to study biology and psychology as an undergraduate.  I decided not to apply to grad school during my senior year as I wanted some more time to learn my interests and gain research experience to make me a more competitive applicant.  Now that I've been out of school for two years, I'm ready to move on to the next stage of my life.  Unfortunately, I haven't been able to narrow my interests down to a specific area of psychology (e.g., implicit memory, visual attention, psycholinguistics, etc.). 

My problem is that my interests are very diffuse.  I find almost anything related to cognitive neuroscience, behavioral neuroscience, and cognitive psychology to be fascinating.  Based on my understanding, the way most PhD programs work  is that you spend 4-6 years of your life working on a research project that focuses on a very narrow topic.  So you have to go into it more or less knowing what you want to specialize in.  I'll admit that this hyper-specialization does not particularly appeal to me.

If I were to go the PhD route, odds are I would end up in a teaching position of some kind.  Landing a faculty job at a top tier university is just about impossible unless you are prodigiously productive early in your research career or you graduate from a top school (e.g., Harvard, Stanford).  Adjunct positions are notoriously unattractive (http://www.huffingtonpost.com/2013/11/11/adjunct-faculty_n_4255139.html), so I would likely end up searching for a faculty position at a community college or possibly even teaching at a high-school level.  Obviously the pay wouldn't be spectacular.  So purely from a ROI standpoint going into academia seems foolish unless you are brilliant and productive enough that you can secure a tenure track position (something only a small % of PhDs will ever do).

This is why I've recently been looking into more "applied" fields where there exist career opportunities outside of academia, such as Neuropsychology.  This would allow me to study something I am interested in while giving me more options when I graduate. My mom worked in a university Neuropsychology department for a while, so I have some sense of what the day-to-day work would be like. 

Clearly, I have a lot more thinking to do.  The challenge is finding a field that is at least somewhat personally rewarding/meaningful while also having promising job prospects. 
Title: Re: Investing while saving up for grad school?
Post by: BMEPhDinCO on May 27, 2015, 12:41:19 PM
Having just completed my dissertation defense two weeks ago and being a big fan of the MMM way, I feel positioned to give my two cents...(at 0% interest for you, even!)

1. PhD programs are HARD and in psych, expect 5-6 years, minimum.  If you are working with humans or animals, it can take 6 months just to get started and that's a quick timeline.

2. PhD was fully funded for me, and I still paid $16k out of pocket on "other stuff" (insurance, books, parking, student fees, etc) - and I made around $21k per year, no increase, for 5 years

2. A good MS candidate can command full reimbursement for tuition and salary, but there are other costs as well.  For my MS, I made around $15k per year and paid around $2k per year in "incidental fees" along with the full reimbursement.

Job prospects are being reduced at a rapid rate.  Academia especially is much harder to find. 

With cog neuro psych, you could also look at hospital positions, nursing homes, drug companies, etc. 

I would suggest you talk to people in your field (not grad students) and see what they think - I decided to go for the PhD because I kept running into blocks when working in clinical research and now I plan to go back into non-academic jobs. (My degree is BME).

Good luck!
Title: Re: Investing while saving up for grad school?
Post by: IrishMustacian on May 27, 2015, 12:56:24 PM
I would say that if you become certain that you want to do either a PhD or a Masters, but not which, then it could be a good strategy to go ahead and apply for fully-funded PhD programs. Most PhD programs offer a Masters to students who decide not to finish the program, who complete the course requirements and do a little bit of research. If you were to do this, you could get your masters in two years, and would not have to pay any fees, and would receive the full stipend while you are there (usually about $25-30k/year pre-tax).

If you are 100% sure you want to do a Masters but not a PhD, then in principle you could still do this - lie on your application claiming that you want to do a PhD even though you know you will leave after two years with a Masters. I personally would discourage this on moral grounds, as it is kind of taking advantage of the system. However if you genuinely are not sure, then enrolling in a PhD program keeps your options open, and you will get your Masters in a much more financially savvy way if you choose to go that route.
Title: Re: Investing while saving up for grad school?
Post by: forummm on May 27, 2015, 12:59:22 PM
Having just completed my dissertation defense two weeks ago and being a big fan of the MMM way, I feel positioned to give my two cents...(at 0% interest for you, even!)

Huge congrats! :)
Title: Re: Investing while saving up for grad school?
Post by: forummm on May 27, 2015, 01:20:59 PM
You should really know WHY you want to go to grad school before you think about anything else. What's the  REASON you are considering more school? Is it wanting higher pay? More complex work? Different work?

Ignore everything else until you have really-well articulated answers to that.

I'm happy to discuss more when you have those answers. Grad school, and a PhD program in particular, is a serious commitment of resources (mental, time, opportunity cost, tuition, etc). It can definitely be worth it, but I wouldn't recommend it to everyone. A PhD is a very different animal than a BS.

My primary motivation is definitely not just higher pay.  I've been involved in a several research positions both during undergrad and post-graduation, and this has given me some perspective on just how demanding and competitive the research world is, especially if you aren't working in an area that's well funded by the NIH.  I've long been fascinated by human cognition and the underlying biology that enables it.  This interest is what led me to study biology and psychology as an undergraduate.  I decided not to apply to grad school during my senior year as I wanted some more time to learn my interests and gain research experience to make me a more competitive applicant.  Now that I've been out of school for two years, I'm ready to move on to the next stage of my life.  Unfortunately, I haven't been able to narrow my interests down to a specific area of psychology (e.g., implicit memory, visual attention, psycholinguistics, etc.). 

My problem is that my interests are very diffuse.  I find almost anything related to cognitive neuroscience, behavioral neuroscience, and cognitive psychology to be fascinating.  Based on my understanding, the way most PhD programs work  is that you spend 4-6 years of your life working on a research project that focuses on a very narrow topic.  So you have to go into it more or less knowing what you want to specialize in.  I'll admit that this hyper-specialization does not particularly appeal to me.

If I were to go the PhD route, odds are I would end up in a teaching position of some kind.  Landing a faculty job at a top tier university is just about impossible unless you are prodigiously productive early in your research career or you graduate from a top school (e.g., Harvard, Stanford).  Adjunct positions are notoriously unattractive (http://www.huffingtonpost.com/2013/11/11/adjunct-faculty_n_4255139.html), so I would likely end up searching for a faculty position at a community college or possibly even teaching at a high-school level.  Obviously the pay wouldn't be spectacular.  So purely from a ROI standpoint going into academia seems foolish unless you are brilliant and productive enough that you can secure a tenure track position (something only a small % of PhDs will ever do).

This is why I've recently been looking into more "applied" fields where there exist career opportunities outside of academia, such as Neuropsychology.  This would allow me to study something I am interested in while giving me more options when I graduate. My mom worked in a university Neuropsychology department for a while, so I have some sense of what the day-to-day work would be like. 

Clearly, I have a lot more thinking to do.  The challenge is finding a field that is at least somewhat personally rewarding/meaningful while also having promising job prospects.

Glad you're thinking this through. If you want to do research, you won't end up doing that as a community college or high school teacher. 6 years (which is what it will likely take without a masters) is a long time. And most research positions have a postdoc beforehand. So it's a long commitment.