What to do with my money?

Hello all. I'm 21 years old and I don't really know what to do with my money. Okay, right now I have about 9gs in money market, but I want to get into mutual funds/stocks or anything else. I'm currently outside the U.S. and by the time I get back to the rear (pretty soon) I'll have 15gs to invest. I don't have any debt what so ever, and I'm not really saving my money for anything important, just to save. To know that I have money. And maybe hopefully one day I'll have enough money to invest in more.

There are mutual funds that I would like to invest in, but I don't know if I should. They are international funds such as PRASX (because of India and China) and PRJPX (because of Japan).

Can anyone give me some advice, maybe I should be looking into some other type of funds? Do something different?

Thank You

be extremely wary of financial advice on bulletin boards. the more specific that advice the more you need to be wary. while you mention specific funds, no one here knows enough about you to really offer you much in the way of specific advice ... especially since you are talking about such high risk investments.

i would recommend that you try to educate yourself. if you have close friends or family who use a professional, then i would ask them for a referral. an excellent professional advisor is an excellent educator. that said, remember that while 14K is a lot to you, it is a very small amount of money. you shouldnt expect 10 hours of consultation and education for your portfolio.

vet08,
Thanks for your service to our country.

And congrats on being smart enough to not only know its important to save, but to also act on it - to actually get the ball rolling and "pay yourself first".

Like 1_more_opai mentioned, nobody on here is going to know you well enough or know your particular life situation well enough to offer specific advice. And while sitting down with a knowledgeable advisor can result in a great plan for saving, investing, retirement, insurance, etc, it doesn't sound like you're able to do that currently. With that in mind, I'll throw a couple ideas your way. Keep in mind too, I'm not a professional or even close... these ideas are just based on my life experiences and some of the research I've done.

It's a good idea to keep a fair portion of your savings in your money market account. Consider this your "rainy day fund" or emergency fund. If you're single without debt and your housing is covered, you're emergency fund might not need to be as big as the standard "3-6 months living expenses". But you should keep enough handy (maybe $2-3,000 ?) to cover a major car repair or emergency leave without having to sell investments or miss any other payments that come due.

With that covered, you should seriously consider setting up a ROTH IRA. Beginning this year, you can put up to $5,000 a year into a Roth. And, come retirement time, your withdrawals are tax-free. Plus, there are many other benefits to a Roth, such as being able to withdraw your contributions (you shouldn't, but if you really must...) without penalty or tax, using Roth funds for a 1st home purchase, etc. You can look at a Roth IRA as a bag or a wrapper, and you can fill that "bag" with generally any type of investment you choose. The most common IRA investment is mutual funds, but you can also designate CDs, bonds, etc, to be part of your IRA. You could use a portion of your current savings to start up a Roth. There are countless companies you can start a Roth IRA with online, like mutual fund companies Vanguard, T. Rowe Price, and Fidelity. You can also start one through companies like Scottrade or Charles Schwab. And there are investment/insurance/financial planning companies - but I didn’t have a good experience with a military-related one, so I’ll let others elaborate on that venue.

Separate from your Roth, you could also invest some of your savings in mutual funds in a regular taxable account. This could be used for any savings you have available above & beyond the $5,000 going into a Roth every year. It could be for shorter-term expendatures and for long-term goals, like a newer car, down-payment on a house, or simply as savings, etc. (it's true that Roth accounts can be used for a 1st home purchase without penalty/taxes, but I prefer to keep my hands off the Roth IRA account until retirement).

Once you have the Roth IRA established (and possibly mutual funds in a taxable account), you can easily contribute to them every month with an allotment, directly from your pay. You'll have to determine how much you can afford to save/invest monthly, but with an allotment, it's automatic and painless (outta sight & outta mind). And before long, you won't even notice the money is coming out of your check as you get accustomed to living on your take-home pay check.

Additionally, you should consider contributing a fair portion of your pay into the military's Thrift Savings Plan (TSP) every month. It's the military's version of a 401k. When I was active duty, I allotted anywhere from 7% to 10% of my pay, until they lifted the cap on TSP, at which time I bumped it up to 15%. This comes out of your pay before taxes, which is a double win - it reduces the amount of taxable income you have to pay taxes on every year, and, this untaxed money going into TSP grows tax-deferred... you only pay income tax on it when it finally comes time to withdraw it (beginning at age 59 1/2). Another nice thing about TSP is that any contributions you make while in a designated combat zone (ie, Persian Gulf, Iraq, Afghanistan, etc) will be tax-free forever... these contributions will be shown on your TSP statement as tax-free and will not be taxed when it comes time to withdraw them. (While I was in a tax-free zone, I significantly increased my TSP allotment to take full financial advantage of the time I was over there). If you set up a TSP account, you should consider having your contributions go into one of their Life Cycle funds. The Life Cycle funds automatically diversify your investments into international, small cap, large cap, bonds, etc, and the fund gradually becomes more conservative (less stocks, more bonds) as you grow older. I look at the Life Cycle funds as a sort of cruise control for my TSP - someone with more knowledge than me has determined a good general mix of various stock and bond funds, and I don't have to worry about watching the market trends, or having too much in small caps or international, etc. You can contribute up to $15,500 a year into TSP (I never came close to that amount, but the opportunity is there). Note: If you don't designate which fund(s) to direct your TSP money to, they will automatically put it into the G fund (Gov't Bonds), which isn't necessarily a bad thing during tumultuous times in the market, but the Life Cycle funds all carry varying amounts of the G fund as well.

When it comes to choosing which mutual funds to buy, well, honestly, you’re kind of on your own. There are thousands of funds to choose from. I'll come back later and provide a list of some, just to give you some ideas, but they might not fit into your plans. You can take advice or pointers from others who have had good/bad experience with various funds, but you should always do some research on a fund before deciding to buy it. There are some good funds out there with some strong returns, but 1) you want to balance or diversify your investments (don’t keep all your eggs in 1 or 2 baskets), and 2)don’t be caught up in chasing recent high returns – look at how a fund has performed over a 5 and 10 year period as well. Also, check to see how expensive a fund is to obtain/own. Look at such factors as front-end loads (some are no-load funds, some charge 5.75% of your investment - its up to you to decide if the fund is worth it) and the fund's expense ratio (how much of the fund is management keeping for themselves/their expenses). Generally, this is the area where Vanguard reins supreme as their funds are no-load funds with low expense ratios, but T. Rowe Price does well too, as do some others. This article (http://www.marketwatch.com/news/story/lazy-portfolios-sparkle-07-new/story.aspx?guid=%7B73F4BC3A%2DD0EF%2D4BFA%2D9698%2D01D8DA27C91A%7D&dist=morenews) might give you some ideas in how to build up a portfolio of mutual funds.

Continue reading through this Kiplinger’s forum - there are a lot of other threads on investing and funds. And maybe subscribe to their magazine too (I do) – they always seem to have realistic, down-to-earth articles on saving/investing.

Best of luck,
Rookie

vet08,


Regarding the funds you listed; so far in 2008, PRASX is down 17% and PRJPX is down about 12%. The flip side is that their recent losses make them cheaper to buy now, which is true. But these two funds are good examples of why it’s important to diversify your investments and not have all of your eggs in just a couple baskets. These funds represent just Asia and Japan, and you don't want to have all of your money wrapped up in such a narrow sector of the total market. It’s ok to have exposure to these sectors/funds, but they should only represent a small portion of your overall portfolio, perhaps up to 5% total. Better yet, you should probably avoid speculative investing in narrow sectors for now. I think you’d be better off starting out with a Large Cap Value fund and a Large Cap Growth fund, or a Large Cap Blend fund, and incrementally build up a portfolio that eventually contains Small Cap funds, International funds, Bond funds, etc. Another method is to look at the “lazy portfolios (http://www.marketwatch.com/news/story/story.aspx?guid=%7BE4E8D8E0%2D7994%2D4941%2DAAFF%2D5B67A7A93965%7D&siteid=rss)” method of creating a portfolio – you can invest in almost the entire market with as few as 3 funds – like the Margaritaville Portfolio. And as you save & invest more, and build a bigger portfolio, you can expand from 2 or 3 funds to 5, 6 & 7 funds, etc.


Another approach is investing in “one-fund lazy portfolios (http://www.marketwatch.com/news/story/top-11-lazy-one-fund-miniportfolios/story.aspx?guid=%7BD27C8CDA%2D7503%2D46F0%2DA851%2D5A3CEB773E3F%7D)”. These include balanced funds, asset allocation funds, retirement/freedom funds, etc. These are like one-stop shopping and each fund generally consists of portions of each market segment. It’s yet another fairly simple way to diversify your money across the market, by only buying a single fund, or two. They include funds like T. Rowe Price Capital Appreciation fund, PRWCX, a no-load fund with a low .73% expense ratio. There’s Dodge & Cox Balanced Fund, DODBX, a no-load fund with only a .52% expense ratio. Oakmark Equity & Income fund, OAKBX, another no-load fund with a .86% expense ratio. Vanguard Wellington fund, VWELX, is a no-load moderate allocation fund with an expense ratio of just .30%, and the Vanguard Star fund, VGSTX, is another no-load fund with a low ER of just .35%

One conservative allocation fund that I own is Permanent Portfolio, PRPFX. It has an expense ratio of 1.11% and unlike most funds, this one is actually UP for the year-to-date, as well as the 1, 3, 5, & 10 year periods.


Again, scour these Kiplinger forums and read up on similar questions from others. Learn before you leap, and research funds before you buy.

Good luck.

Rookie