Discovering Investment Options

It’s hard enough to keep up with rent, utilities, food, and debt payments on a first year’s salary, which is why most recent graduates keep their money in the same li’l junior’s checking account that our grandmothers set up for us when we were ten. But keeping your money in a zero- or very-low-interest rate checking account

is akin to going to the gym, stretching, and then walking on a treadmill for an hour. Sure, it’s safe and flexible, but you’re not a crotchety octogenarian yet. You want rock hard abs. You want tone. You want more.

The two biggest misconceptions about investing are that you need a ton of cash to start and that it necessarily locks your money away until you’re fifty. Fact is, if you start off with a thousand bucks and add a measly fifty more each month, in five years a conservative stock portfolio would leave you with about $4500 dollars. The key is to just be a little disciplined. Think about it this way: throwing home-brewed coffee into a to-go cup everyday rather than dropping five dollars at Starbucks would save you enough to start a pretty significant investment portfolio that, in a couple years, could add up to a week in Thailand or a Cartier watch. But how to wade through all of the options? Investing is a whole lot like picking up women, from the risks (bankruptcy/a dose of the clap) and the rewards (cash/knockin' boots). Here's how to make the right choice for you.

Note: In all cases, look for the best rate possible and avoid high fees. A little effort can mean a big difference in your long term savings. Talk with friends about their investment choices and performance. Comparison shop the banks in your area. Scour the Internet for the best possible CD. And, most importantly, whether buying a mutual fund or transferring money to and from accounts, avoid unnecessary fees

Certificates of Deposit (CDs)

The cute girl that immediately wants to jump into a long-term relationship.

At first glance, a CD looks like a great option for the conservative investor. Accounts can be opened in banks or online, they offer higher returns than simple savings accounts (compare interest rates at BankRate.com), and they are insured by the federal government. Unfortunately, there’s a catch—when opening a CD, you have to agree not to touch the investment for a minimum of three months or pay a steep penalty. For many, this little catch poses no problem, but those of us who like to fly by the seat of our $500 Versace trousers should look elsewhere.

CDs with competitive rates are available at most major banks, but higher yields can easily be found online. Check out E-Trade and HSBC online.

Online Savings Accounts

The new girl that never returns your calls.

Is there anything the internet can’t do? First, it brought us HotOrNot.com, then RateMyPoo.com, now online savings accounts. These wonder-accounts can afford to pay much higher rates because they don’t have to offer tellers to sit around pretending to work while we wait in purgatorial lines. I have an online savings account with E-Trade, and using a simple system of websites, phones, and voodoo magic, I can transfer funds to and from my boring old checking account with the touch of a button.

ING started this trend, but Citibank, E-Trade, and HSBC all offer even better rates.

Bonds

The high maintenance chick that’s not nearly as attractive as she thinks she is.

Buying a bond is like loaning money to a company or branch of government in exchange for a given interest rate. Aswith most situations where you lend someone money, there’s a chance you’ve seen it for the last time. To make the investor aware of the risk, bonds are graded from AAA to C based on the issuer’s credit rating. To illustrate: United States Savings Bonds have a grade of AAA, while a bond from struggling automaker Ford is considered “junk” with a grade of BB. Bonds offered through my uncle’s door-to-door hair removal company are generously graded C.

More often than not, you'll want to just stick to bond mutual funds (like Harbor Bond). Moodys offers everything you ever wanted to know about the bond market.

Mutual Funds and Electronically Traded Funds (ETFs)

The attractive girl that throws the occasional tear-filled tantrum.

When investing, many view mutual funds as the perfect balance of risk and reward investing. Mutual funds and ETFs are essentially the same thing, only traded a little differently. Both are an investment made up of many other investments, whether stocks, bonds, commodities, or mint-condition Transformer action figures. Because a fund is made up of many stocks, you get the benefit of the stock market’s proven track record for steady returns, but reduced risk thanks to investment diversity; if one stock in the fund tanks, the more successful ones will help to soften the blow. Historically, the stock market has returned about 10 percent each year, but this conceals the fact that some periods brought investors painful losses.

Mutual funds with low initial investment requirements can be found at Yahoo Finance. Check out Share Builder for an easy way of getting into some mutual funds and ETFs.

Stocks

The super-hot girl with the bad habit of “accidentally” parking her car in your living room.

The thing about stocks are that for every Google there’s an Enron. By purchasing a small share of ownership in a corporation, you are hoping to benefit from their success in the form of financial rewards. This can often be a bumpy ride, and unlike CNBC’s Jim Cramer, I have neither the fortitude—nor the receding hairline—to pick individual stocks.

Yahoo Finance is a one-stop shop for mutual fund and stock research. Once you are ready to begin purchasing shares, E*Trade, Scottrade, and TD Ameritrade are all affordable options.

The problem with these services is that they don’t offer any individual advice, so you’ll need to get familiar with the markets before diving in headfirst. A full-service brokerage form (e.g., Smith Barney) will charge a higher rate, but you will also receive as much guidance as you want on your investment decisions. Whichever route you choose, realize that the stock market provides an incentive for some degree of patience and stability. If you sell within a year of buying the stock you will be taxed 50% on your profits, whereas the tax rate drops to 15% after a year. Thus, when you buy stocks you are theoretically locking up your money for at least a few years.

The Lottery

The absolute stunner over by the jukebox that is wearing no underwear, has a nasty rash, and is seductively fondling an ice pick.

Purchasing a lottery ticket is technically an investment, and, technically, there is the chance for tremendous returns. Unfortunately, with 1 in 15 million odds of winning the California lottery, you would be better off tossing our spare cash into a blender, adding milk, and letting it run on frappe for 30 seconds. You have still lost your investment, but at least that way you end up with a fiber-rich smoothie.

7-11 and the local bodega are two great resources for lottery tickets, salty snacks, and refreshing beverages.

Bottom Line

There are many other options out there (don't forget about 401(k)s and IRAs, but the investments in this list should provide a good place to start. There is one aspect of investing where my chauvinistic analogy breaks down. Unlike relationships, when investing, it is best to have a diverse portfolio complete with all types of investments. This way, if one goes sour, there are several winners backing it up. Also, your investments shouldn't require as much maintenance as a lady. Once you have a well diversified portfolio, filled with sound investments, you need to forget about it; not worrying about day-to-day fluctuations. Checking in every three months or so is fine, but tracking your net worth on a daily basis will only give you an ulcer. Check out this Retirement Calculator for help setting up a worry free portfolio.