What to do with a little money?

[DWarrior]

Hi, I'm a college student and I managed to put together around 20k this semester. 10k will have to go into paying for my school, but I'd like to be able to do something with the remaining 10k.

Unfortunately, I've never had this problem before, so I don't know what to do. Is there a business I can start with 10k, or should I just save it? So far this semester, gambling has been my only source of income, but I'd like to start getting into other things, so I won't mind taking some time to run a vending machine-type business. Any suggestions?

I saw Bankrate.com has 6-month 4.6% APY CDs, I'm planning to purchase those until I can figure out what to do.

[The4Aces]

S&P index fund

[DWarrior]

OK, so I opened a Scottrade account, I guess I'll go with SPY

Anyone else have better suggestions?

Thanks.

wfmi

[buffett]

[ QUOTE ]
Anyone else have better suggestions

[/ QUOTE ]
My suggestion is that if you have never had much money before, then you post a question on a poker board about the possibility of starting a vending machine business, and you only get one reply, and that reply tells you to buy SPY, and doesn't give you any reasons why or ask about anything else from your circumstances, and you're actually thinking of doing what he said, then ....
....well, I've forgotten where I was going with that, but I think you get my point.

[DWarrior]

[ QUOTE ]
[ QUOTE ]
Anyone else have better suggestions

[/ QUOTE ]
My suggestion is that if you have never had much money before, then you post a question on a poker board about the possibility of starting a vending machine business, and you only get one reply, and that reply tells you to buy SPY, and doesn't give you any reasons why or ask about anything else from your circumstances, and you're actually thinking of doing what he said, then ....
....well, I've forgotten where I was going with that, but I think you get my point.

[/ QUOTE ]

No, it's just that this is the best advice I have received yet.

[buffett]

OK, here's a real suggestion: put your money in an FDIC-insured instrument (HSBC, ING, and Emigrant Direct seem to be good choices with high yields), read five or ten books about investing and/or starting a business, sign up for some business & finance courses at your school. Give yourself at least a year of diligent study before you allow yourself to try for more than an FDIC-insured return on your investment.

[Sniper]

[ QUOTE ]
OK, here's a real suggestion: put your money in an FDIC-insured instrument (HSBC, ING, and Emigrant Direct seem to be good choices with high yields), read five or ten books about investing and/or starting a business, sign up for some business & finance courses at your school. Give yourself at least a year of diligent study before you allow yourself to try for more than an FDIC-insured return on your investment.

[/ QUOTE ]

Buf,

In all seriousness, do you think thats the best thing for a college age student with a decent sized bankroll? (who has at least some concept of variance from his poker play)

[buffett]

yeah, that was my actual real suggestion.

[DWarrior]

That was kind of my idea, I was looking for something safe to put my money in while I figure out what to do with it.

I got a few books on investing that I've slowly been getting through, but I want to dedicate the next semester to school. I'll look into the suggestions you gave this weekend and decide what to do early next week. The one thing I won't start doing is trying to trade with 15k.

Thanks for the suggestions, I'm still open to new ideas.

[Sniper]

[ QUOTE ]
yeah, that was my actual real suggestion.

[/ QUOTE ]

Ok, I'll bite... for the purpose of discussion...

Convince me why a person in the situation described would be better served by keeping their money in Cash, rather than investing in an index fund?

[buffett]

[ QUOTE ]
why a person in the situation described would be better served by keeping their money in Cash, rather than investing in an index fund?

[/ QUOTE ]
Remember that we're talking about a one-year holding period.

[I don't have the inclination to research the sources for all these figures right now, but I will if someone honestly doubts the ballpark I put them in and really really needs sources.]

Cash=guaranteed 4% return with a 0% variance
S&P 500=???? return (avg. return ~11%, variance y% [I don't know exactly, but I'd guess y=~20])

Who knows what the return of the index will be? I sure don't, but here's some stats you may be interested in:

* The overall P/E of the S&P today seems fairly reasonable (17-18 is what I've been hearing), but the one that's usually bandied about includes the words "projected operating earnings," the first two of which significantly deflate the ratio. Also, corporate profits as a %age of GDP are at a multi-decade high (don't have the stats in front of me, but it's now in the 7-8% range, though usually in the 4-5% range).

* The P/S of the market (defined as aggregate-stock-market-valuation/GDP) is currently in the 140% range (http://bigpicture.typepad.com/comments/2005/10/_chart_of_the_w.html). The long-term average is less than half that.

* Around x% of the years since 1927 (I don't know what x is, but I'm guessing somewhere aroun 25-30), the S&P 500 has returned less than 4%.


Your turn.

[DWarrior]

[ QUOTE ]
Cash=guaranteed 4% return with a 0% variance
S&P 500=???? return (avg. return ~11%, variance y% [I don't know exactly, but I'd guess y=~20])

[/ QUOTE ]

I don't know if s&p has a variance of 20%, prolly 10%

[buffett]

I guess I was thinking of standard deviation.

[Maulik]

[ QUOTE ]

Cash=guaranteed 4% return with a 0% variance

[/ QUOTE ]

you should consider inflation variance alternatively, consider 4% not the true return.

[buffett]

inflation hurts the cash holder and the index holder equally

[wickedgoodtrader]

If your going to invest it... margin it to give you mroe buying power. Don't let anyone tell you otherwise... you only live once and gettin rich quick is the only way to do it! I took out a home equity loan to drop and margin in da market. Im gonna be rich real quick.

[buffett]

[ QUOTE ]
margin it to give you mroe buying power. Don't let anyone tell you otherwise... you only live once and gettin rich quick is the only way to do it!

[/ QUOTE ]
This is obviously correct. Also, if you're a winning poker player, then any free time spent not playing is wasted. So take as much caffeine, cocaine, and whatever else you need to keep you awake all night every night. Then you'll get rich much quicker than the rest of us so-called "sleepers" and "people who think that investing on margin is a very dangerous way to go, especially for a noob but sometimes even seasoned professionals get burned doing it."

[DWarrior]

[ QUOTE ]
[ QUOTE ]
margin it to give you mroe buying power. Don't let anyone tell you otherwise... you only live once and gettin rich quick is the only way to do it!

[/ QUOTE ]
This is obviously correct. Also, if you're a winning poker player, then any free time spent not playing is wasted. So take as much caffeine, cocaine, and whatever else you need to keep you awake all night every night. Then you'll get rich much quicker than the rest of us so-called "sleepers" and "people who think that investing on margin is a very dangerous way to go, especially for a noob but sometimes even seasoned professionals get burned doing it."

[/ QUOTE ]

And to think that my parents almost talked me out of opening a margin account, thanks 2+2

[DWarrior]

how about putting it into a CD?

5k into 6-month CD at 4.6% apy
10k into 1-year CD at 4.9% apy

The added advantage of a CD is that I won't blow the money on some stupid crap and I'll at least have my tuition locked up in case something goes wrong.

Weak tight, or wise conservative?

[wickedgoodtrader]

[ QUOTE ]


And to think that my parents almost talked me out of opening a margin account, thanks 2+2

[/ QUOTE ]

LoL.. i had the same predicament with my parents. Imagine telling you parents your taking out a home equity loan and will be trading it on margin! They loved that one.. however they can't say much as I am 23 years old and own my own home and business. I MUST know what I am doing!

I've almost got my dad convinced to drop 25k of his own money in my account and I'll just manage it right along with mine.

[steaknshake925]

why not keep playing poker? Do you think you're not capable of handling poker and school at the same time?

4.9% of 10k is 490...you can make that in a week playing 5/10

investing is good and all but your return will be so much higher with poker, especially with only 10k

[DWarrior]

I have enough to play poker, this is the money I saved that I want to save for tuition.

wfmi split today and is up 3-4% with the announcement that they will be a part of the s&p 500

[Ray Zee]

pay off all debts with any rate higher than say 6%. consider being totally debt free in life. it makes your decisions about living to the fullest easier.

put what you have left into an acount that you can feel safe about and get to your money quickly if needed. have enough for unexpected things.

whats left that you wont need for a few years look into alternative investments that you know alot about and inveswt wisely and very causiously. if you amass alot more than you need than speculate if so inclined.

if you are on these boards you are a gambler. gamble your money at your gambling specialty and invest your profits conservatively.
you will become very rich one day as opposed to the risky way where you may become very rich or may become not.

[Maulik]

[ QUOTE ]
pay off all debts with any rate higher than say 6%. consider being totally debt free in life. it makes your decisions about living to the fullest easier.

put what you have left into an acount that you can feel safe about and get to your money quickly if needed. have enough for unexpected things.

whats left that you wont need for a few years look into alternative investments that you know alot about and inveswt wisely and very causiously. if you amass alot more than you need than speculate if so inclined.

if you are on these boards you are a gambler. gamble your money at your gambling specialty and invest your profits conservatively.
you will become very rich one day as opposed to the risky way where you may become very rich or may become not.

[/ QUOTE ]

This is good advice.

I highly recommend the book "trend following" by michael covel be on your investment book reading list.

A trend following newsletter which I use is http://www.investment-models.com/

That guy has a 34 year record of success, the fee is $250 annual subscription, which is very reasonable. and you can utilize his recommendations with either buying dia (dow stock index) or qqqq's (nasdaq stock index) or options on those instruments for higher leverage. Or just buy mutual funds which mimic an index of the dow or nasdaq.

That being said, you indicate that your 10k is primarily for school costs and should not be put into the stock market.

Your best option is interest bearing accounts such as cd's or high interest savings, until you can allocate the funds for more than one year.

Profitable investing in markets is not a short term (less than one year) enterprise unless you are very knowledgable. Trading, like poker, is a zero sum game, and there are more sharks trolling for fish in the markets than at any poker site.

[buffett]

And Covel's 34-year CAGR is ....?

[Sniper]

[ QUOTE ]
And Covel's 34-year CAGR is ....?

[/ QUOTE ]

Based on the info on the site (which I had to put sunglasses on to read)...

It appears that he's recommended using 2 different mutual funds and a timing model..

PA Mutual +21.5% annual compounded over 34 years (10K -> 6.9 mil)
Nicholas +16.2% annual compounded over 34 years (10K -> 1.5 mil)