Derrick J. Thomas, a 22-year-old senior at Florida A&M University, has been contemplating what to do with money he earned during a summer internship at the Environmental Protection Agency. Ultimately, he decided to invest. “I’m young and this gives me time to learn,” he says.
Thomas began by educating himself, researching investing terms on the Internet. After understanding the difference between a growth stock and a value stock, and what a stock’s price-to-earnings ratio is, he began to consider the types of investments he wanted to make. He felt most comfortable with technology and pharmaceutical stocks — the former because he’s a computer science major and pays close attention to the industry, and the latter because of the drug research he often reads about.
Thomas saved about $1,000 to invest. But after working to expand his knowledge base, he was still hesitant to actually make any investments. “I’ve never done this before,” he says. “It’s not like I’m going to play basketball or something, which I’ve done a million times. It’s definitely something new.”
BLACK ENTERPRISE had two New York-based financial advisers — Dale Bryant, portfolio manager of The Bryant Group, and Angela Bledsoe, a financial consultant with AXA Advisors — offer insight into what Thomas can do to start investing right out of college.
Invest in mutual funds. For someone like Thomas, individual stocks may not be the best choice. Bryant recommends mutual funds because they can give Thomas exposure to a variety of stocks in the technology or pharmaceutical industries without the risk of investing in only one or two stocks. Bledsoe suggests large-cap blended funds. “He’ll have coverage in those areas (technology and pharmaceuticals) and it’s not going to limit him in case of a downfall,” she says.
Aim for a good asset mix. Bryant says Thomas’ investments should have a variety of assets. “It’s not good money management to be 100% invested in equities, even though he’s a young guy and can bear a lot of risk,” he says. “Being 100% invested in any kind of asset class is probably taking on too much risk.” He suggests that Thomas place some of his money into mutual funds that have intermediate bonds or corporate bonds for a mix that is 70% to 80% stocks and 20% to 30% bonds and cash.
Start early and stay for the long haul. Bledsoe says, “As soon as you graduate, you have a chance at building great wealth. It’s in your best interest to start as soon as possible.” She explains that the reality of investing is that your best opportunity for highest returns happens when you invest over the long-term. Committing a small amount toward investing every month over the 40 years or so that Thomas will be working is the best approach.
And don’t let student debt obligations stop you. Thomas will owe about $10,000 by the time he graduates in 2005, but Bryant and Bledsoe say he can still invest. Bryant advises paying off the debt first, while Bledsoe suggests balancing investing and repaying the debt. Choose