Financial Tips for New Grads

AnaRegalia agreed about the benefits of starting early. "It's the discipline of saving, not just how much you can save that will allow the average American to reach critical financial mass. I have a daughter in college, and we started a retirement account for her when she got her first job at 16. That money has more than 40 years of growth potential. Now that the retirement account is open, she has an awareness that she has a responsibility to save for retirement, no different than the responsibility to pay any other bill."

"Likewise as soon as a child is born, start a college fund--even if you only open it with $100. Determine how much you can afford to save annually and fund it every month, just as if it were another bill."

Darwinian noted that putting money to work on a regular basis is the best way to impose discipline on an investment programme. "Use 'dollar cost averaging,' investing a fixed amount every month, preferably as an automatic pay cheque deduction. It is easier to save money you never see, and this strategy will increase your investment returns because you will be buying more shares when their prices are low."

Winstondunn urged new grads/new investors to not be deterred if they make a few mistakes along the way. "As soon as you have a job and stable income, invest in stocks every month. Put aside the money that you need for living that month, put aside an emergency fund (for example, three months of living [expenses]), then invest in stock. You will be clueless in the beginning and make a few mistakes. But you will lose little money because you don't have much money at the beginning. You will gain experience from your mistakes. In a few years, you will have more money to invest, with more experience."

Cutthroat pointed out that you don't even need to have cash to start the learning process. "Even if you don't have the cash to do it, create a phantom portfolio and watch it. Learn how the markets move and how to balance the portfolio regularly." This is something we often encourage new Morningstar users to do, to play with a fantasy portfolio in Portfolio Manager and see how their phantom investment choices work together and perform overall.

Other users provided specific ideas for a new grad's investment plan.

Rossinator suggested, "A portfolio for a young person? You could do a lot worse than 75% Vanguard Total World Stock Index ETF and 25% Vanguard Total Bond Market ETF."

Darwinian offered a wealth of sensible advice about how young people should craft their portfolios, including the following: "Invest in a diversified portfolio of low-cost mutual funds. If you aren't sure which funds are low cost, stick with Vanguard's. Don't buy individual company stocks--you will not be compensated for the added risk of holding a security whose returns are totally dependent on one company's success. Once your nest egg is established, put all, or nearly all, of your money in equity (company stock) mutual funds. You will not need most of your money for more than 40 years, and there has never been such a period in the past when diversified stock investments have failed to outperform every other asset class."

Career Opportunities
Recognising that many university grads are feeling their way for their next step in life, several users were happy to oblige with guidance on matters of careers and education.

Scott123 opined that individuals should balance career and education plans with the return on investment. And given US citizen’s extensive experience of paying high university fees, there could be some valuable lessons in here for UK students. (More on this in Paying for Education After the Tuition Fees Hike) "Do what is fulfilling and what you are good at. If that means grad school, go. Work hard to get that scholarship, and if it means state school rather than the Ivy, do it. Every employer you would want to work for understands that going to a second-tier school with a full ride was a better decision than taking out $200,000 in student loans to go to Harvard."

Some posters were more equivocal, urging young people to stay out of debt when pursuing advanced degrees.

Teacherman opined, "The economic universe is completely different from the way it was when I was a graduate. The job market is much more precarious. I would advise graduates to be very wary of incurring additional debt for graduate studies. A generous fellowship is essential for those whose parents are not loaded. Do not attempt to pay for post-graduate work yourself."

In a related vein, CashMoneyMD is grateful that he didn't go into hock to obtain an advanced degree, even if it meant some lifestyle compromises. "I'm 29 years old now. I went through an engineering undergrad and then went to medical school afterwards. I have no loans to pay back. Why? Because my amazing parents [saved to send me to university], and after I got out I worked as an engineer for a couple of years. While my counterparts were leasing/financing BMWs and renting nice apartments downtown, I was living at home, driving the same car I had since high school."

Life Matters
Recognising that personal finances are deeply intertwined with a person's priorities and values, some posters offered advice on life matters as well as financial ones.

In addition to providing some financial pointers, Larry3 advised, "Work hard and have fun" and “Do something good for someone every day." Can't argue with that.

Scott123 wrote that squirrelling away money isn't the only worthwhile way to deploy cash. "Make investing/saving a priority, but don't forget to set aside some funds for your quality of life, like going to sporting or entertainment events, taking vacations, particularly to see family (why haven't you called?), or giving to charity."

Finally, RetiredinFL spoke for all of us with this evergreen life advice. "Be yourself, not what somebody else wants. Set short- and long-range goals. You will achieve what you really want. Help others who are in need."

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