How and Where to Invest Less than 5k for College Student

[Eddy]

Hello Guys!

I started reading MMM around two years ago, and after it opened my eyes, I always wished I could start investing. Now, this is the time to do it but I never got my hands with book about investing, because I felt I didn't have to do it at the time (silly me, I know). I am a coming Sophomore in college majoring in CS, and work at my college.

I've got some money saved already from my job in college, which is around $3k. For me this is a considerable amount of money, and I know that its potential would be wasted if it sat in a bank account. I think I kind of know what the best thing to do is, which is opening an Roth IRA account with Vanguard I guess, and start just putting money on it. Even though I do not know much about investing, I do know a lot about the Mustachian Way of Life, as I've read most of the blog and read the forums almost daily.

I have the money, what are the next steps then? I plan to start reading as I said early, and plan reading The Intelligent Asset Allocator.

Some extra details:
- I earned an average of $550 a month (untaxed because of being considered a work-study grant)
- I am able to save around $400 a month or even more. (70% savings rate! #HumbleBrag)

I live with my parents, use the bus almost everyday with my student discount (even though everyone told me to buy a car, and I always said no) and college is paid with financial aid grants, I might need to ask for a small student loan later (4.66% interest that will only accrue after 6 months after I graduate) to pay the rest of college. Overall I will graduate will almost no debt or no debt entirely, which is good.

Now, the thing that worries me is that by the end of next year I will have some personal things to handle that will cost a lot of money (perhaps around $450 a month or more) that will not let me save as much. However, I plan to earn more to save more without compromising my grades. If I am not working by then for some reason or the amount that I earn is not enough, I might need to get some money from the savings I have, which is a fear that I have and will try to avoid. Still, there is a small change that might happen.

So what's the best thing that I could do? Thank you very much :)

[OUJAU]

When I was still in school (only a couple years ago so take my advice w/ a grain of salt) I put a few hundred bucks in a brokerage account just to play with. My thinking was that as a student my financial needs would be too unpredictable or unstable in the coming years to invest my savings. The way I see it, the knowledge and experience gained from just getting a feel for things and experimenting with a small amount of money is worth more than any real returns I would have gotten in that relatively short amount of time. I'm kind of glad I started so small too because in retrospect my investment choices and strategy was pretty dumb.

[Retired To Win]

Hello Guys!

I've got some money saved already from my job in college, which is around $3K... Now, the thing that worries me is that by the end of next year I will have some personal things to handle that will cost a lot of money (perhaps around $450 a month or more) that will not let me save as much... If I am not working by then for some reason or the amount that I earn is not enough, I might need to get some money from the savings I have, which is a fear that I have and will try to avoid. Still, there is a small change that might happen.

So what's the best thing that I could do? Thank you very much :)

The answer to your own question is in the excerpts above (bolded text).  I don't think you have any choice except to stay liquid (i.e. savings account), until you know for sure if you're going to need to use that money.

Good luck.

[grantmeaname]

Hello Guys!

I've got some money saved already from my job in college, which is around $3K... Now, the thing that worries me is that by the end of next year I will have some personal things to handle that will cost a lot of money (perhaps around $450 a month or more) that will not let me save as much... If I am not working by then for some reason or the amount that I earn is not enough, I might need to get some money from the savings I have, which is a fear that I have and will try to avoid. Still, there is a small change that might happen.

So what's the best thing that I could do? Thank you very much :)

The answer to your own question is in the excerpts above (bolded text).  I don't think you have any choice except to stay liquid (i.e. savings account), until you know for sure if you're going to need to use that money.

Good luck.

I don't know if I agree. I think the rule isn't "don't keep any money you need for short term obligations in risky investments", it's "don't keep any money you need for short term obligations in risky investments unless you're willing to accept the risk that it declines in value by 30%-50% when you need it". I took a year off from work, made $17,000 that I saved most of, and spent down much of it to pay for living expenses in later years of school. I was willing to accept that risk, so into VTSAX it went.

[Joel]

There's something to be said for keeping a certain amount of cash liquid. Given you are in college with a low paying job, and expecting to have obligations in the near future with the potential need for a student loan, I would just keep it in savings. You may miss out on a year or twos gains, but you may avoid a year or twos losses. I personally keep between 10-20k in cash, just in case. It's not a good situation to have not enough cash available, should you say need to buy a car when you graduate college and get a job you have to travel. Which could be a possibility in the next few years, as much as you don't need a car now. Lots of things change in life at that age, very quickly. You may also eventually move out of your parents, and you will need a deposit and first and maybe last months rent. All things that even at your age make it worth keeping 5-10k in cash in accounts that are not subject to loss.

[expectopatronum]

I'd keep saving. The next year may bring lots of expenses + may need a student loan woukd mostly just tempt me to keep it in cash.

However.

If you fund a Roth IRA, you'll pay little to no taxes on what you make, being in such a low bracket. You can also withdraw the principal tax and penalty-free. Naturally, if it's invested then it has the chance to go down in the next year or two, but basically you could do that and it could still be a safety net if your "increase income" plan doesn't work. This also takes advantage of the tiny taxes you're currently paying. Catch is that you must have earned at least the amount you are putting in that year (you can't, say, put in $5K if you only earned $3K that year). It's up to you whether the risk of your assets depreciating and then you needing those assets is worth it. If the market takes a dump between now and two years from now and you have no savings, you screw yourself over. I'm not sure if you can put money into a Roth and NOT invest it yet...that'd be an interesting option...

So that's an option. I guess I also don't understand why you'd delay seeking the higher-paying job until later rather than now to build up the savings before you need them.

[FIRE47]

I agree with what everyone else is saying here about keeping the cash liquid - but perhaps you can set some of it aside and then split your monthly savings between cash and investing?

There is something to be said about starting early -  the motivation to learn once you have some skin in the game (as you said you have not gotten to do any reading yet) and also being able to experience some of the ups and downs before you have too many chips on the table, and to gain some confidence with investing is truly invaluable. Well worth the risk of the few hundred dollar loss he might experience if he does happen to need to pull it out at just the wrong time.

Perhaps that's just me, but I found starting during University is what set me on the path I am on today.