Financial advice

<p>Hi I'm currently a senior in high school and looking to figure out what to do with my savings. I already have some advice from my parents, but I want to hear some more points of view.</p>

<p>Basically every birthday and christmas check I have ever gotten has gone into my savings account. Recently, I realized that despite the fact that I had $1300 saved, I was only getting $.09 every month from my bank!!! so obviously i took my money out of that bank.</p>

<p>with a couple of my recent paychecks, I basically have around $1500 that I am looking to save. My dad works in a brokerage firm and has advised me to spend $1000 on stocks, which I agreed to. I know the market is bad right now, yet, as my mom put it, if you have "nerves of steel" this is the time to invest. My dad is the single most financially conscientious person I know (he paid off our mortgage on our house in 4 years and has saved for all three of his kids college educations!) so i trust him on this advice.</p>

<p>however, after investing the initial $1000, he is basically saying I should do whatever I want with excess $500. I don't want to immediately deposit it into my checking account because I don't need it yet- aside from gas I'm not really using my debit card at all. </p>

<p>What do you think I should do with my extra money? Basically, I know I'll need it next year in college, but I still have 5-6 months before i leave</p>

<p>any opinions?</p>

<p>well 6 months at current interest rate will get you about $10. If you think it is worth it, open an account at some on-line savings place like E<em>Trade or ING or emigrant direct. I like E</em>trade because of free and almost unlimited in-out transfers, no minimums and no fees. It currently pays 4.1%. ING is OK, but transfers are bit slow and there is a hold of a week on deposits. My son has ING and I have E*trade.</p>

<p>BTW with savings in your vocab, you will do fine in life.</p>

<p>You should have some cash readily available to you, as something unexpected may come up for which you'll need it.</p>

<p>Now that I've said that, I recognize you'll probably ignore that advice. :D</p>

<p>So I'll suggest ING Direct, for a higher interest rate, or a six-month CD if you can find one that pays more than ING Direct, has a low initial deposit, and you <em>really</em> don't need the money for six months.</p>

<p>I'd take your dad's advice. The difference between 5% and 2.5% is so small for the amount and time you are thinking about, its not worring about. Inflation on energy and consequently all products is more than what ever you could get from a bank. Look for all products, goods, and services to increase dramatically because of the energy premium. </p>

<p>Not going to mention the cost to fund other national priorities.</p>

<p>Roth IRA (ten characters)</p>

<p>That's what I was going to say. But she (he) has to have earned income.</p>

<p>thanks for all of your advice... but what is a Roth IRA?</p>

<p>i have enough cash on hand to last me until i get another job- this past winter i had my first job at the gap, but i probably won't return this summer because it didn't pay very well (after 1 1/2 months of working i only made just under $300- i was scheduled for very few hours). I know if i work as a waitress i'll make the same hourly wage i made at the gap there plus tips, so i think i'm going to look into that. </p>

<p>i was also thinking maybe i should just sit on the money until i leave for whatever college i go and then just set up a checking account with whatever bank is most prominent on that campus... but i don't know that doesn't sound right to me just to do nothing with it for 6 months. afterall, even if i only make $10, it's $10 i didnt have before, right?</p>

<p>does anyone know of any banks which will set up CD's with a low initial deposit? </p>

<p>and one more question: after some research i saw that many CD's will say they have a 2.75% APY... does that mean that it will only yield that much interest if i kept the money in the CD for one full year? so if i had a 6 month CD, i would actually only yield around 1.375%?</p>

<p>i'm sorry i have so many questions. i know i'm really lucky to have parents who can pay for me to go to college, so i don't want to waste their hard work and screw up my own finances! i plan on one day going onto grad school.</p>

<p>Go to you dad's office and have a junior exec explain it all to you. Buy the junior exec breakfast or lunch. Listen to your Dad.</p>

<p>For a small amount it makes no difference, ie don't sweat. Even if you get 5% return, you only get $25 a year. You probably need some money for temporary spending anyway.</p>

<p>I agree with Columbia Student, except it starts you on the path to saving. </p>

<p>A Roth IRA is a retirement account. You put money in now and you don't deduct it from your income. Which is no big deal since you either have no taxable income or very little which is taxed at a very low rate. Then when you are ready to retire you gt to take that money out tax free. By that time, since you are saving so well, you will be in a much higher tax bracket. Not only that, but the earnings will also be tax free.</p>

<p>The bad part for you is that you can't take it out until you are 59 1/2 without penalty. So not good for putting money that you will need. But when you do have some to spare, it is great. You also have to have earned income to do it. That means a job, not just income from interest or dividends. You can put up to $5000 a year or the amount you earned from your job.</p>

<p>3bm103, you can actually take out the money you put into the Roth at any time, at any age, without penalty. You can also take out a certain amount of the earnings tax and penalty-free to use to purchase a primary residence. </p>

<p>But OP, since you're going to need the money in a few months, it's not the right option for you. On the other hand, putting some--any!--money into a Roth IRA is going to be an excellent move. One of my luckiest breaks in life was having a financially-savvy friend tell me when I was fresh out of college that I should take part in my employer's retirement savings plan.</p>

<p>From the IRS website:</p>

<p>"Part of any distribution that is not a qualified distribution may be taxable as ordinary income and subject to the additional 10% tax on early distributions. Distributions of conversion contributions within a 5–year period following a conversion may be subject to the 10% early distribution tax, even if the contributions have been included as income in an earlier year. Refer to Topic 558 , Early Distributions from IRA's, for more information." </p>

<p>From Topic 558:</p>

<p>To discourage the use of pension funds for purposes other than normal retirement, the law imposes an additional 10% tax on certain early distributions of these funds. Early distributions are those you receive from a qualified retirement plan or deferred annuity contract before reaching age 59 1/2."</p>

<p>Some of the exceptions includes buying a first home or qualified education expenses.</p>

<p>I'd suggest opening a Roth IRA at a discount investment house, such as Fidelity, Vanguard or T.Rowe Price.</p>

<p>You have until April 15th to contribute up to $4000 for 2007. You can contribute up to $5000 for 2008.</p>

<p>I'd suggest putting it in a low-cost retirement date-oriented mutual fund. Since you're young, put it in a 2050 fund...this will be the most aggressive (investment in stocks, instead of bonds, for long term growth).</p>

<p>Keep in mind that in a Roth IRA, you can lose your money. It's not guaranteed by the FDIC, like a savings account is. However, over the long term, you are rewarded for this risk by getting a higher return on your investment.</p>

<p>Like SlitheyTove said, you can pull out any money you contribute at any time without penalty - so in a sense, the Roth IRA acts as a pseudo emergency savings/retirement account. You just can't touch the earnings on the money without penalty until you are age 59.5, and have had the account open for at least 5 years...but there are exceptions...like if you want to pull out money for a down payment on a home.</p>

<p>Morningstar.com has an excellent free resource for learning about investments and investment vehicles:
Investing</a> Education: Workshops, Seminars and Classes</p>

<p>The nice thing about a Roth IRA is that you can in fact take the money out - my son is thinking about getting one - his grandmother's belated graduation gifted. A CD is also a very reasonable choice. It gives you ready access to the money. If you need it in an emergency all you'll lose is the interest. Eventually you'll want to have about six month's living expenses in some kind of easy to access savings - CDs are one way to do that.</p>

<p>
[quote]
does anyone know of any banks which will set up CD's with a low initial deposit? </p>

<p>and one more question: after some research i saw that many CD's will say they have a 2.75% APY... does that mean that it will only yield that much interest if i kept the money in the CD for one full year? so if i had a 6 month CD, i would actually only yield around 1.375%?

[/quote]
</p>

<p>Check out bankrate.com. They have a listing of the top 100 highest yield CDs...most are thru internet banks, but they are FDIC insured.</p>

<p>The problem with small Roth IRA account is that some institutions charge a small fee for accounts that have less than $3000 or $5000. So you might not make any gain. I would put in Roth IRA if the amount is more.</p>

<p>^ Good point.</p>

<p>Bringing up this post to say, I was reading the Roth IRA brochure from Vanguard. It states that for Roth IRA there is penalty for early withdrawl before the age 59.5. I think some posters stated otherwise.</p>

<p>CS: You need to read the entire regulations and not pick and chose.</p>

<p><a href="http://www.irs.gov/pub/irs-pdf/p590.pdf%5B/url%5D"&gt;http://www.irs.gov/pub/irs-pdf/p590.pdf&lt;/a&gt;&lt;/p>

<p>Please tell me where did I pick and choose. Page 66, Figure 2-1. The only exception is you withdraw it for </p>

<p>
[quote]
Is the distribution being used to buy or rebuild a first
home as explained in First Home under Early
Distributions in chapter 1?

[/quote]
</p>