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Dr. Don Taylor, CFA, advice columnistInvesting extra cash when you're young

Dear Dr. Don,
I am a 22-year-old student who just graduated college. Thankfully, my folks have worked hard and have made it so I did not have to work or take out loans for my education. I've just started working, and as if them paying entirely for my college wasn't enough, they've let me come back home for a while until I can get on my feet. That means I'm saving money on rent.

I pull in $2,000 on the head each month after taxes, and about $1,000 of it just doesn't get spent. I've just started working in finance, and it's like I've been asleep for 20 years. There are so many options to "make your money work for you" that it makes my head spin.

I figure that for a while I'll be able to save about $1,000 month, but I now realize that letting it sit in a regular ol' bank account just isn't cutting it these days. I'm not particularly interested in my retirement right now; I'm much more enamored with the idea of risky, high yield type stuff that I can actually use before I don't care about what kind of car I drive.

So my question is: If you're 22, living at home and currently saving about $1,000 a month, what's the best way to put that money to work? I know I kind of harped on the retirement stuff, but if that's really the way to go, then you can point that out to me, too. Thanks!
-- Ricky Rent-free

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Dear Ricky,
Twenty-somethings often can't find room in their monthly finances to think about retirement savings. There's too much else going on. Often they're trying to muster up enough money to get a car, furniture, make student loan payments and maybe even work on saving for the down payment on their first home.

You face some of that conflict when you talk about taking on some risk to get a killer set of wheels. I had the same conflict at the dry cleaners today as the guy in the space next to me put his dress shirts in the back of a Porsche Carrera S as I loaded up my Mini Cooper S -- but I digress.

There's room for both here. Your parents have given you a host of opportunities. To be 22, a college graduate with no outstanding student loans and in a job where you have an extra $1,000 per month that you can't figure out how to invest, you're in a good place.

Money you put aside for retirement in your 20s has 35 to 45 years to earn a return. Four grand invested today for 45 years at an average annual return of 6 percent is worth about $55,000 when you're 67. If your firm has a 401(k) plan with company matching contributions, not participating up to the limit of that match is leaving money on the table.

If you've got $12,000 per year to put to work then split it between taxable accounts, retirement accounts and car payments. There's room to take on some speculative risks in your portfolio, but speculative investments shouldn't be your core holding. Think of speculative investments as the seasoning in your portfolio, not the main course.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "financing a home," "saving & investing" or "money."'s corrections policy -- Posted: May 11, 2006
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