Short Term Investing - Where to invest in College
My forray into the world of paper assets started January of ‘08, and my venture into the stock market was a learning experience. I made some money, lost a little more, but came out of it with a new philosophical approach to investing while in college that I think can benefit other eager investors / college students in a similar position as I.
A little background on my college finances:
- I pay 75% of my tuition
- My college costs close to $18,000 a year
- Do the math
I am using some loans and have been fortunate to receive a few scholarships that make the first year or 2 fairly manageable. But starting in the fall of 2009, my reserves will be running dry. So the main objective for those with any type of reserves is to put the money to work for you. Initially, I planned on investing in stocks short term, making 10%, and liquidating whenever. However, I finally figured out I don’t have the skill set [yet] to invest in that fashion succesfully. So instead, I’m trying invest my $X,XXX in safer, high interest, short term investment vehicles since I can look at my finance spreadsheets for the next 3 years and precisely see how much and when my bills will be due.
So now that you got my objective / philosophy, here are some options I am either doing or considering.
Short Term, Safe
1. Zopa CDs - Zopa is a peer to peer lending company, similar to Prosper.com and LendingClub.com (kind of covered previously). Zopa CDs are CDs based on interest derived from loans given to members. It’s more of a non traditional bank loan that earns the interest for your CD. These CDs are FDIC insured so you know they’re safe, and they also give better interest rates than typical CDs. (I got 4.25% for 1 year last week, but they fluctuate frequently).
2. CANROYs - known formerly as Canadian Royalty Trusts, these are somewhat riskier investments that offer potentially great, stable yields. CANROYS are Canadian trusts (usually in oil) that are not taxed by the government because they distribute all of their profits to shareholders. However, in 2011, the Canadian government will start taxing them at a 40% rate, which has made them a little more risky in the short run for irrational reasons. The upside is that CANROYs pay anywhere from 8% to 15% annually in the form of a dividend, so any capital loss could potentially be offset by dividends. So although a little riskier, they do offer liquidity and high short term yields. Some examples are SJT, HGT, and PWE.
Other possible options… not as good in my opinion
1. Blue Chip, Dividend Stocks - Some people think the market is bottoming, in which case the high yielding blue chips would probably be a pretty good investment. I’m not convinced of this, so I find it hard to recommend. If you have faith in a particular sector, look at the blue chips and you’ll probably find some good values.
2. Prosper, Lending Club - Prosper and Lending Club, mentioned above, offer good rates. By investing in many credible, qualified borrowers, risk can be limited and returns can range from 5-10% depending on the borrowers found. I’m a huge advocate of both clubs (moreso Prosper cause they’re bigger, even though customer service is really bad), but their greatest drawback is that your money stays tied up for a mandatory 3 years under the terms of the loans. If you can afford to tie your money up for 3 years earning 8.50%, by all means go for it. I and most college students, however, probably shouldn’t have that illiquid of an asset on our books.
So up to this point, these four traditional investment vehicles are the best option for college students looking to gain a little better interest on their reserves while keeping it safe and liquid. If anyone has any other options, definitely share them. And as always, I am not a professional advisor, so consult with others before investing and do not take my opinions as fact. I, nor college-startup, is liable for your decisions.
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Share your thoughts!!!