Financial advice for a kid

5/7/04 | brownsfan

[brownsfan]

I've posted here before on a similar topic. This one is purely for my son. He's 21, and has 4k he wants to invest now. He plans on buying a house in 3 years. I was leaning towards having him put 2k in an index mutual fund, and 2k in bonds. A friend of my son told him to get a 2k CD, and take out a loan against the CD. The theory is that paying back a loan will improve his credit, and offset the loss of interest income. Putting the other 2k in the index fund. Option C is to put 2k in a money market fund, and 2k in bonds. Anyone have any thoughts on this? I'd appreciate general thoughts, as well as specifics, (recommended funds, bonds, etc). Thanks.

[codyjacksmom]

Any ideas?

[Hodar]

If the intention is to have the $4K grow to put down on the house in 3 years; these are viable options.

If the money is to invest for the long term, might I suggest going into a Roth. Then find a stock you think has a brilliant up-side. I'm pretty big on AMD.

[sharktrager]

Send the money to Shark Trager at...

[brownsfan]

The 4K is for the down payment. Stability of principle is reasonable important, however, he will continue to save for the period, so some risk can be tolerated.

[brownsfan]

"Send the money to Shark Trager at..."


Sure, I just need your SSN, your bank account and routing number, and a credit card with expiration date to confirm you are who you say you are. ;)

[Auntie Mame]

If he can tie it up for five years, CDs are paying 4+ percent right now. That's completely safe and fairly untouchable.

Of course, if it were me, I'd do some research on blue chip stocks that you can buy directly from the company, Proctor & Gamble is one of them (or it used to be) and it's a great stock, I think you can also buy Johnson Controls direct (another good one), and I'd split my money between 2-4 of those type stocks and let the dividends reinvest.

If he's lucky, he will be able to take out his original 4K and still have stock to keep growing.

[dakine]

How much risk?.....
Look at NASDAQ stock trading under symbol FMDAY...
Cheap dividend trading stock such as HQNTE...
Or CDs, staggered of course...

[GovernmentShrinker]

He needs to buy a house NOW. He can always trade up to a bigger/nicer one later. Interest rates will probably never be this low again in his lifetime. The amount that his $4K will increase by in 3 years will likely not even compensate for the increased interest rate, leaving his monthly payment capacity unchanged. And inflation will see to it that the same sort of house will cost MORE -- and he'll have missed out on the equity appreciation. He should not delay. Buy a badly beat-up, but habitable (barely) fixer-upper that needs the sort of work he can do himself. I did this 14 years ago (and later refinanced when interest rates came down), lived in the house and took in college student boarders (carefully screened). Their rent covered the mortgage, taxes, insurance, and utilities; I paid only with elbow grease (a lot), and now own a home worth approximately 2.5 times what I paid for it.

[Auntie Mame]

Excellent advice! I concur.

[fight_truth_decay]

http://www.daveramsey.com

[Coleus]

if the time horizon is less than 5 yrs. it's not advisable to invest in mutual funds.