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Students need to learn how to invest their money wisely. You never know when you'll want to make a career change, set up your own business or just take time off from work down the road.
There is a huge advantage to investing early. If you invest $1,000 each year starting at age 20 in an account that earns you roughly 10 percent interest each year, at age 50 you will have about $204,000. Wait until you're 30, and you'll only have $70,500 when you're 50.
It's easier to get started than you might think, too. You'd don't necessarily have to hire a stockbroker. The key is to start saving sooner rather than later. There are a lot of options, but the most common investments include money market savings accounts, bonds, CDs and mutual funds.
Savings Accounts
A money market savings account is not the savings account you likely had as a kid when you had saved enough loose change to need a safe place to store it. That savings account is called a liquid account, which means you could get your money any time you wanted it, or your parents would let you have it. Liquid accounts aren't really investments, though, because they earn low interest. In other words, they
keep your money but they don't make you much money, says Lloyd Duncan, an investor with The Vanguard Group in Wayne, Pa.
A money market account is your better bet when it comes to savings accounts. Most banks require a minimum investment of $100 to open a money market account, but that $100 will likely earn you 10 times what a savings account will. There's a catch, though — you won't be able to withdraw money from your account any time you want. You invest in a money market account. Money markets are considered safe investments because the value can't drop as long as you leave your money in the account the length you agreed to in the terms of your investment.
Bonds
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Bonds are another safe investment. A bond is a debt issued by the government that guarantees the payment for the amount you purchased it for plus interest. You could purchase a government bond valued at $1,000 for about $750. Over time, with the interest rates, it will reach its valued amount.
The purpose of a bond is to put your money in a safe place where you will be guaranteed the amount you purchased it for, as long as you leave the money there for the number of years or months you
bought the bond. Bonds are put away for lifetime investments such as buying your first car or home or paying for college. Unless you keep them for the term they are meant for, they quit gaining interest, says Joe Oberzan, vice president branch manager of Capitol Federal Savings in Lawrence. You just have to pick the right time to buy a bond to gain interest. If the economy is moving forward and rates are going up, it is to your benefit. If the economy is moving downward, your bond may not reach its face value in the same number of years.
CDs and Mutual Funds
Like bonds and money markets, CDs will help you save money.
A CD, a certificate of deposit, is a savings account where you will earn at a better interest rate. If you decide on a one-year term, you can't touch the money for that year.
A CD is a direct deposit with an institution, which means the bank is promising to pay a certain amount of interest for a specified amount of time. If you take your money out early you usually suffer a six-month penalty of interest, says Phil Heffley, vice president of the Private Client group for USA Bank in Kansas City, Mo.
You can get a 91-day CD, which has a 1.5 percent interest rate, a six-month CD, which gains 1.25 percent interest or an eight-month CD, which gains 1.3 per
IF YOU INVEST $1,000 AT AGE 20 IN AN ACCOUNT EARNING 10 PERCENT INTEREST EACH YEAR, YOU WOULD HAVE ABOUT $204,000 AT AGE 50. IF YOU WAIT UNTIL YOU'RE 30, YOU WOULD HAVE ONLY $70,500 WHEN YOU'RE 50.