Another Great Question!

Dear Generation Millionaire,

I was at your talk at the Sigma Phi Epsilon fraternity at Cincinnati about 2-3 weeks ago, and I wanted some advice on investing. I am a sophomore at UC, and I have absolutely no debt thanks to scholarships and such. I was thinking about the rule of 72 the other day, and I got to thinking, "Why am I not investing right now while in college?" I could get an extra four years of compounded interest if I started now. I have around $10,000 in my bank account earning less than one percent interest. Also, with the market being at a 12 year low right now, I have the urge to "strike while the iron's hot" and invest when stocks are at all-time lows, thus maximizing my investment. I have read some articles stating that a 25% return is reasonable once the market starts to swing up again.

So I guess in essence, my question is two-fold. When and how should I invest. Should I wait until the stock market stops the free fall, which is any one's guess, or invest now, knowing that when stocks go back up I will already have my investments. Also, you mentioned many different investment firms for people to go invest. I want something that I can put my money into and not worry about it, low maintenance with my busy schedule. Is a Fidelity target timeline the best way to go? If not, how to I begin talking to a financial professional about my options? Thank you for your help as I really enjoyed your eye opening lecture

Answer:
I am so glad that the presentation was beneficial to you. Congratulations on savings! You ask excellent questions. I am going to answer from a short to long term planning perspective. As always you will want to check with a financial provider as I don't have all your information and they should dig alittle deeper.

1. You want to have an emergency fund, that will cover 3 -6 months of expenses.
2. Any cash you may need over the next 2 years - should be in a liquid account (savings or money market)
3. Money you may need in the next 3 -5 years - can afford alittle more risk - you can look into a balance fund or one of the target time line funds with a shorter date. i.e. 2015 fund.
4. Retirement money - if you have less than $50,000 most financial firms recommend the target time line funds - as they will provide you with better diversification and balance vs trying to pick a few funds on your own.

Next regarding retirement planning......

1. Do you have any earned income for the 2008 (last year) If you do you can open a Roth IRA and contribute up to $5000. You need to have earned income in the amount that you are contributing up to $5000. So if you made $2000 - then that is all you can contribute in that year, if you made $10,000 the max you can contribute is $5000.00. You have to tell the firm or put it in a letter or on the check that the contribution is for 2008. You have until April 15th, 2009 to contribute for 2008. In a Roth, the money grows tax deferred and when you withdraw money from the account after age 59 1/2 - it will all come out tax free. Huge benefit.

2. If you did not have earned income in 2008 but do in 2009 - you can open the Roth IRA and have the contribution go to your 2009 amount. Make sure you tell the firm what year you want the contribution to be counted for. The benefit of using money for the Roth IRA 2008 - is that ts gives you until April 15 2010 to still add for 2009.

3. Fidelity Investments, Vanguard and T Rowe Price all have low priced Target Timeline funds. You can call them directly and avoid any advisor fees. They all have licensed representatives who should be able to ask the additional questions to ensure you are making the right choices for your personal situation.

4. If you do not have earned income - you can open a brokerage account and buy a target timeline fund and earmark that for retirement. You will still have the benefit of the fund and planning. You will not have the tax advantage status that an IRA offers but you will have money working for you which is the most important part of securing your future.

We will never know when the market hits the bottom or the top - my thought is you invest now and a good way to take advantage of the market is to dollar cost average in. Meaning you add on a regular basis buying at all levels throughout the year.

Keep the questions coming!

Stay tuned.........