I just moved to the U.S. to join my family, and I have about $20,000 in my bank account, and I’m not sure how to invest it. I have no need for the money at the moment, but I’ve applied for a master’s program and want to fill out a Free Application for Federal Student Aid (FAFSA) form.
My child, who is 4, is back home in school with my parents for now. I’m due to give birth to a second child in July. Basically, $20,000 is all I have to invest for the next few years until I’m done with school. My husband and I will probably purchase a house at some point.
Should I use some of the money I have to pay for interest on the financial-aid loan throughout the two years of school, or should I invest part of it in CDs and part in stocks? How should I invest my money for the next 2-5 years?
Dear New Immigrant,
First off, decide how much money you can afford to stash away — whether it’s stocks, savings accounts or CDs. And don’t count on FAFSA.
As one immigrant to another: Welcome to America.Congratulations on saving $20,000, and on the forthcoming addition to your family. I applaud your willingness to make your money work for you, and it’s never too early to start investing, and you can do so whether you have $2,000 or $20,000. It will help you learn about your risk tolerance, and what kind of products are out there for you. Over time, it will increase your financial knowledge, which will also help you when you have more money to invest, and the risk/reward increases proportionately.
You may need to set aside some cash for your education. U.S. citizens have access to federal student aid, but non-U.S. immigrants have less access to federal aid. You can read more on that here. “The FAFSA asks families to report their income, as well as certain assets like college savings plans and brokerage accounts,” my colleague, Jillian Berman, deputy enterprise editor at MarketWatch, recently wrote. “Retirement accounts and the home a family lives in aren’t part of the financial aid calculation based on the FAFSA.”
Mingli Zhong, a research associate at the Urban Institute, a Washington, D.C.-based think tank, suggests you check out a tax-advantaged 529 saving plan for college. “When calculating your assets to decide whether you’re eligible and/or how much you would be eligible for financial aid, your contributions to a 529 plan will be discounted compared to your investment in a regular brokerage account. So investing through a 529 plan might increase your chance of getting a student loan.” (There are several kinds of 529 plans you can choose from.)
That said, you can set up and max out your retirement accounts. Earlier this year, the Internal Revenue Service announced new maximum retirement contribution levels for 2023. You can contribute up to $22,500 in 2023 for employee deferrals in a 401(k) plan with an additional $7,500 for those aged 50 and older. For traditional IRAs and Roths, those figures are $6,500 with an extra $1,000 for catch-ups. You can also open a brokerage account, or use a robo-adviser. The latter uses algorithms based on your age, goals and risk tolerance.
A Roth IRA allows you to deposit money at your current income-tax rate, and withdraw it tax-free after the age of 59½. That’s most attractive when you are far from your income peak. Alternatively, a low-cost index fund is a basket of stocks or bonds that tracks major indices like the S&P 500. “Equities are still the best game in town,” Burton Malkiel, author of “A Random Walk Down Wall Street,” told MarketWatch. “They are the asset class that most dependably has outlasted inflation, has done better than gold, bonds [and] real estate.”
Assessing your risk tolerance
Unlike stocks, CDs, or Certificates of Deposit, are low-risk investments, and have relatively low returns. They act as a sort of safe house for your cash: You lock up your money for an agreed period of time at a specific interest rate. They’re typically short-term investments, and there are penalties for withdrawing money early. You should, therefore, have an emergency fund that will cover at least 6-12 months of expenses. The minimum deposit can range from $1,000 to $10,000. You can now get interest rates of up to 5%, the highest rate in several years.
If you are purchasing a home in the near-term, you don’t have time to be aggressive, says Robert Seltzer, founder of Seltzer Business Management in Los Angeles. “Invest most if not all of that nest egg in fixed-income investments. Money markets at brokerage firms offer liquidity, flexibility and rates above 4%. However, if none of this money is considered an emergency fund, but is designated for a home purchase, invest in treasuries. The shorter-term ones are offering returns around 5%. There are inflation concerns, but a risk-free return of 5% is a good one.”
One caveat from the Federal Reserve’s decision to raise rates by 25 basis points for the 10th consecutive meeting on Wednesday. The Fed’s interest-rate increases has led to an increase in yields on savings accounts, certificates of deposit and other low-risk cash investments. However, the latest increase, which brings the rate to a range of 5%-5.25%, could also be the final increase too. That means interest rates on some of savings accounts and CDs may be close to their peak.
Janet Lee Krochman, president of Janet Lee Krochman, A Professional Corporation in Costa Mesa, Calif., believes CDs are a good option for you, assuming you don’t need this money right away. “The stock market has been volatile of late and I don’t see that changing in the short term (over the next two years). Plus, with the potential for loss of principal, I would not recommend taking the risk in the stock market vs. the safety of a bank investment.” (If you do invest a portion in the stock market, resist the temptation of buying individual stocks.)
The median annual income for native-born workers ($28,000) is higher than foreign-born workers ($20,400), according to this data from the St. Louis Federal Reserve. Given your savings, you have a head start. In the meantime, you can take the MarketWatch Financial Literacy Quiz and this MarketWatch Tax Quiz to help get you up to speed on some basics. They are designed to test people’s financial knowledge, and also help readers think about budgeting and investing. Good luck to you and your family with your new life in the U.S.
I wish you every success as you begin your life here.
Youcan email The Moneyist with any financial and ethical questions at email@example.com, and follow Quentin Fottrell onTwitter.
Check outthe Moneyist private Facebookgroup, where we look for answers to life’s thorniest money issues. Readers write to me with all sorts of dilemmas.
By emailing your questions, you agree to have them published anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
The Moneyist regrets he cannot reply to questions individually.
More from Quentin Fottrell:
‘We grew up poor and financially ignorant’: My children are 14 and 16. Is it too late to save for their college education?
‘Poor people are not stupid’: I grew up in poverty, and inherited $150,000. Here’s what I have learned from my good fortune.
‘I married a person who was nothing short of evil’: He has threatened to take my house if we divorce. What can I do?
Volatile markets are usually characterized by wide price fluctuations and heavy trading. One way to deal with volatility is to avoid it altogether; this means staying invested and not paying attention to short-term fluctuations.Should I hold cash now or invest? ›
If you are saving up for a short-term goal and will need to withdraw the funds in the near future, you're probably better off parking the money in a savings account. Conversely, if your goals are longer term, you'll generally find you can obtain more satisfactory results from investing.How will Fed rate hike affect stock market? ›
When the Federal Reserve announces a hike, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop, and the market may tumble in anticipation.Are rising interest rates good for the stock market? ›
Higher inflation and a changing interest rate environment contribute to headwinds for the stock market. As a result, stocks underwent a significant repricing in 2022 and challenges continue in 2023.What should I invest in during market volatility? ›
Bonds are typically seen as lower-risk investments than stocks since their prices tend to remain relatively stable even when stock markets experience volatility. They also provide steady income through regular interest payments throughout the life of the bond.What to buy when market is volatile? ›
Money that you'll need soon or that you can't afford to lose shouldn't be in the stock market—it's best invested in relatively stable assets, such as money market funds, certificates of deposit (CDs), or Treasury bills.Is cash still King in 2023? ›
However, the use of cash is still strong, and in many cases, usage is rising. In this blog, we'll discuss the top 5 reasons why cash is still king in 2023, particularly for mature demographics and those disproportionately affected by the rising cost of living.Should I hold stocks or cash during inflation? ›
Any money that you plan to deploy for a short-term goal — one happening in the next one or two years — is best kept in cash, Benz notes. Because there is no chance of a decline in value, “cash is the best option, even if inflation is a risk factor,” she says.Will the stock market recover in 2023? ›
A recovery is coming, but no one knows when.
The stock market rallied modestly in the first two and a half months of 2023, but that has not been enough to make up for an abysmal 2022 during which the S&P 500 index plunged by nearly 19%.
BENGALURU, April 20 (Reuters) - The U.S. Federal Reserve will deliver a final 25-basis-point interest rate increase in May and then hold rates steady for the rest of 2023, according to economists in a Reuters poll, which also showed a short and shallow recession this year was likely.
“When interest rates are going to be higher for longer, where you want to invest is largely going to be value oriented assets such as banks, financials, credit card companies, or insurance companies,” said Cox.What are the best stocks to buy when interest rates rise? ›
|Financial stock||Implied upside from April 27 close|
|Wells Fargo & Co. (WFC)||26.1%|
|Morgan Stanley (MS)||16.3%|
|American Express Co. (AXP)||35.7%|
|S&P Global Inc. (SPGI)||19.5%|
How Interest Rate Hikes Affect the Stock Market? When interest rates are increased, borrowing money becomes more expensive. This can have a negative impact on the stock market as it becomes more expensive for companies to borrow money to expand their operations or invest in new projects.Where does the money go when interest rates rise? ›
Another Way Interest-Rate Hikes Help
That means a greater demand for loans. As interest rates rise, profitability on loans increases, as there is a greater spread between the federal funds rate that the bank earns on its short-term loans and the interest rate that it pays to its customers.
Unlike bond prices, which tend to go down when yields go up, stock prices might rise or fall with changes in interest rates. For stocks, it can go either way because a stock's price depends on both future cash flows to investors and the discount rate they apply to those expected cash flows.What stocks do well with high volatility? ›
- Sun Pharma.
- Suzlon Energy Ltd.
- Garden Silk Mills.
- Madhucon Projects Limited.
- KM Sugar Mills.
- 3i Infotech Ltd.
- GVK Power & Infrastructures Ltd.
- Jubilant Industries.
Although the stock market produces volatile returns, it has a long history of outpacing inflation in the long run. So, if the money you have invested in the stock market isn't going to be used in the next few years, it's likely safer to keep your money invested than to take it out.How do you make money off market volatility? ›
Derivative contracts can be used to build strategies to profit from volatility. Straddle and strangle options positions, volatility index options, and futures can be used to make a profit from volatility.Should I move my money into cash to avoid stock market volatility? ›
While holding or moving to cash might feel good mentally and help avoid short-term stock market volatility, it is unlikely to be wise over the long term. Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss.What day is the market most volatile? ›
Let's look at what happens when we exit on the close rather than the open: What is this? Again, the first trading day of the month is the most volatile, while the 23rd is the second (however, that day doesn't trade that often). Other volatile trading days are numbers 11 and 12.
The correct answer is Call Money Market. Call Money Market is the most volatile part of the organised Money Market in India.Is it good to invest in high volatile stocks? ›
Purchasing such undervalued best high volatility stocks is a primary strategy of value investing, as the profit-generating capacity of such companies is extensive. Thus, the share prices are expected to rise substantially in the future, helping investors earn significant long term capital gains.Should you trade during high volatility? ›
Trading the most volatile stocks is an efficient way to trade because, theoretically, these stocks offer the most profit potential.Why should investors stay invested during market volatility? ›
A Case for Stock Market Investing During Market Volatility
Investors with a healthy dose of equities in their portfolio are likely to benefit from the long-term growth potential of stocks because, over time, the magnitude of market gains has been significantly greater than that of losses.
It's generally advised to buy options contracts when market volatility is expected to increase and sell options when volatility is expected to decrease.What are the most volatile stocks right now? ›
|ZENV D||69.10%||0.7021 USD|
|NNXU D||68.63%||0.6240 USD|
|BAOS D||63.46%||7.75 USD|
|PBTS D||62.13%||0.0690 USD|
When volatility spikes, it may be possible to generate above-average profits, but you also run the risk of losing a larger amount of capital in a relatively shorter period of time. If you're disciplined, you may be able to take advantage of volatility—while minimizing risks.What days are best to trade volatility? ›
All in all, Tuesday, Wednesday and Thursday are the best days for Forex trading due to higher volatility. During the middle of the week, the currency market sees the most trading action. As for the rest of the week, Mondays are static, and Fridays can be unpredictable.How much is considered high volatility? ›
Implied volatility rank is generally considered to be elevated (i.e. “high”) when it is greater than 50. Extreme levels in IV rank would be 80 and above.What are the best stocks to invest in now? ›
- U.S. Bancorp USB.
- Taiwan Semiconductor Manufacturing TSM.
- GSK PLC GSK.
- Wells Fargo WFC.
- Roche Holding RHHBY.
- Comcast CMCSA.
- International Flavors & Fragrances IFF.
- Anheuser-Busch InBev BUD.