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I was basically wondering what options at the moment a poor student like me would have, if he wants to do his best to accumulate money?

I only have about ~$1000 in my savings account, and am a full-time student at University. I still have about two and a half years until I graduate (and start making money), but would like to use the best of my time, even before that point.

Any input is appreciated :)

*edit: any form of emergency fund is not really needed, since I attend University in the same town that my whole family lives in

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    Welcome to the site. Have you read the FAQ? This question is rather broad, open-ended and it isn't quite clear what you are asking. Based on your comment to littleadv's answer it seems that you are looking for investment or entrepreneurial/business options, as opposed to more general personal finance information (e.g. savings, money management for an individual/family). Any of those can likely be on topic, depending on how you pose the question. Some may have been asked already. – George Marian Oct 23 '11 at 7:13
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    I suggest you try to narrow the focus of the question and make that focus clear. You may certainly ask multiple questions, in separate posts, if necessary. Try to post questions that can, hopefully, have a more or less definitive answer. (e.g. How can I get started in stock investing with just $1000?) – George Marian Oct 23 '11 at 7:20
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The "$1000 is no money at all" people are amusing me.

Way back in the mists of time, a very young me invested on the order of ~$500 in a struggling electronics manufacturer I had a fondness for. An emotional investment, not much money, but enough that I could get a feel for what it was like owning stock in something.

That stock's symbol was AAPL. This is admittedly a rare outcome, but $1000 invested over the long term isn't not worth doing. If for no other reason then when the OP has "real" money, he'll have X+$1000 invested rather than X, assuming 0% return, which I doubt. It's a small enough amount that there are special considerations, but it's a solid opportunity for learning how the market works, and making a little money.

Anyway, my advice to the OP is as follows:

  1. All of this assumes you have enough money to live on, and this $1000 is indeed "play money". If you need this money for books, rent, etc. put it in a savings account. Putting $1000 into the market, and then needing to tap high interest credit card debt to make ends meet is losing money.
  2. Consider opening a Roth IRA. If you've already got the money, you've already been taxed on it, and as a non-working student, your tax rate is as low as its likely going to be.
  3. Consider how much risk you're willing to shoulder. Are you alright with having $0 at the end of all this?
  4. Take a look at index ETFs and mutual funds. While these don't have a spectacular return, at least recently, the market as of Fall 2011 is unusually highly correlated, which means it's unlikely that you'll do much worse or staggeringly better unless you're lucky. Pay special attention to commissions and expenses with these, as they can eat into your returns, which will admittedly be small. An $10 commission on a $10,000 investment is much less of a big deal than it is on a $1,000 investment. Some discount brokerages even have mutual funds that are themselves baskets of index funds (instant diversification), and if you're a client with them, these have low minimum investments and fairly small fees, which are properties you're looking for.
  5. Which brings me to the last bit. Whatever you end up doing, hold it. Actively trading with as little money as you have will devour your returns with transaction fees.
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    As a non-working student, IRS regulations don't permit an IRA deposit. – JoeTaxpayer Oct 23 '11 at 23:46
  • Does that not depend on where the $1000 came from in the first place? And I should have been more clear, but non-working I mean not a full time job, and potentially no job during the academic year - it depends on the student's circumstances, especially during the summer. Hence "consider". – Fomite Oct 24 '11 at 0:01
  • Yes, of course. The OP stated he 'had' the money, and I took your answer at face value, "non-working". Roth is a great place to put money for those who are below the threshold to pay taxes. My daughter started her Roth at 11. – JoeTaxpayer Oct 24 '11 at 0:10
  • I confess I was thinking of my self when I was a "full-time student" and still had summer jobs. – Fomite Oct 24 '11 at 2:42
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    @Chelonian Not if he learned something that will come in handy when he has more money to invest. Like diversification ;) – Fomite Oct 24 '11 at 9:04
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$1000 is not that much, and I think the best you can do with them is keeping them in a high-yield savings account (look at the online savings accounts that give 1% and more, not the regular bank savings accounts which are worthless).

If you need money all of a sudden (for a school book, or rent, or bills, or some other emergency expense), you don't want to deal with selling stocks or funds (which may be at loss) or breaking into your CD's.

It is usually considered a good practice to keep cash that would keep you afloat for 5-6 months in savings or some cash equivalent, as an emergency fund.

  • Hmm... is there another way to allocate those emergency funds to somewhere else? I am actually attending university in the same city that my whole family lives in, and my parents actually encourage me to utilize that money for investment or entrepreneurship purposes! – onaboat Oct 23 '11 at 6:21
  • @littleadv - your first response was dead on, don't back off. Even a college student needs to understand the concept of an emergency fund. I'm all for taking risks, starting a business, etc, but not with this particular sum. – JoeTaxpayer Oct 23 '11 at 17:01
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    Yeah, you can't start a business with $1000. You can start a business with $1000 and a few metric tons of hard work. And if someone is paying $NNNNN a year for you to have an opportunity to take classes at this college, one ought to seriously consider taking advantage of that and devoting that work to one's studies instead. just sayin' – fennec Oct 24 '11 at 5:39
  • It's probably a better idea to learn some things about investment at this point than entrepreneurship - $1000 isn't a whole lot of money for starting a business, and the usual substitute - hard work - is going to be hard as a student. – Fomite Oct 24 '11 at 9:03
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At that sum, it essentially doesn't matter what you do, unless you just want to outright gamble the money. Let's look at some options:

  • "High" interest guaranteed savings. A five year CD returns a sad 2% right now. That means if you invest all $1,000 into a CD, by 2016 you will have earned $105.08 in interest. Think about that: About a hundred bucks over the next five years. Of course, with 3% inflation, that $105.08 will be worth about $90.57. In fact, the total amount will be worth $953.25. Your "doing something with your money" did nothing.

  • Stocks can return significantly more interest, but there is no guarantee. Even if you made 20% year on year, you would only make maybe $1,500 in returns or so in the next 5 years, and 20% every year is like Warren Buffet territory--totally unrealistic. That's also not taking into account inflation.

And neither of these is taking into account taxes!

However, if you go to a casino and gamble the $1,000, it is possible you could turn it into significantly more. It's very much unlikely, and I do not advise it at all, but it's possible.

The point is, you need money to make money, and, in some sense, $1,000 is not money at all. I recommend you work on your skills, knowledge, and preparation for making money in the future, and by 25 or so you can really be cooking with gas. Don't waste your efforts trying to find a brilliant way to make a few hundred bucks over the next half decade. Save the money and find ways to try to double it by earning money on small projects. Then challenge yourself to double it again, and keep honing your skills.

  • Yes. If you pay $10 at a broker to buy a stock or ETF, you're already down 1% on your investment. Even most mutual funds won't consider that as an opening balance. Most people should wait until you have a full-time job with a 401(k) they can add to incrementally. After a few years and their first change in job / rollover opportunity, it'll be time to start looking at independent investing. – fennec Oct 24 '11 at 5:50
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If you're looking for ways to turn $1000 into more, don't just think of ways it can make money -- also consider whether there are any ways you can use it to save money. Among the advantages of this approach is that you're not taxed for reducing your expenditures.

The good news is that there are a lot more ways to save a little bit of money on a $1000 budget than there are to make a little money on that budget. The bad news is that most of them will require some additional input: labor. Have you taken an economics course? Capital + Labor => output.

I don't know what you spend your money on exactly, but some thoughts:

  • reduce expenditures on eating out by getting the things necessary to make your own meals (say, a rice cooker or coffee maker or microwave bacon grill or a blender or something). It doesn't have to be every meal (which may alienate you from social experiences) but dining out is a luxury lifestyle.
  • If it'll actually save you some driving, consider a bicycle. (You can also install racks in back for carrying books and groceries and the like.)

You may find more opportunities for things like this as you move out from college and into your own apartment (/house) and the university isn't taking care of as many of your needs.

Just don't confuse yourself about where the line is between actually saving money that you were going to spend anyway, and just consuming more. Consumption is fine in and of itself (and ultimately it's what you have money for) but doesn't make you financially better off.

Also, when considering what to do with the money, don't just think "I can spend $2000 on this bike and it will ultimately save me gas money" unless you also know how to think "I could spend $200 on a slightly lesser bike and still save all the gas money, or maybe even spend $20 on a yard sale bike.". Consider borrowing kitchen equipment from the parents, instead of buying new stuff, or buy it at a yard sale. Also, make sure you actually will use the things you buy.

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Put them in Cds. Better than a savings account, you won't lose capital unlike the stock market.

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    Better than a savings account? Normally, I guess, but in the 2011 interest rate environment, I'm skeptical. You can get a savings account around 1.1%, and the 5-year CD for 1.45% is better on paper, but if interest rates rise in the next five years, you're locked at the lower rate. and interest rates have nowhere to go but up. interest rate risk is real. and you lose all your liquidity with a CD. :( – fennec Oct 24 '11 at 5:55
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Kid, you need to start thinking in thresholds. There are several monetary thresholds that separate your class from a more well funded class.

1) You cannot use margin with less than $2000 dollars

Brokers require that you have at least $2000 before they will lend to you

2) In 2010, Congress banned under 21 year olds from getting access to credit. UNLESS they get cosigned. This means that even if you have $2000, no broker will give you margin unless you have a (good) credit history already. There was a good reason for this, but its based on the assumption that everyone is stupid, not the assumption that some people are objective thinkers.

3) The brokers that will open an account for you have high commissions. The commissions are so high that it will destroy any capital gains you may make with your $1000. For the most part.

4) The pattern day trader rule. You cannot employ sophisticated risk management while being subject to the pattern day trader rule. It basically limits you from trading 3 times a day (its more complicated than that read it yourself) if you have less than $25,000 in one account.

5) Non-trade or stock related investments: Buy municipal or treasury bonds. They will give you more than a savings account would, and municipals are tax free. This isn't exactly what I would call liquid though - ie. if you wanted to access your money to invest in something else on a whim.

6) What are you studying? If its anything technical then you might get a good idea that you could risk your money on to create value. But I would stick to high growth stocks before blowing your $1000 on an idea. Thats not exactly what I would call "access to capital".

7) Arbitrage. Lets say you know a friend that buys the trendy collectors shoes at discount and sells them for a profit. He might do this with one $200 pair of tennis shoes, and then use the $60 profit different to go buy video games for himself. If he wanted to scale up, he couldn't because he never has more than $200 to play with. In comparison, you could do 5 pairs ($200 x 5) and immediately have a larger operation than him, making a larger profit ($60 x 5 = $300, now you have $1300 and could do it again with 6 pairs to make an even great er profit) not because you are better or worked at it, but solely because you have more capital to start with. Keep an eye out for arbitrage opportunities, usually there is a good reason they exist if you notice it: the market is too small and illiquid to scale up with, or the entire market will be saturated the next day. (Efficient Market Theory, learn about it)

8) Take everything I just taught you, and make a "small investor newsletter" website with subscribers. Online sites have low overhead costs.

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    I think you're confusing the guy with all this mambo-jumbo. He's 19 and only has $1000, what's margins and pattern day trader rules have to do with him? Nothing. – littleadv Oct 23 '11 at 8:23
  • point #2 it isn't only congress that assumes under 21 year olds are too dumb to learn how to invest. – CQM Oct 23 '11 at 16:37
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    -1 There are a number of brokers that will open accounts for you under 18. Also the question was "what should I do", not a series of questions about margin and the like. Essentially, this answer feels both confusing and useless for the question asked. – Fomite Oct 23 '11 at 22:16
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    @EpiGrad Every single point I made are means to an end for "accumulating money" as asked. Brokers opening an account vs opening a margin account are two different things. Did anyone get past point #3? point #5 and on are non-market related advice. If this just keeps getting ranked down that will be kind of sad. – CQM Oct 23 '11 at 22:30

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