 Investing
extra cash when you're young
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 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
 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."
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