Expert: Robert Hanzel - 10/18/2006

Question
Hello Dr.

I had a question about early investments.  I am 20 yrs old, not in college, working in the corporate world.  In your opinion and what you have seen, as far as WHAT to be looking at when it comes to investing and putting discretionary money for the best return. (My goal is between $100-$200/mo.) I guess, a gameplan for the next 5 years on what you think would yield great returns.  Looks like I work well with short-term goals.  Thanks a lot in advance for your expertise.

Daniel

Answer
This is an interesting question and I certainly understand your desire for short term return, but your best investment option is a 401k plan. A 401k plan guarantees you a 100% return given the company match, and there is no other option like that out there. I would suggest putting as much as you can into your 401k before you think of anything else. Also, you will want to decrease your debt to reasonable levels before investing. Think about it this way, an average rate of return is anywhere between 7-10%. The average credit card charges way more than this. Therefore, you are paying more in financing than you are earning. So, before you start investing, make sure the only debt you have is that which you need (I believe the only debt you need is a house, but some would add car to that as well). Should you accomplish each of these goals I would recommend learning about and investing in mutual funds given their natural diversification of assets. At 20, you may not have enough to diversify your portfolio, while at the same time getting 10% returns on your investment. Therefore, I would recommend higher risk (e.g. international and technology) mutual funds. Good luck and happy investing.

Please remember that these are only suggestions and cannot be construed as legal or investment advice. This information is meant as educational information only.