Expert: Gina Boykin - 7/23/2009

Question
Dear Gina,

I am a 20 year old college student from Rhode Island that is quickly learning how easy money goes. I am joining the Air Force ROTC program and it is going begin paying me while I am in school and already have a little bit of money in saving account. I want have my money work for me and not have to deal much with, but yet still achieve a high yield from my potential investments. Where do you think I should start, I have been told by my parents to start with a CD or a mutual fund. What do you think?

Thanks,
Tyler

Answer
It depends on the goal for this money. If you are setting aside money for any short-term goals (goals within the next decade), then a savings account or CD will do just fine.  However, if you want to start saving toward retirement, or some other long-term goal, you have time to whether the market ups and downs, and mutual funds are an excellent choice because they allow you to diversify.  

For the CDs and savings accounts, you can check the best rates at bankrate.com. As long as you have an FDIC insured bank, you can select the one that has the best rate, is most convenient, or some combination of the two.

For investing in mutual funds, you can very easily set up an account with a large brokerage firm like Fidelity, Vanguard, or Charles Schwabb.  All of these companies have an option to do small periodic deposits to help you build your account.  Most mutual funds require an initial deposit of $1,000 to $5,000; however, with these account builder services, you can deposit as little as $50 at a time.  Check out these companies' websites to see which one you feel comfortable with.  They all have a number of mutual fund options that allow you to invest in stocks, bonds, REITs, or even CDs.  Look for no-load funds, because they are lower cost.  If you want even more simplicity and diversity, look into an index fund. This is a type of mutual fund that invests in an index #like the S&P 500 index#, so it is the most diversity you can get, for the cheapest cost. Not much trading goes on with an index fund so the mutual fund manager doesn't have a lot of work to do - this results in lower cost.