Expert: Paul Henneman - 1/3/2007

Question
I'm asking you this question because I don't know much about investing but I want to start.  I'm 22yrs old and I don't have any debt, I have a vehicle thats payed off, I am going to start going to college and I have the GI bill for that.  I have 10-12,000 dollars that I want to invest because it's just sitting in my checking account, but I have no idea where to start, what kind of stocks, mutual, funds, or bonds, high risk, low risk, I just have no idea.  I would like to put my money somewhere that I can get to it if I need to.  Please give me some advice  

Answer
Alex,
   Thank you for your question! I congratulate you on thinking this way about your current funds. You are in a good financial position with no debt and a paid for car. I only wish everyone planned in such a way. The GI bill for your college is excellent, you can avoid much of the student loans that most students have to take on. College is worth the loans in every respect, but it is so much better to reduce or eliminate those loans if at all possible.
    I do have some suggestions to offer you regarding your savings.

1. Probably the best option would be to put these funds into an index mutual fund. These are mutual funds that trade exactly like an overall market index. This means that the fund will always perform exactly like that market index, never higher, and never lower. The most stable market index is the S&P500, so a fund that trades that index may be of interest. Vanguard has a fund with the ticker symbol VFINX that does this. Based on historical performance, you could expect about a 10 to 12 percent annual return on your investment. Some years will be better, some worse, and some years you may even lose money. But on average, over time, you should see about that level of return. So there is some risk. The longer the time frame that your invstments remain in the account, the less the risk and greater your benefit. To purchase such a fund, you would need to open an account at a discount online brokerage firm such as www.FolioFn.com or www.Scottrade.com, transfer your money in, then make the purchase. You can log in and check the value at any time, and both services offer variouis ways to withdraw the funds should you need to. This can even be done by EFT (Electronic Funds Transfer) if you set it up, so you can have access to the funds immediately if needed.
You could visit www.morningstar.com or www.motleyfool.com to learn more about mutual funds, and look up other possible funds to invest in.

2. There are also CD's (certificate of deposits). These are absolutely safe, with no risk. You will always receive a few percentage points in returns. My favorite source for CD's is www.NetBank.com, they have the highest returns I have seen and are government insured. You can expect about a 5% annual return each year on your investments, about half of the average return for the mutual fund. But there is no risk. The downside to CD's is that they lock up your money for a certain time period, one year is the most common. You could get your funds back before the maturity of the CD, but would pay heavy penalties.

3. The riskiest thing would be to buy stocks. If done well, you could easily see 15, 20, or even more percent average annual return. The problem is risk, and that it takes alot of research and skill. If interested, I would be happy to provide you with some books and other sources to begin your research, as well as websites to investigate. But this is only if you are willing to have more risky investments (you can make more in returns, but have a higher chance of losing money as well) and are willing to spend alot of time researching and learing about the stock market and how to properly invest.

I hope this helps! Please do not hesitate to follow up with me if I can be of any further service,

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com