Investment Portfolios: Getting Started
The refined college graduate knows the hardest part about
investing is getting started. In the first few months after graduation, the
recent college graduate likely has little to no savings. Starting one step at a
time is the best policy. This post will give some basic tips on the first (and
hardest) steps.
This post will assume that the refined grad is already at least
matching their company’s 401k plan, has paid off credit card debt and also is following
the suggestions in the STUDENT LOANS post. If the refined grad does not
have a company 401k (or any retirement plan) there is nothing to panic about
just move to step one of this post.
The refined grad has completed all the goals above
(AWESOME!) but still wants to save more for the future. The refined grad knows
that the two main expenses that hinder wealth accumulation are taxes and
trading fees/management fees. Tax deferred accounts and quality discount brokerages
are the two best ways to get around losing too much to ‘the man’ and fees.
Technology has made investing amazingly easy. The college
grad can open a trading platform account such as TDAmeritrade in about ten minutes.
Automatic payments (highly recommended) to the platform can be set up quickly
too. All of these trading platforms offer great training and support for
starter investors. Below are some suggestions on investing.
Step 1: it’s all about the numbers
Until the refined graduate has at least a $10,000 portfolio
they should stick to commission free Exchange Traded Funds (ETFs). TDAmeritrade
has over 100 of these. This will keep trading costs down while the graduate
builds wealth. After $10,000 is saved the refined college graduate will start
venturing into other investments. These will include mostly individual stocks. The
refined grad will not chase “sexy” investments and will rather take advice from
reputable sources such as AmericanAssociation of Individual Investors (AAII) or the Motley Fool. The
refined college graduate knows to research each stock in depth before he/she
invests in it.
Step 2: accounts to park that money in
The refined graduate knows to start with a ROTH IRA account.
This kind of account will allow the refined college graduate to avoid paying
taxes on any gains or dividends (EVER!!) as long as the account is handled
properly (do not withdraw early). Once the graduate maxes out the ROTH IRA for
the year ($5000) they will want to start investing in a taxable account. There
are other tax deferred accounts but the refined college graduate knows that a
strong 401k and ROTH IRA will be good wealth building tools for retirement;
they will want to invest the rest of their money where they can get it easily.
Step 3: all-o-caution
Allocation of a portfolio is one of the hardest things to
suggest. Everyone will tell the young and naïve (perceived) college graduate
what the “best” investment strategy is. There are literally hundreds of books,
thousands of magazines and millions of internet postings on this. The problem
is all investors have different risk tolerances (full disclosure I have a high
risk tolerance). My suggestion for the refined college graduate would be to
have 5% foreign bonds, 25% individual stocks, 30% ETF’s/Mutual funds (in
various sectors of course), 15% in REITS, 5% commodities, 20% cash. Many would call
this a high risk portfolio; I am confident though in my research of each buy I make.
However, many college graduates do not want to take the time to do this in
depth research I do. In those cases I would recommend almost all mutual funds
and ETF’s. This will give great diversification with low expenses.
Once the investment portfolio and automatic deposits are
setup there is not much work needed on the refined college graduates part. I
suggest looking at the portfolio quarterly and rebalancing as needed.
Want an in depth easy to understand explanation of investing try:
The Truth About Money 4th Edition
or:
I Will Teach You To Be Rich
These are two great books that really make investing easy.
Contact me with questions at therefinedcollegegrad@gmail.com
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