New to Investing: Any advice greatly appreciated

[freedomlover]

Hello Everyone,

I'm new to the mustachian community and to investing so I was looking for advice from the big 'staches around here about what I should do in terms of  investments. First, I am going to lay out the facts for context and then move on to my thoughts. I would like to approach this problem by asking yourself "If I was in this guy's shoes, what would I do?" Thank you in advance for your help; feel free to ask if more information is required.

I am 22 years old and living in the United States of America. I am a rising senior at the University of Chicago with a degree in economics with plans to enter law school. I have about 8,500 USD in a checking account that is not earning enough interest to keep up with inflation. I don't own any property, autos, or other assets. Thankfully, I have no debt from school or my credit card.  I have no experience whatsoever in investing, but I would like to set up an investment scheme.  I can then squirrel away my money and minimize the temptation to squander it on consumption and lay the foundation for financial freedom.

As I see it I have two broad choices, IRAs or Index Funds. I am torn between opening a Roth IRA or an Index Fund with Vanguard (even which fund to go with). I am not sure what decision to make and I would like to benefit from your hard earned knowledge on the subject. Thank you once again, I appreciate you making it this far and any advice you offer. Let me know if you have any further questions.

TL;DR: College Senior Looking For Investment Advice.

[Frankies Girl]

A Roth IRA is a type of account. Index funds are actual funds like stocks and bonds...
http://www.rothira.com/what-is-a-Roth-IRA

You can open a Roth IRA at Vanguard, and put any type of investment in there - stocks, bonds, index funds, pretty much whatever you like.

Me personally, that's a great idea. If I was you, I'd open a Roth, put in the maximum for the year (this year is $5500) and look into the following:

http://jlcollinsnh.com/category/stock-investing-series/

http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

The rest, I'd locate a good rate as I could find for the $3,000 in a savings and use that as your emergency fund.

And good for you for thinking about this stuff at your age - that's awesome!

[aj_yooper]

Welcome, from a fellow Maroon! 

Your reading list:

1.  http://www.bogleheads.org/wiki/Getting_Started  An excellent introduction to investing in an efficient, smart fashion. 
2.  William Bernstein has a good reading list for you here:  http://www.efficientfrontier.com/reading.htm  Lots of information from a respected financial writer and adviser.
3.  http://www.forbes.com/sites/rickferri/  Investment commentary and news from a private adviser that uses index funds; an easier read than the Bernstein reading list.  I like this book as a quick introduction to asset allocation:    Richard Ferri, All About Asset Allocation: The Easy Way to Get Started, Second Edition 

Read about the Booth School of Business on campus at http://www.chicagobooth.edu/booth/ and its relationship to Professor Eugene Fama http://www.chicagobooth.edu/booth/articles/the_mentor/index.aspx  Another U of C giant, Harry Markowitz at http://en.wikipedia.org/wiki/Harry_Markowitz

Oh, to be on campus again.

Good luck on your investments!

[amha]

Another welcome to a fellow Maroon! (I graduated from the College in '09.)

[Undecided]

Note that the limit for an IRA contribution for this year is the lower of $5,500 or your earned income for the year. So if you don't have earned income this year, that may limit your choice to investing outside of an IRA.

[Stache In Training]

"If I was in this guy's shoes, what would I do?"

1. Read the MMM blog from beginning to end.  And other early retirement/financial independence blogs.   You'll see a lot of answers to all the problems or "I should've done..." 's in there.  Usually upon graduating college, people get a nice job and nice salary, and they decide to start splurging.  If you can start the habits now, you'll be golden.  Also read the reading list listed already, and the blogs/websites the articles are from.  Basically reading is the key.  I always say, a smart man learns from his mistakes; a genius learns from the mistakes of others. Reading enables you to do that.

2. As soon as you are able to contribute to a roth (due to salary requirements), do it.  Index funds, or target date funds made up of index funds.

3. Start investing (taxed, as you already will be investing in your roth)right away.  As soon as you can save up the 3,000 (after emergency fund) to meet the min req for a fund (some will have 1,000 mins, and etfs can have no min save for the share price), start (or once you feel like you are no longer in the pay-check to pay-check phase).  If I'd have started at your age, I'd almost be in FI by now. Starting is always the hardest step. so the sooner, the better.

4. Use your 401k at your first job.  If you start on your first paycheck, you'll never miss it. and make sure you max out employer contributions.  It's like giving yourself a raise.

Basically since you're here at this age, you're going to be good, as long as you don't lose sight of it.  Good luck!

[beltim]

If you're planning to enter law school next year, then you're probably better off not investing the money right now.  Law school is expensive, so unless you've got someone else paying your way, you'll probably want access to that money so that you can take out fewer loans for law school.

Also, I'd do some reading.  Actually, a lot of reading.  Anything from personal finance magazines (Kiplinger's, Money, etc.), to classic books (Random Walk Down Wall Street, The Intelligent Investor), newspaper columns (The Washington Post's Color of Money Column), and even blogs.  Read until you know what kinds of accounts there are (taxable, tax-free, tax-deferred), what kinds of investments there are (stocks, foreign and domestic, plus bonds, treasuries, municipal, and corporates), and what different investing styles are (most investors here subscribe to the efficient market theory, and invest in index funds, but not everyone).