Investing Advice for A Graduate Student

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
bmr12
Posts: 115
Joined: Mon Sep 07, 2015 2:27 pm

Investing Advice for A Graduate Student

Post by bmr12 »

I'm effectively posting on behalf of my newly enrolled graduate student child. She is on a track to get a PhD which will take five, six, or seven years. She is paid a stipend monthly and she believes that she will be able to live below her means and save a portion of that monthly. She has also been the recipient of some gifts and generated some other income to allow her to have a low five-digit nest egg already. Before the sum grew that large and we understood the financials of her graduate school, she'd kept it all in online savings accounts and short-term CDs.

Now that her situation for the next several years is known, I'm not entirely sure the right course for her. My guess is that she may want to have access to those funds either later in graduate school or shortly after graduating for things like a home/condo down payment or a car, etc.

As a result, my initial advice was to have her put some of her next egg into something like VWINX which would provide some higher returns with only moderate risk. But now I'm beginning to think that might be too conservative. Her mother and I are willing to also assist with those financial goals if/when the time comes so she does have some sort of financial backstop.

She will likely be in the 10% federal tax bracket throughout schooling and about 5% state income tax. Her current funding is through a fellowship and not W-2 income and she does not have access to an employer-sponsored retirement plan.

She also has a small amount in a Roth IRA account for retirement (in VTSAX) and is willing to contribute more.
livesoft
Posts: 86079
Joined: Thu Mar 01, 2007 7:00 pm

Re: Investing Advice for A Graduate Student

Post by livesoft »

I don't think it will really matter that much what she does with the money. When I was in grad school, my spouse worked, so I had an IRA. Her best bet is not to graduate in 5, 6, or 7 years no matter what anybody else is doing. She should shoot for 4 years.
Wiki This signature message sponsored by sscritic: Learn to fish.
mortfree
Posts: 2968
Joined: Mon Sep 12, 2016 7:06 pm

Re: Investing Advice for A Graduate Student

Post by mortfree »

Vanguard: balanced index fund. LifeStrategy fund. Wellington.

I’d still keep a cash pile but maybe split future money 50:50. Cash and investments.

Good habit to get into.
Mid-40’s
teejw123
Posts: 19
Joined: Tue May 18, 2021 10:33 am

Re: Investing Advice for A Graduate Student

Post by teejw123 »

I am in a very similar situation myself. Currently in my last year of undergrad and about a year and a half ago I was growing more frustrated with the small returns I was seeing in my savings accounts and CD's. I ended up splitting up the funds, keeping part in the savings accounts and put the rest in a collection of Vanguard Index funds.

I think a lot of this depends on personal preference and circumstance. Personally, I want to buy a house ASAP post-graduation so I made sure I kept enough in "cash" accounts for what I expect to need for a downpayment and other expenses. Same goes for the account choice, is this money for the near/semi-distant future or could it be saved for retirement? Personally I'm splitting the difference between a 401(k), Roth IRA, and taxable brokerage.
User avatar
ApeAttack
Posts: 915
Joined: Wed Dec 23, 2020 7:28 pm
Location: Gorillatown, USA

Re: Investing Advice for A Graduate Student

Post by ApeAttack »

livesoft wrote: Sat Sep 18, 2021 7:06 pm I don't think it will really matter that much what she does with the money. When I was in grad school, my spouse worked, so I had an IRA. Her best bet is not to graduate in 5, 6, or 7 years no matter what anybody else is doing. She should shoot for 4 years.
4 years in some disciplines is not really feasible. It also will depend on the advisor. But I agree with the sentiment that she should try to finish grad school as soon as possible.
May all your index funds gain +0.5% today.
Topic Author
bmr12
Posts: 115
Joined: Mon Sep 07, 2015 2:27 pm

Re: Investing Advice for A Graduate Student

Post by bmr12 »

Graduating in four would be great but historical data shows some very small percentage (<10%) complete a PhD in this program in under five years. So for investing and planning purposes I’m assuming 5+ years.
smectym
Posts: 1530
Joined: Thu May 26, 2011 5:07 pm

Re: Investing Advice for A Graduate Student

Post by smectym »

bmr12 wrote: Sat Sep 18, 2021 6:55 pm I'm effectively posting on behalf of my newly enrolled graduate student child. She is on a track to get a PhD which will take five, six, or seven years. She is paid a stipend monthly and she believes that she will be able to live below her means and save a portion of that monthly. She has also been the recipient of some gifts and generated some other income to allow her to have a low five-digit nest egg already. Before the sum grew that large and we understood the financials of her graduate school, she'd kept it all in online savings accounts and short-term CDs.

Now that her situation for the next several years is known, I'm not entirely sure the right course for her. My guess is that she may want to have access to those funds either later in graduate school or shortly after graduating for things like a home/condo down payment or a car, etc.

As a result, my initial advice was to have her put some of her next egg into something like VWINX which would provide some higher returns with only moderate risk. But now I'm beginning to think that might be too conservative. Her mother and I are willing to also assist with those financial goals if/when the time comes so she does have some sort of financial backstop.

She will likely be in the 10% federal tax bracket throughout schooling and about 5% state income tax. Her current funding is through a fellowship and not W-2 income and she does not have access to an employer-sponsored retirement plan.

She also has a small amount in a Roth IRA account for retirement (in VTSAX) and is willing to contribute more.
The suggestions above are quite sound, but your idea of VWINX is solid as well. Some potential for appreciation, but less potential for any distracting drama.
DoTheMath
Posts: 671
Joined: Sat Jul 04, 2015 1:11 pm
Location: The Plains

Re: Investing Advice for A Graduate Student

Post by DoTheMath »

I would encourage her to regularly contribute to her Roth IRA. Even a small amount. Both to take advantage of her low tax bracket, but more importantly to get in the habit of saving for retirement. And now is also a good time for her to learn about personal finance so that she is well prepared when she is choosing her career, has more income, more retirement options, is looking to buy a house, etc.

The other thing she should do is start thinking about her desired career and the trajectory which will get her there. If she wants to go academia, then is it more research or more teaching? If it is government, is it a research lab or a policy position? If it's industry, what sort of position? She can do a lot to make herself much more competitive when she graduates compared to people who don't plan ahead. By choosing classes, summer research/internship opportunities, the conferences she attends, etc., etc. she can do a lot to strengthen her CV/resume and to figure out if what she thinks she wants is what she really wants. Just like in investing, there is serious compounding returns to starting career development as early as possible.
“I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains...” -- John Muir
JDave
Posts: 591
Joined: Tue Oct 29, 2019 9:23 am

Re: Investing Advice for A Graduate Student

Post by JDave »

No one has asked this, so I will: is the PhD she's aiming for worth it? Will she recoup the 4 - 7 years of lost income? If the answer is "no", then that's WAY more important than where she puts the little money she has now.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Investing Advice for A Graduate Student

Post by grabiner »

DoTheMath wrote: Sun Sep 19, 2021 9:38 am I would encourage her to regularly contribute to her Roth IRA. Even a small amount. Both to take advantage of her low tax bracket, but more importantly to get in the habit of saving for retirement.
She has to have earned income for this; a stipend would not qualify, but salary (say, from teaching) would.

But if she can do this, it's a good deal. If she needs the money, she can withdraw contributions from the Roth IRA tax-free and penalty-free. If she doesn't need the money, the account grows tax-free.
Wiki David Grabiner
adamthesmythe
Posts: 5774
Joined: Mon Sep 22, 2014 4:47 pm

Re: Investing Advice for A Graduate Student

Post by adamthesmythe »

If in a field with good to very good earning potential, the most important thing right now is to invest in the career. Things like: living arrangements that don't sap time or energy; no skimping on books or computing that is not paid for by research funding; take advantage of good conference options if available.

Having money available for a house downpayment is not a bad idea.

Personally I think worrying about retirement saving when in grad school is unnecessary, as a successful career will provide excellent opportunities for retirement saving.

Worked for me.
Afty
Posts: 2390
Joined: Sun Sep 07, 2014 5:31 pm

Re: Investing Advice for A Graduate Student

Post by Afty »

I agree with the previous posters that it's much more important for her to focus on her career than to try to scrimp and invest on a grad student stipend. To piggyback off what adamthesmythe said above: it's worthwhile to spend money to live close to campus to save commute time and make it easy to stay late when you need to. It's worthwhile to attend conferences even if you can't get your advisor to pay for them; there are often volunteer opportunities for students that will waive the registration fee.
DoTheMath
Posts: 671
Joined: Sat Jul 04, 2015 1:11 pm
Location: The Plains

Re: Investing Advice for A Graduate Student

Post by DoTheMath »

grabiner wrote: Sun Sep 19, 2021 1:40 pm
DoTheMath wrote: Sun Sep 19, 2021 9:38 am I would encourage her to regularly contribute to her Roth IRA. Even a small amount. Both to take advantage of her low tax bracket, but more importantly to get in the habit of saving for retirement.
She has to have earned income for this; a stipend would not qualify, but salary (say, from teaching) would.

But if she can do this, it's a good deal. If she needs the money, she can withdraw contributions from the Roth IRA tax-free and penalty-free. If she doesn't need the money, the account grows tax-free.
As of 2019 taxable scholarship and fellowship income is able to be used to contribute to an IRA. Congress (finally!) made most grad students eligible for an IRA. Specifically, the law now says "The term ‘compensation’ shall include any amount which is included in the individual’s gross income and paid to the individual to aid the individual in the pursuit of graduate or postdoctoral study."

See here for further discussion.

The OP would have to investigate their specific circumstances, of course.
“I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains...” -- John Muir
User avatar
FoundingFather
Posts: 407
Joined: Fri Dec 18, 2020 9:20 pm

Re: Investing Advice for A Graduate Student

Post by FoundingFather »

adamthesmythe wrote: Sun Sep 19, 2021 1:48 pm If in a field with good to very good earning potential, the most important thing right now is to invest in the career. Things like: living arrangements that don't sap time or energy; no skimping on books or computing that is not paid for by research funding; take advantage of good conference options if available.

Having money available for a house downpayment is not a bad idea.

Personally I think worrying about retirement saving when in grad school is unnecessary, as a successful career will provide excellent opportunities for retirement saving.

Worked for me.
I completely agree with this. I would encourage a safe savings plan that allowed her to focus on her studies and not have money stress on top of all the other stress.

When I was in the midst of my PhD, my wife and I put our savings into 50% equities (total market index funds) / 50% bonds (I Bonds), and it safely grew into a pretty nice down-payment for us without causing us any stress.

Founding Father
"I do not think myself equal to the Command I am honored with." -George Washington (excerpt from Journals of the Continental Congress, 16 June 1775)
Post Reply