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The Short Answer

Student's Quandary: What to Do With $2,000

Factoring in interest rate, taxes, and expected rate of return can help guide in decision-making.

Question: What is the best investment advice you would give a student graduating college who has about $2,000 in savings? Is it better to: initially pay off loans; open an IRA account and invest in an ETF or S&P 500 Index fund; or open a brokerage account allocating a majority in equities? Or is it a combination of these approaches?

Answer: Your question, asked during the recent Morningstar Individual Investor Conference, is a common one among soon-to-be or recent college grads. After all, even novice investors usually understand the merits of starting early when investing. But with the average undergraduate who takes out student loans leaving school owing nearly $30,000, it's no wonder so many feel caught between a financial rock and a hard place.

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