Expert: Gina Boykin - 1/16/2008

Question
I go to college full time and have a part time job but expenses are rolling in and I just want to make sure I can cover them.  I have $2000 that I've saved and just have sitting in an account earning next to nothing.  I have an account with TradeKing.com that I play on with couple hundred dollars but can't ever seem to get things to go my way with ETF's.  I was wondering what I might be able to do with my $2000 so that its actually working for me and earning me some extra income.

Answer
If this money is your emergency fund, or is money you plan to use in the next few years, you should really stick to the plain and boring - savings accounts, money market account, or CD.  Rates are higher with the online banks. You can check www.bankrate.com for the highest current rates.  For example, I have a 5 percent CD, which is hard to beat outside of stocks/bonds/futures.

Keep in mind that you should have at least 3 months worth of your expenses in an emergency fund before moving any money to an investment account.

The money that you are trading in an ETF - are you trying to day trade or time the market?  These are meant to be long-term investments, so it most likely isn't going your way if you are buying and selling frequently (or if you've only had the money in the account for a few months - especially considering the current market conditions).  ETF's and mutual funds should, over a 10  year period, give a higher return.  If you plan to add any of this $2,000 to an investment account, this could still be the way to go.

Alternatively, you could look at bonds.  Corporate bonds have higher rates of return than savings/CDs/treasuries.  You don't really have enough to do individual bonds, but you could easily do a bond fund (which is a mutual fund).  In general, bonds are considered good investments because they pay interest regularly, and you get your principal back when the bond matures.  Stick with bond funds that invest in highly rated (also called "investment grade") bonds.  To compare funds, look at the 5, 10 or 20 year returns, to get a feel for how the fund has done over the long-term.  You can't tell much at all looking at a 1-yr or 3-yr return.

Another option, if you really do want to trade regularly, is stock options. This is a more advanced trading technique, so you will really need to do some research on the web, and  practice with a virtual trading account, before investing with your own money.  Stock options are basically the option to buy (or sell) stock at a certain price.  The option itself has it's own value, and it is traded separately from the stock.  If you're interested in this route, you can start with www.investopedia.com to learn more.