Investment Ideas for Recent Graduates

Investment Ideas for Recent Graduates

Provided by RBC Wealth Management and the Neuman Wealth Management Group

The spring and summer months bring a lot of excitement for high school and college graduates. Not only do they look forward to graduation day itself, but there are also plenty of celebrations, parties, and highly-anticipated gifts. With money ranking as the most popular graduation gift, according to Hallmark, some graduates will experience a windfall that could net them hundreds or even thousands of dollars.

While it’s okay for graduates to spend some of that cash on themselves, it’s equally important that they are disciplined with most of their money. Graduates should look ahead and think about their future needs, which may include college expenses, a down payment on a first house, establishing an emergency savings fund, and what may be a surprise to some… purchasing insurance.

If you are the parent of a high school graduate who plans on attending college, you will probably want to encourage your child to put some of his or her cash towards education expenses. According to The College Board, the average cost of just one year at a four-year public institution rose to an average of $8,655 for the 2011-2012 academic year, an increase of 5 percent, or about $400, above the previous year..

With college expenses continuing to increase each year, many college graduates are finding themselves in serious debt once they are out of school. If they took out loans during their college years or used credit cards to finance some of the expenses, it’s time to consider how they are going to pay the money back. A good way to start is by looking at the debt and prioritizing what should be paid first based on the interest rates involved. Even a small amount of money from graduation gifts can help make a dent in the debt.   

Graduates can also consider taking their monetary gifts and setting up a Roth IRA, which can be done by anyone who receives taxable compensation through an employer. A Roth IRA also allows others to contribute to the plan. Therefore, a parent or other relative could gift the account or the individual on an upcoming birthday or holiday. Since contributions to the plan are made with after-tax dollars, all assets in the account grow tax-free. In addition, distributions can be made at any time and for any reason without being taxed or penalized. For 2013, individuals can contribute up to $5,500 to a Roth IRA with an additional $1,000 if over the age of 50 by the end of the year.

Another option for graduates is building up a savings account, or establishing an account if they haven’t already done so. A savings account provides easy access to cash, and could serve as an emergency fund later on. If the graduate doesn’t need the money immediately, a certificate of deposit (CD) with a six-month or one-year maturity date is another way to help their money grow.

While insurance is probably one of the last items on a graduate’s mind, health insurance might also be a good investment – especially for college graduates who are just entering the job market and aren’t included on their parents’ insurance policy anymore. All it takes is an accident or illness to rack up thousands of dollars in medical expenses that could overwhelm an individual with debt for years to come. Thinking ahead, even for the unexpected, is important.

Graduation is an exciting time in a young adult’s life. It’s a time when individuals are faced with many decisions, opportunities and independence. During all the excitement and celebration, take time to teach your graduate about the importance of making sound financial decisions. What he or she does now with their cash windfall could provide a solid footing for their future.

This article is provided by Eric St. Martin, a Senior Financial Associate at RBC Wealth Management in Stillwater, MN, and was prepared by or in cooperation with RBC Wealth Management.  The information included in this article is not intended to be used as the primary basis for making investment decisions nor should it be construed as a recommendation to buy or sell any specific security. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance. RBC Wealth Management does not provide tax or legal advice.  For additional information, please visit www.neumanwmgroup.com or call 651-430-5535.

RBC Wealth Management, a division of RBC Capital Markets LLC, Member, NYSE/FINRA/SIPC

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