I am about to receive a lump sum of $20,000
I am financially stable, 18, and in college
What should I do with the money to give it the most growth/ make it the most beneficial?
Buy a house
Well, I hope Uncle Sam doesn’t take too much of it away from you, unfortunately you always have to figure that angle with any windfall.
I would agree, buying a house is the best long term investment. But if you aren’t going to have the steady income to buy and maintain a house, or you just don’t want to get tied down, you might consider something else. It all depends on your time horizon and your risk tolerance. If you might need the money in a few months, might as well just put it in a interest paying checking account. If you can put half of it away for 10 years, I would buy a few shares of a top-notch DOW stock (GE, HPQ, INTC, JNJ, MMM, PG or XOM).
I can put it all away, i was thinking about a money market account? (i dont even know what that is)
Also, should it all be invested at once, or different amounts put in at different times
(i want the most growth, i dont care if i dont have access till i am 80)
A money market account is a step above a savings account. Your money is fairly liquid, principal is generally safe, and if you are using a bank, the FDIC protection will cover up to $100K against loss. But the interest rate is too low for you.
One strategy would be a no-load mutual fund (that is, no broker fees, you deal directly with the fund) with an agressive growth strategy. That means that if the fund increases in value, it is usually due to growth of the stocks rather than dividends. You don’t have to pay any taxes when a stock increases in value–you only pay taxes when you sell it. But even a growth fund will generate some taxable revenue each year, so you would have to either sell off some of the fund to pay your taxes, or pay it out of other income.
Personally I would not invest in a single stock because the risk is too high, even with a stock that is considered high quality today. IIRC Daimler Benz Chrysler lost half its value after the merger.
I would not agree that a house is the best long-term investment compared to the stock market over the long haul.
This is a complex subject that you shouldn’t just rely on guys like me dashing off a post on a message board. Try to talk to an older relative that has some investments, or find an econ professor at your college that could point you in the right direction. I’ll bet your college might even have a course in investing.
Based on your wanting long term growth and not having investing experience, I would recommend a no load index fund. Something like a S&P 500 or Total Stock Market fund from Vanguard or Fidelity.
This has great historical stability and return and also is very tax efficient for long term investment. From a purist viewpoint, you should invest it in 12 equal investments over a 1 year period. However, given the current market situation, I would just dump it all in immediately.
Read up about Long Term Options Trading. If I had $20,000.00 that is what I would do with it.
In my experience, the worst possible thing you can do with your money is entrust it to someone else. Take a look at what’s happened over the past 3 years in mutual/hedge funds.
My recommendation is to get a book by Martin Weiss, who routinely gives investment advice to older people who have been burned by the stock market and are looking to very conservatlvely grow their investments, while providing maximum stability.
Diversity is the most important thing you can have in your portfolio. Typically, one selects their portfolio to maintain balance by having the individual aspects offset each other while anything unexpected will be taken advantage of. The standard is typically: USG bonds, stocks (index funds), foreign currencies, precious metals, real estate and various futures markets. Bonds provide stability, stocks allow for some positive-sum growth (theoretically), the precious metals play against the currencies, bonds and stocks, commodities are generally applied to catch a major move, etc.
The best thing that you can do is educate yourself. Once you start telling potential advisors that you’ve got $20,000 that you’re willing to give up for 10-20+ years, you’ll hear all sorts of deals coming out of the woodwork. Start with a book like “Investing for Dummies.” Once you’ve read that, ignore everything in it and start moving into primers on the aforementioed topics. Consulting with advisors form stock/future brokerages will be helpful to determine what is important to consider while there are quite a few funds that will put your portfolio into the mix described above (percentages vary per investing style of course).
Also, keep your expectations realistic, you’re not going to see 20-30% profits per year; a realistic expectation is 5-8%.
As you are putting in quite a lot of money into this, give yourself several months to a year (or longer!) to determine how the game works and what you’re comfortable with.
The most valuable lesson I learned with investing is: “only put in as much as you’re willing to lose.” Seriously, consider any money you put into your investments “gone.” If you were planning on living with that money, or using it for something in the future, don’t invest it, put it in the bank. Again, do your research.
In the meantime, until you decide where to put it, consider a treasury-only cash fund, which is essetnially a money market fund with a higher return (3-4%/year if it’s run well).
I forgot to add one thing. Consider the yield of your investment. How significant will it be?
Putting it in a CD is good advice, but even at a wonderful 10% interest, your investment will make $2000.00 over the course of a year. This amount of money is nice to be sure, but when you consider that you will make a whole lot more working at a minimum wage job in some sweat-box company, that $2000.00 starts to look small.
Don’t even ask me about the rates of inflation right now.
Give it to me, I’ll take care of it for you.
Whoops, just slipped into my banker’s mode there for a second, sorry about that. 
Real estate is the best investment for the mid-to-long haul, hands down. After you consider the tax advantages, and almost guaranteed price appreciation. Every dime you make in stock dividends are taxed along the way, if you get really lucky and make a good profit on price appreciation, when you sell Uncle Sam takes a big bite of your profits. When you sell your house, you pay ZERO tax on the gain. Historical “anything” to do with the stock market is a lot of bunk, all that does is say what stocks did in the past, it has absolutely nothing to do with the future, otherwise it would be simple to figure out the market and we would all be rich.
If you go the mutual fund route, I would agree with the index fund method. Index funds are tied to a stock index (like the DOW 30, or S&P 500), so they rise when the market rises. With all the other stocks funds you have to rely on the fund manager to beat the street, and very, very few of them consistently accomplish that feat.
What in the world is this supposed to mean? The OP said that he’s young and looking for a long-term investment. If he earns $2K/year from his investment, that would be IN ADDITION to any income that he earned by working. It’s called having your money work for you.
As far as the CD and inflation rate comment, again…what? Go here for a very optimistic CD option. If you have $100K and sign it over to them for 5 years you get a whopping 4.26% yield. Smaller deposits (like the OP) and shorter CD terms bring the yield down to around 2%. Considering that the current annual inflation rate is just over 2% as well, you are essentially making NO money by putting your money in a CD. You are preserving the buying power you have today, nothing more.
To ekow2kn3 if you truly won’t need the money until later, put as much as you can into a Roth IRA. You still must choose how to invest the money, but the growth is tax-free. Woo-hoo.
I’d agree with the other posters that diversity is your friend. However, with your long time horizon you want to be mostly in stocks. As mentioned earlier, an S&P 500 index fund is a good way to get yourself into equities without having to choose individual stocks. Put some money into a bond fund, which traditionally pays better when stocks go down.
What KenGr mentioned about putting the money into the market over a 12-month period is called dollar cost averaging. It is a simple way to prevent you from buying at the absolute high of market, and limits your risk. However with your time horizon and the market today, I’d also recommend getting invested as quickly as possible.
Once again, these are just opinions from people on an internet message board. I’ve given you the best advice I can, but I’m not a professional advisor. 
Upon preview I see ccwaterback has seconded the real-estate option. It is a great investment, but if you don’t want to actually put up with the hassles of owning a property (either by living in it or by paying a property manager to rent it and maintain it) you can get into real-estate through a Real Estate Investment Trust (or REIT).
Once again, look at all your options and go with what you are most comfortable with. Good luck!
Hey Pilot141, good to hear from you again.
What that means is, consider the yeild. It does not take a genius to figure that if your interest rate is less than the inflation rate, then you are actually loosing money on an investment over the course of a year. Hence invest at a rate that is greater than inflation. I do not believe that 4.26 percent is going to cut it.
Even if you put it in a Roth IRA, you can invest it in CD’s, Money Market Funds, and Stocks, among other things. So, make certain that the interest rate beats inflation.
The rest of my post ought to be self-explanatory.
Wow, you must be one of them there financial gurus.
OK, Ficer67 that makes sense. I read your post and mistakenly attributed it to the one previous to you as well. Nice to see you again also!
However, I do think that the OP should NOT compare investment earnings to salary earnings at his (or her) age. What the OP has going for him is the magic of compound interest. A prudent investment of $20K at the age of 18 can ensure a comfortable retirement at age 65. In a good year he earns 2K on his 20K, which he (prudently) reinvests…
Year 2: $2200 earned on $22K
Year 3: $2420 earned on $24.2K
etc…
Until at year 20 (age 38 for the OP!)
Year 20: $12,231 earned on $122,310.
And it just goes up exponentially from there. Comparing what he makes from investing (by doing nothing but putting his money in the right place) to what he earns from working is disingenuous.
At 30 years (age 48 for the OP!)
Year 30: $31,723 earned on $317,235.
As the years go by, his investment earnings outstrip his paycheck earnings.
Granted, these numbers are based on an a (very) optomistic 10%/year, but that is the number I thought you were dismissing as “looking small”.
I’ll tell the OP and any other Doper who listens: time is your friend. The younger you can start saving and investing money (in any form) the better off you will be.
Once again: time is your friend. It’s like magic. Make it work for you.
OK, I’m done!
Reminds me of a quote, not sure where it came from:
Q: When is the best time to start investing?
A: 50 years ago.
Q: When is the second best time?
A: Today.
My real estate rant was just my opinion that real estate should be your first major investment. I know if you are young you might not want the burden of owning real estate, but if you are 30ish, go for it. I firmly believe a sound financial plan for the long run includes real estate in its foundation.
I think you have to compare your salary to the interest income. One day you want to be able to live comfortably off of your investments, and you have to start considering that when you are young enough to do something about it.
In your example, the op reaches 38 years old and has $122,000 and he can expect $12,231 off of it for the year. This amount of money isn’t going to pay alot of bills. No, he is either going to have to come up with more money to invest, or figure some way to invest at a better rate.
Now he is young, and he has opportunity to do it, but it makes sense to get the best rate possible. And if the OP looks into stocks, and possibly some more investments that have some risk he can outperform many people in todays market.
Note that there are annual limits to how much you can invest in an IRA. One limit, I believe, is that you have to have income at least as much as the contribution.
I second the index fund suggestion. $20k isn’t going to get you a house. The stock market is a decent place to invest if you have a sufficiently long horizon.
two words:
Dog track
Or like the guy that came into a Vegas casino, opened his suitcase and put $777,777 on one roll of the dice. He won, collected his money and walked out the door. 
ekow2kn3–
Let’s review the situation:
- Age 18
- In school so I must assume you are not working anywhere at this time earning a living
- Financially stable—What is YOUR definition of financially stable?
- “I don’t care if I don’t have access till I am 80”----Are you SURE about this?
Ok some of the advice you have already received has been off the mark. Money market accounts are for parking dollars until you find something better to invest in.
CD’s are paying little if anything. To get some real action interest wise in a CD requires AT LEAST $100,000 locked up for 5 YEARS plus there will be taxes due
each year even if you don’t spend the interest.
Roth IRA? Well before you go down that road you FIRST have to have a job EARNING an income. If you went down to an investment house and opened up a
Roth IRA AND the person accepted the money without learning where you got it and what your employment situation was you might as well give your money to the
government because IF you put it into an IRA and then enjoyed oh say 40 years of “Tax Free” growth you will be sorely surprized to find you made an ILLEGAL
investment and the IRS will take almost if not ALL of your money because you did not qualify for a Roth IRA when you opened the account.
For those who wish to argue this point I have a case history I’d love to share with you on this. A poor dairy farmer opened and IRA with an investement
representative and failed to tell his accountant (his brother-in-law). Fast forward to 16 years later after this poor sap had put $32,000 ($2,000 per year for 16 years)
into his IRA. Well now he wants some money out of it. Since his brother-in-law was a crafty accountant he was able to not show ANY income for the 16 year
period. When the whole stinking mess was dropped into my lap (I am a finacial advisor) I had to tell the poor sap and his crafty-yet-stupid brother-in-law that he
owed approximately $40,000 in taxes penalties and interest. So even thought he had doubled his investment over the 16 year period after paying the taxes, penalties
and interest the poor sap wound up with less money than he had started.
Likewise here you should filter about 90% of what you read with a BullSh*t meter because a lot of people will offer their opinion while not having a clue as to if they
are correct.
Let’s look at the other “great” advice you have gotten here:
daniel801— Real estate…buy a house. OK? Is this a rental property or primary home? Daniel the kid is in school and you want him to jump in and buy a house he
may not be equiped or ready to care for? Rental property is a constant head ache (My father is a real estate broker and property manager). Unless you are ready to
give up your free time working on busted pipes, scratching together the property taxes each year, getting awoken in the middle of the night from a frantic call that your
house is on fire or a tree fell on it or a pipe has burst and the place is flooded then go ahead and be my guest. I had several properties at one time (about 15-20) and
I spent a lot of time evicting people and paying for constant repairs. The sweetest 2 days of my ownership was when the city tore down one of my properties by
accident and one of my renters decided he would get his girlfriend out of bed by setting the bed on fire. The city and the insurance company settled these two
incidents with me at a tune of 10 times what I put into the properties. So yeah you can make money in real estate if that is going to be your ONLY concern.
ccwaterback—OK let’s buy some stock. You aren’t going to be a real stock player until you have at least $100,000. If ekow2kn3 came to me with $20,000 and
wanted to play the market I’d have to tell him to find at least another $5,000 before he could open an account. You see the real investment houses don’t want to
worry with you UNLESS you have some considerable dollars (ie. $100,000 plus) so poor ekow2kn3 will find someone out there to invest his money into stock but
he won’t get much help.
cookingwithgas—Sorry money markets are NOT protected by the FDIC they are protected by SIPIC because they are NOT deposits with the bank but held in
trust by the bank for the benefit of the owner. The interest rate on money market accounts are no better than an interest bearing checking account. In fact a money
market account IS a mutual fund managed for the sole purpose of parking investment dollars until you find a better investment. The main goal of a money market
account is to maintain the value of each share at $1 that’s it. Mutual funds money market accounts are accually having a hard time maintain their values because of the
run on their assets and the low interest rates. So some funds are requiring larger account balances to offset the costs associated with managing the account. Contrary
to what some may believe here but money market accounts are INVESTMENTS which specialize in short term paper, securities and debt.
KenGr-- What the heck is a NO LOAD fund? Just because you don’t pay a front end charge or a back end surrender charge if you get out early doesn’t mean you
don’t pay a LOAD. Way too many people make their decisions based on fees associated with a fund. They fail to look at the management and the method which a
fund is allocated. You want a TRUE definition of NO LOAD? NO LOAD = NO HELP. If you plan on investing in an index fund wouldn’t you like to have another
set of (skilled) eyes looking at it BEFORE you leap. I have seen and done some analysis of comparisons made between No-load funds and sale-fee funds investing
in the similar sectors. What the evidence shows is that EVEN after you pay your fees you are much better off by buying a sale-fee because the management fees
(12-b1) are LOWER than the NO-LOAD and you also have someone to advise you in your investments.
Ficer67— Yeah lets read up on long-term options while we study for our finals and work on our essays. At the same time lets experiment with a loaded revolver
and see how many times it takes to pull the trigger before we blow our brains out. Options are a beast unto themselves. There are much safer and more assured
ways of making your money then options. I get approached by option traders ALL THE TIME and I always stop them in their tracks with one key phrase "what is
the maximum downside of this investment?" Guess what? If you finish out of the money you LOSE your investment. Hmmm so lets take $20,000 put it into options
and make it into $0 in NO TIME FLAT. Again, you need professional advice here. This kind of advice is the equivalent of putting a monkey in a room full of
dynamite and giving it a bunch of matches.
Chairman Pow— Great advice! Don’t trust anyone to help you manage your money. Please tell me what has happened over the past 3 years in mutual/hedge
funds? One of my funds (a high yield bond fund) has seen a 38% growth rate this year alone. While it lost money last year I’m not going to have to pay taxes on this
year’s return because of last years loss. In the last 10 years of owning this fund I have had an average rate of return of 11.98%. What people tend to do is focus on
a small portion of the funds which are in the news about all the bad things they are doing while forgetting there are about 10,000 other funds which are doing as they
were expected to do. I call this selective perception and EVERYONE falls into this trap ALL THE TIME.
Ficer67— Yeah let’s consider the yield of an investment verses actually earning a living. While we are at it lets consider how well a snowmobile will perform againts
a jetski in a lake. Seriously, NO INVESTMENT will yield more than what you can earn unless you have the numbers for the powerball lotto.
ccwaterback—
Where do you get your data on this? There are times when the index beats the managers and there are times when the managers beat the index. There are times
when bonds beat stocks and value funds beat growth funds and sector funds beat balanced funds. So what does this tell you? DIVERSIFY! DUH!
Pilot141— ekow2kn3 needs to earn something BEFORE he can open a Roth IRA. Dollar cost averaging only works if you continue to do it for the life of the
investment. If ekow2kn3 has a lump sum of $20,000 and does not intend to add to it DCA is a moot point. Let’s not forget about taxes Pilot141. Your pretty future
value analysis goes to pieces when you factor in taxes. Yeah you earned $2000 the first year BUT the IRS gets $600 from you so you make $1,400 (at 30% tax
rate). Or we can be kind and only take 15% in taxes well now instead of $2,000 we have $1,700. Let’s pay taxes now for the next 60 years on this and you will fall
way short in your calculations.
So let me summarize:
First we need to know what ekow2kn3 plans to do with his life. Because while he may not need the money now something may change in this and he will need the
money. Investing can’t be made in a vacume. There are always other things to consider when investing many of which have almost absolutly no clear connection to
investing. Look at the previous personal observations I have made. (EK) is in school so we have to assume this will change in next few years. EK may get married
and have a family. EK may get a great job and never need this money or EK could get laid off and hit hard times and need every penny. There are way too many
what ifs here which have not been addressed. Before EK does any investing he needs to meet with an interested professional who will help him plot a life course
BEFORE he begins picking investments. I get approached by people wanting to invest as part of my daily business so I ask the questions that cause people to think a
bit BEFORE they take the plunge like: “What is your time horizon for this investment?” “What do you intend to spend the money on once you finish this investment?”
“What things must occur in the next 3, 5, 10 and 20 years for you to feel personally, professionally and financially successful?” ETC ETC.
You see you must first figure out where you are planning on going before you set your money on a course. Otherwise, you and your money may not see each other
again. I’d love to provide more insight here but EK if you wish email me and I’ll see what I can do.