<p>Due to some generous scholarships and grants that have been sent my way, I am going to school with $0 tuition owed, marginal living expenses while at school (apt off campus=cheap), and about $6000 sitting in my savings account at the bank due to living at home for free and working full time during these summer months. I have two years left at the university before I graduate with a bachelor's degree, and plan on entering an internship next summer.</p>
<p>I've calculated I will only need ~$3000 to make it the next year while I'm down at school, which means I will have $3k sitting in my bank account at home. </p>
<p>What would be the smartest investment choice for a third year undergrad with $3000 at his disposal? I'm thinking somewhere along the lines of a 2 year investment plan; should I look into CDs, Money Market Accounts, Bonds?</p>
<p>If you made that money while working in 2006, you may want to start a Roth IRA account. You can contribute as much as you have earned in 2006. But, since you are looking at only 2 year horizon, you may just want to buy a 2 year CD. </p>
<p>Bonds, Mutual funds or stocks can possibly appreciate more, but can also lose value. A $3,000 investiment for 2 years is not going to appreciate that much in 2 years.</p>
<p>For example, if you bought a mututal fund and you had a average good return of 10%/yr you maky make about $600 (but you have a down side you can also lose $600). If you bought a 2 year CD at 5.5% you will make about $325 guaranteed.</p>
<p>MM accounts are paying about 5% right now. You might want to keep the money liquid in case you need a major car repair or a good Spring Break opportunity comes up.</p>
<p>Don't invest in MFs, IMO they are a waste of money and time providing little liquidity. Also 90% of MFs don't even beat the market average which is pitiful especially for the short run. To make some potential profit you are going to have to invest in high beta/small cap equities. If you feel like you may lose a lot, you always have the option to hedge which still would provide a higher profit than any fixed income securities. If you really want diversity however, I would go with ETFs. They are basically closed-ended mfs that offer more liquidity, potentially higher returns, and no front loads/back loads complications.</p>
<p>I have a few CDs/MMs myself. I think they would be the best option for you right now because-- like someone said before me-- you really don't know what incidental expenses you'll have during school. CDs/MMs don't require a big time commitment, so the money will still be available if you need it (unlike an IRA). They are also great in that you can buy them and forget about them. The stock market requires a bit of neuroticism and extra free time so that you can monitor your investments. (but maybe I'm just bitter-- I lost a full 2k of a 5k mutual fund investment when the market crashed in 2001... maybe that return I hear about only happens in a long run, not short term :( )</p>
<p>Please be aware that most advice you receive in this thread, in general, and on flashy finance magazines/websites is wrong. My own advice may be terrible, but I personally think its valuable.</p>
<p>Here's my advice. It would take pages to explain why I recommend this so you must trust me on my word alone. I've read hundreds of pages of academic finance research, and I believe I'm more informed than an average advice-giver.</p>
<ol>
<li>Determine (guess) what level of risk you can tolerate</li>
<li>Go to ifa.com and find what portfolio matches your risk-tolerance</li>
<li>Assemble your own portfolio with equivalent index and exchange-traded funds (<a href="http://www.altruistfa.com/dfavanguard.htm%5B/url%5D">http://www.altruistfa.com/dfavanguard.htm</a> is a great website that lists the best funds in each asset class)</li>
</ol>
<p>You are investing a small sum, so you probably can't invest in many funds. Additionally, many funds you will want to invest in will have high investment minimums. I recommend investing in exchange-traded funds with free trades. Scottrade, for example, will give you three free trades if you are referred by a friend. That's how I first started my portfolio in college. If you (or anyone else reading this) would like a referral PM me. FYI, I get three free trades too.</p>
<p>Money market accounts and savings accounts are offering about 5% now, so that's an option if you don't want to risk much. Keep in mind that you're racing inflation, so the real return may only be about 2%. Whereas stocks have a theoretically expected real return of about 6%.</p>
<p>Unless you really know what you are doing...stay conservative. Put some in a high yeild savings account, like HSBC, ING, or Emigrant Direct. You will get about 5% APR on those. Two other things mentioned above that are good starts. A roth IRA, at our age it is best to have a Roth vs. a plain IRA, because you are not taxed on the gains when you take the money out later on. The Wall Street Journal stated that a Roth IRA is the first investment a young kid should have. So not bad advice. </p>
<p>If you are looking into Mutual Funds, look for no load funds, or if you could go for ETF's, because they tend to perform the same as normal mutual funds. The top performing funds can have minimum balances above 3k easily, and heavy commission.</p>