From the S&P to Tiffany: Big Plans? Start Investing Now
Scott Rothbort
05/15/08 - 02:05 PM EDT
This month, many a college graduate will have completed the academic aspect of his or her life and will soon move on to the "professional" phase of life. Whether you're a recent graduate or know a college grad, let's take a look at how to invest upon entering the labor force, with a few big-budget plans in mind.
Your Wedding
I am now about to tell you something which will no doubt in my mind, rip the heart out of young brides to be. At the same time, it will be among the best financial advice that any young couple will ever receive.
Imagine buying that dream car you always wanted. You scrapped and saved $50,000 for this heavenly vehicle. You paid for it, drove it out of the show room, motored around for four hours and then proceeded to push it off of a cliff.
Now imagine doling out $50,000 for a four-hour wedding reception. After the four-hour party, other than a good meal, some photographs and probably useless wedding gifts, all that you have managed to do was toss $50,000. However, perhaps you will receive some nice cash gifts.
It is about this time that I get the horrific looks and emotional pleas, explaining to me how special a wedding is. I am usually told that I am devoid of romance. My response is that with more that 50% of marriages doomed to failure, there is no correlation between the amount of money spent on a wedding and the success of the marriage. Long term, what really counts, is not the money you put into your wedding day, but the money (and everything else) you put into the actual marriage.
Now, if you can get over the wedding issue, then Bar Mitzvahs, anniversary parties, sweet sixteen parties and other big-budget social events will be financially easier to navigate.
Despite my admonitions of spending too much on weddings, people will continue to do so. That said, how can you invest in the engagement and wedding market? Here are a few ideas:
Jewelers: Take a look at
Tiffany TIF which not only sells diamond rings, but is also a big destination for bridal registry. If you want to profit off of the less upscale market, research a a mall-based jeweler, such as
Zales ZLC or Web-based jeweler, such as
Blue Nile NILE.
Caterers: While most weddings take place at local catering halls, religious houses of worship or private clubs, many hotels are in the wedding catering business as well. If you're interested in this investment theme, then investigate
Marriott International MAR or perhaps
Starwood Hotels & Resorts HOT.
Flowers: What would a wedding be without flowers? Maybe
FTD Group FTD has the right investment assortment for you.
Your Wheels
Rather than buying a $50,000 dream car, you might want to save and invest for your dream house instead. So before you blow your hard earned money on a car, consider these two points:
Leasing an automobile is expensive and is a short term solution because most leases have finite life spans, which are far less than the average life span of a car. Only in certain circumstance, such as when the car lease is in the name of a business, will leasing a car make sense because of the inherent tax benefits.
I believe buying an automobile is the correct financial decision. This big question: Buy a new car or a used one? This is a judgment decision of which there are pros and cons to each side. A new car is more expensive, but gives the owner the peace of mind that the car is in factory condition. A used car is less expensive, but could have problems associated with wear and tear or damage from the prior owner.
A happy middle ground is to purchase a factory authorized used car, which includes warranties that are not available from a typical used car dealer.
In the terms of investing in the auto market, I would not point you in the direction of any domestic or international auto-makers. However, on the basis of some research that some of my students at the Stillman School of Business at Seton Hall University performed last semester, there are two stocks in a related industry that are intriguing:
Advance Auto Parts AAP: This company sells automotive replacement parts. With more used cars on the road and as new car sales decline, companies like Advance Auto Parts will benefit from increasing part sales. Advance Auto Parts has had a solid record of low double digit earnings growth.
CarMax KMX: CarMax is the largest retailer of used cars in the United States. If the public is not buying new cars, then they are buying used ones. However, when you consider investing in CarMax, be careful. In addition to selling used cars, the company is also involved in auto loans, through its financing arm. Given the current state of the credit markets, especially asset-backed securities 
, the auto loan part of CarMax's business could be problematic.
Your House
There is a very simple maxim that I will pass on to you. A house is a place to
live. Unfortunately, too many people got caught up in the housing madness of the 2000s and thought otherwise.
Many homeowners simply do not have a detailed enough understanding of the costs of home ownership -- above and beyond mortgage payments.
In recent years, people were buying overvalued homes with no money down. This varied dramatically from the typical down payment requirement of 20% for a conventional mortgage. My wife and I put down 40% on our first home, which we purchased not long after we got married.
How did we accomplish that while still in our twenties? Here is how we did it:
We saved a lot of money from not having an extravagant wedding. Our wedding was at a nice suburban caterer and cost a little over $5,000. However, our guests were very impressed with the affair and thought it cost much more than that.
We both saved money from working hard for seven years.
Personally, rather than spend money received from a grandparent on frivolous goods and services, I started to invest at an early age.
Now what can you do to afford that dream home?
Let's make a few assumptions: the house will cost $300,000, you will put down 20% ($60,000) and you plan to buy the house in eight years.
Now let's say that you can get a 6% return on your invested money per year. With the average return of the
S&P500 over the long term at about 9%, you can earn 6% with a blended portfolio of fixed income investments
and the market return, which can be earned in an index fund
or an ETF
like the
SPDR Trust SPY. Assuming this 6% target rate of return, you would have to invest $488.49 every month to earn that down payment in eight years.
Whether your goal is to accumulate enough money for your own home or any another big-budget dream, there
are ways to accomplish your financial objectives. The key steps:
1. Start saving and investing money as early as possible.
2. Avoid costly expenditures that will not yield any future benefit.
3. Take advantage of savings and retirement plans (see
TheSreet.com's Retirement section and
BankingMyWay.com)
Editor's note: For more on weddings, don't miss "Wedding Loans: Till Death Do You Owe."
