22, $40k in cash, no debt. What to do?

Hello,

I am 22, going to school, live at home, have no debt, but have about $40k in cash burning a whole in my pocket. In other words, I am a lucky little SOB.

What should I do with it!?

At the moment, I have at minimum of 3-4 years of school left (getting my masters), then I will try and get my first real job and leave the nest. This is where my conundrum begins:

-Today, and for the next 4 years, I will not need this money, so I could invest it or anything I want.

-Tomorrow, after I get out of college, I am sure I would find this money very helpful - but there are not a lot of investments that would keep the money stable so if I needed it in 4 years, it would not have the chance of being depressed (stock market downturn, for example).

Any guidance? I could just keep it in a hi-yield savings account like ING, but rounding up to 5%, that would give me $48.8k at the end of 4 years vs. nearly $60k if I was able to realize a 10% return. Ouch! On top of this, I will be contributing anywhere from $5-10k a year to this amount (which would mean between these contributions and a 10% return, I could easily have over $100k in cash in my pocket, a masters in business management, and no debt at the end of college ).

Another wild card - I may not even really need this money when I get out of college, I may find a good job out of college and be able to start my life with what I am paid from the job - so this money could just be the beginning of building my wealth and a big, fat nest egg. I know I am young and in a very fortunate position, and want to exploit it to its fullest.

I know this is a complex mess, but if you could give me any advice, I would appreciate it!

Thanks!

don't waste the money. lump sum money like this is hard to come by... save it... don't blow it. And stay debt free.

A complex mess? I bet a lot of people would love to have a "mess" like that!

You might want to compromise and put part of it in an ING-type account and part in something riskier. What % would depend on your tolerance for risk and whether you might need the money in the near future. Are you in a high COL area, for example, where the down payment on a typical house is $100K? That would affect whether you're likely to need access to the money or whether you can invest it for the longer term.

Are you working part-time? If so, you should be able to max out your Roth IRA for the next four years.

If you ever have a huge emergency and need to access the Roth funds, you still can. If you don't need the money in the short term, then you can get an early start on many years of tax-fre growth.

When you land a good job upon graduation, you shouldn't need that money (especially if you keep the remainder of the original $40k invested and distributed as well) and will have a good start on your retirement.

Thanks for the replies!

I know I could just keep it in ING, but trying to figure out what would be a good investment (I know there are a lot of unknowns). While I trust the US stock market long term, I am very nervous about the short term, and almost think I would be better off with some global exposure in terms of alleviating short term risk. If I knew I wouldn't need this money for 10 years, I would drop it into a mix of something like the Vanguard 500 Index and some sort of international fund (the Vanguard VEU all-world fund look interesting in that they cherry pick stuff internationally, seems to give you the best of the best while also not locking you into one country or region).

First of all I would keep some money availale to you for liquidity and emergencies that may come up.

Next, and I know I am going to get some groans of discontent from a lot out there, but have you thought about investing in real estate? Here are some if the reasons I like investing in real estate.

I can have a much more pronounced effect on the performance of my investment with real estate. With stocks or bonds you are a much more passive investor you cannot influence the outcome of how well your investment does unless you are an officer or director of the company. With real estate I can trim my expenses, raise my rents, or rennovate or add on to add value to my investment.

There are tremendous tax advantages that are available in real estate. You can deduct the interest of your loans on your investments, depreciate the cost of the improvements (buildings) on your real estate, and even depreciate major appliances in accordance with the tax laws.

I can get a loan of up to 90% or even 100% (in some cases) of the value of my investment and still retain full ownership and cash flow from my investment. Try getting your bank to loan you even 80% of the money to buy stocks in Microsoft.... You just can't beat that kind of leverage.

Or as a forum member at my own forum pointed out...

Real Estate is the I.D.E.A.L. investment because it features the following:

I = Income
D = Depreciation
E = Equity Build-up
A = Appreciation
L = Leverage

What other investment can work for me in so many ways?

A word of caution, you have to really do your homework to make money in real estate which is why you are seeing such a collapse of the housing market now. Not enough people did their homework and too many lenders got crazy lending money in the housing boom. The result is the subprime collapse. Now that people are starting to rush out of the housing market the smart money will be rushing in to buy properties at dimes on the dollar.

In other words what I am saying is it takes study and brainpower to make money in real estate. Anyone can buy Wal-Mart or Microsoft stock and make some money from stock appreciation and dividends, but real estate takes analysis, thought and time. Which is why the average investor makes no money at it. My advice for the average investor then is this, "Don't be average."