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.