$$$ Advice

T

TheBuyLowHobo_IHB

New member
<p>Hello,</p>

<p>I've noticed how economically gifted many of you are and wanted to ask a question I've never asked anyone before. I am a college student just about to graduate, but somehow in the course of my very fiscally conservative upbringing, I've managed to save just a hair under $30,000. I come from a family of very modest means and I've been taught to save every penny. In addition a small portion of that hunk is from an insurance settlement which is another story entirely. I currently have this money completely invested in CDs. I have almost no economic experience other than a C+ in Macroeconomics and wanted to check with those of you smart cookies to see if my CD strategy was an ok way of going about making my money work as hard as possible. The cds all have an APY of 5.45%. If it changes anything, I can tolerate almost no risk, and I have basically no income, being a student. Hopefully, someday this will become a downpayment.</p>

<p> </p>

<p>Thank you in advance for any advice you may have!</p>

<p> </p>

<p>TheBuyLowHobo</p>
 
First, investigate the rate at which the world's central banks are increasing the money supply. Then buy gold.
 
<p>It's not hard to imagine gold getting hammered along with most every other commodity in a deflationary depression. Even oil could drop to $20/bbl if nobody needs to get to work because they don't have a job.</p>

<p>It's risky business to contradict the intelligent Awgee, but I know just enough history to know that credit bubbles bursting are very deflationary. Houses are denominated in cash, and that's where most of my money will stay until I buy.</p>

<p>It's fun to talk about an Everbank CD, but I won't go there until the house is bought. </p>
 
TheBuyLowHobo,





You are doing exactly what you should be doing. Cash will be king very soon.





During a credit crunch, liquidity in the financial markets dries up. Lenders all call in their loans, and the flow of money in the financial markets comes to a screeching halt. This will cause <em>all </em>asset classes to depreciate because nobody has access to borrowed money to bid up prices. Stocks fall, real estate falls, and bonds fall (because interest rates rise). Everyone will want to be in cash, and everyone who is highly leveraged to acquire depreciating assets will be destroyed. When the value of all assets decline, they decline relative to something: cash. Cash takes on an increased value because it is the only safe haven.





Don't forget cash is an asset class. It is often maligned because the returns on cash are so poor (5% at a bank,) and its value erodes with inflation. When credit is easy to obtain, it makes more sense to borrow money at low rates and invest it in assets which produce higher returns. When credit contracts, the opposite is true.





You will read comments from those who believe inflation will be allowed to run wild who will tell you not to be in cash, and in fact, if the FED lowers interest rates and allows inflation to run rampant, cash will not look as attractive. Lower interest rates will work to loosen credit because the government is making loans readily available and this money will work its way into other assets as I previously described. However, if the FED raises interest rates to keep inflation under control -- something I think is likely -- your CDs will pay better and all other assets will decline in value.





In short, pay careful attention to what the FED does next. Interest rates are likely to move again shortly after their brief holding period of late. If rates go up, keep your money in cash. If they move down, you will want to look at stocks and bonds as they will do better than cash in a low interest rate environment. No matter what happens at the FED, real estate is dead. Don't buy real estate.
 
<i>"It's not hard to imagine gold getting hammered along with most every other commodity in a deflationary depression."</i><p>


Neither oc_flip not IR will get an arguement from me as regards cash being king during a credit contracting deflation scenario. Nor will I argue that a deflation scenario is not possible, even likely.<p>


But, what action will the Fed take if deflation rears it's pretty head?<p>


And what is the inevitable outcome of the Fed's <b>RE</b>actions? Remember, the Fed never acts, it only reacts. And the smart money always knows exactly how the Fed will react, maybe because they are the telling the Fed what type of reaction to take.
 
<p>>>> If it changes anything, I can tolerate almost no risk, and I have basically no income, being a student.<<<</p>

<p>You answered your own question. If you can tolerate no risk, then basically CD's are your best choice.</p>

<p>As far as gold, it is one of those asset classes where you have the most steadfast bulls and bears, and they will justify it with all kinds of scenarios. Fact is gold in the past 36 years has earned 8% annually. Also, gold is at the same price it was 27 years ago. </p>

<p><img alt="" src="http://goldprice.org/images/monthly_dollar.gif" /></p>
 
<p>Look to see if the bank you invest your CDs is solid. http://www.fdic.gov/bank/individual/bank/index.html</p>

<p>Ladder your CDs so they don't all expire at the same time. Some IHB posters recommend savings accounts at Everbank, ING and Countrywide Financial. Pay as much as CDs but don't tie your money up.</p>

<p>If you have a child, or aged 25 and working and making less than $12,120, look into EITC (Earned Income Tax Credit)</p>

<p>Fund your IRA, Roth IRA if you can live without the tax deductions, because tax free is best. Expect to be paying more not less taxes in the future.</p>

<p>I know it is hard for you to think that you will make $95K - $110K a year some day, but it will come sooner than you think . Once you graduate, and start working and get the high salary, Roth IRA will no longer be an option for you.</p>

<p>All the generic financial advice recommend in an index fund, S&P, Total market fund, etc... But if you can't afford to lose any money, stay in CDs or high yield savings. But take time to learn about the stock market. Once you start working and have a 401(k) you will need to manage your own money, and the only choices besides cash are stock market and bond funds.</p>

<p>I know plenty of people invested in gold and gold stocks since 2001. They are up anywhere from 40% - 200% , but don't think it was easy. They earned every penny! There was at least 3 times when the stocks corrected 40% or more in a matter of 2 weeks. Gold was up around 100% since 2001 and had certainly less volatility. </p>

<p>The important thing is to invest what you are interested in. Because you will learn to be good at it by watching and studying it all the time. It really doesn't matter if others make millions. If you manage and save your money, you can easily be a millionare by age 55 or whatever target goal you plan for. </p>

<p> </p>
 
<p>TheBuyLowHobo-</p>

<p>You're on the right track - saving at a young age. I'm sure there are a lot of people out there that wish they saved like you did at your age. Most college students spend their money frivolously. You should be proud of the way you are handling your money, and your family taught you well. Congrats. </p>

<p>As soon as you start your career, max out your 401k as much possible and diversify your 401k portfolio. Because you are young, you can be aggressive with your 401k money. A financial adviser can steer you in the right direction. As you get closer to retirement, you would want to be more conservative with 401k money. As stated in the above responses, CDs would probably work well. Make sure the bank is FDIC insured, and be careful how much you invest in each bank. The basic insurance amount is $100,000 per depositor per insured bank. You can have more in that bank with joint accounts, etc (check out their website for specifics - <a href="http://www.fdic.gov">www.fdic.gov</a>). </p>

<p>OC_Fliptrack provided a great link to check out CD Rates <a href="http://www.fatwallet.com">www.fatwallet.com</a>. I also just found a savings link account with <a href="http://www.countrywidebank.com">www.countrywidebank.com</a> where you can link this account to another account at a different bank. The rate is competitive with CD rates and the money is completely liquid. Plus you can transfer between banks for free. That way you won't have to tie up 100% of your monies in CDs. </p>

<p>Also, if you ever decide to "play" in the stock market, make sure it's money you wouldn't miss if it went down. Risk comes with a price. The stock market can be very volatile (as seen recently).</p>

<p>You're off to a GREAT start. Hopefully you'll be able to retire early! Keep up the good work.</p>
 
Buy low hobo:





If you don't currently have a 401k or IRA account, considering opening an IRA account and put some $$ in it every year. Generally speaking retirement funds are better if you start early. Real estate is on the way down over next few years, so you still have time to save more $ for down payment for later.
 
<p>Wow, this is all great advice. I'm glad the CDs are a good bet. Its the only income I actually have, and even though it goes right back into the certificates, I look forward to the first of the month. </p>

<p>I have noticed (CD) interest rates going up dramatically since the beginning of the decade. Now, at OCTFCU, the increases seem to have tapered off, even dropping very slightly. Will the forces that will cause the downturn in the Real Estate market also raise or lower the CD rates? </p>

<p> </p>

<p>Thanks again. </p>
 
You must log in or register to reply here.
Back
Top