Question on Savings?

Question

I am about to graduate form highschool and I have about 5000 dollars. how can i save that money so that in 4-8 years it will give me the greatest return.
Plz Help....
Thanks

Answer 1

Try Certificates of Deposit. They pay more than the savings account and mature quickly.

Answer 2

Finance 101 chapter 1: Risk vs Reward

The more risk you are willing to take [or should take] dictates the potential reward [expected return on investment]. Simply: More risk = greater return [more money].

First figure out your risk....start with "what if's" like:
What if I lost 20% in X yrs?
What if I lost 50% in Y yrs?
Will this mean no higher education? Will this mean no new car? Will this mean you can not move out to your own place?

Are you willing to "activly manage" your investment? Or, are you looking to invest and forget it for 8 yrs?

Last, consider the "big picture" - what field / job are you expecting to go into? How much liability will you have [or responsibility (aka child) in 8yrs? Try to plan based on expected life events and chosen path [I know this is really hard, but, it helps you figure out the risk profile you "should" have.

OK - finally, the investment:
CDs are a good basic choice, FDIC [Gov. insured] typical no transaction costs [unlike bonds] and you know you are getting "face value" - not a black box market price. The income is taxed as ordinary income [interest income] (I presume you are in a low tax bracket). The down side is that you typically can not "trade them in" for a different investment - or, cash out to take the money (if you need it early). $5K is not a great deal to provide much diversity.. however, even with CDs - would suggest a ladder if possible...like $2K in 1yr, 3K in 5yr [and plan to roll them over at maturity]. The real risk from CD is not default, rather, inflation - you know that Gallon of Milk that costs $5 today costs $20 in 8 yrs - and your CD paid you out only 5%/ yr. It is possible we are at the start of an inflation cycle in the World [price of food and energy say so]. You might consider US GOV. issued TIPs - basic Inflation Protected [adjusted to an index] bonds -US Gov. guarenteed..as safe as CDs with some protection from inflation. Last option I would suggest - open a small broker account say at e-Trade or any discounter.. and buy ETFs for your investment: say BND [symbol] for a bond index ETF, or SPY for S&P Index, and toss in a Willshire 5000 index and even a small International index ETF. I like Vanguard b/c of the low maint. fees on ETFs...I think they are called Vipers;but, other low cost ETFs exist as well - just make sure the fees are low and the ETF is traded enough for Volume reasons. The transaction entry should by sub $10 per trade. However, you need to realize - if the stock market "corrects or even crashes" your Index ETFs could take a huge hit in value - 20, 30 or even 40+ % loss...the Bond ETFs will help - but, do not escape a stag Inflation type economy. Just remember - you can never "time a market" - when you expect something, likely a surprise will catch you. You need "Huge" leverage to be a trader and make money for nothing and get chicks for free... and no free lunch exists - even on the :"sure thing". Diversification is the only thing that will help protect you. Also note - most major indexes [Dow, S&P, Willshire,etc] have a component with 20 to 25% Financial stocks. The exception is NASD ... the sub prime has taken a big chunk of value from the Fin Stocks - so, additional risk may exist in the major indexes that has not been fully accounted for at the moment - but, like I said, you can never time a market - be safe.

Answer 3

Stick with Cert Of Deposits
There are many other ways to invest, but all involve risk...Probably more risk than you can handle in this market, starting out.