Investing

It comes down to when you're planning to withdraw the funds really. Since you say you're a college student, I'm going to assume that this is all for retirement purposes which means somewhere around a 30-year investment time horizon.

If this is the case, I'd suggest doing what you've initially thought: put that money into an index fund (like a Vanguard Mutual Fund or an ETF) and let it sit there. Traditionally, the market index has been returning on average 8-10% compounded each year even after all the wild market swings are taken into account so if you're looking 30 years ahead, it shouldn't be a major issue if you're willing to drop it the money there and leave it alone.

You can also invest in individual stocks if you so choose, but that's going to depend on how much research you're willing to do. I personally do a mix of both by putting large amounts of my money into mutual funds (including one that invests in bonds) and keep a sizable amount in stocks that I think have decent prospects for growth or are solidly entrenched companies.

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Originally Posted by Peter

Also, why the hell would a college student want to put money away for RETIREMENT? You don't want to start paying for that until you're 35 or older (at least that's how people around here do it).

Because of the power of compounding returns? The later you start, the more you have to square away to reach that retirement goal, whatever monetary amount it may be. But the sooner you start, the more time you have to let your contributions grow and the less you have to contribute later on to reach that goal.

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Originally Posted by RacinReaver

What happens if you start having financial difficulty later on and never quite manage to find time to put money aside? It's much easier to budget your finances when you're single than once you have a spouse, kids, and all of their arbitrary demands for money.

This.

I find that when you're living single, you really don't have much in the way of expenses aside from rent, utilities, meals, clothing, and whatever you do for entertainment. Maybe a car payment and insurance if you have that. What that translates to is being able to save more and if you're not doing anything with the money anyways, why not put it into an investment account or retirement?

As RR points out, your expenses tend to increase as you get older and in my case, I have no illusions about my paycheck being able to keep up with new expenses like mortgage payments and property taxes once I get a house. Add to that unexpected expenses that pop up (like medical bills) and spending on kids means you're not going to be left with a whole lot for retirement.

No one said you have to live like a monk and equating saving money to living a spartan lifestyle is just absurd.

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Originally Posted by RacinReaver

Edit: Also, aren't there certain retirement programs which let you borrow against them in order to finance buying a house or other large life expenses? Not to mention if you wait until you're 35 to start saving for retirement, you're also going to have to be saving to pay off your mortgage, your kids' education, cars, and all of those other wonderful things that come with age.

Unless my memory's off, I do believe that you can borrow against your IRA (or Roth IRA if you've held it for 5 years) if your goal is to purchase a home. You can also borrow from your 401(k) as well if the plan you're on gives you that option (and I think most do).

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Originally Posted by Peter

In a different turn, why is there a need to start saving on your own at 21? Don't you have state pensions and retirement funds at your job (the 401k thing I assume)? My parents, while still years away from retiring could easily afford to quit their jobs now, and keep their current living standard with the state pension and the money they saved through their employer, without even touching their personal retirement funds for at least 10 years (and this is taken into account a lot of hardship, since both of my parents have a chronic illness, but since we have public health care, it isn't as important as it is in the US), but I'm guessing it's not that easy in the US.

Part of the problem is that a lot of young people don't expect Social Security to be there for them in their old age since there have been so many dire reports saying something to the effect that the system will go bankrupt long before then. US companies have also been phasing out pension plans, so that's no longer going to be a sure bet.

401(k) plans work in that they shift the burden of managing retirement accounts from the employer to the employee. How this works is that a certain amount of money is withheld from the employee's paycheck each pay period (an amount that is deductible for tax purposes) and the employer matches a portion of the amount withheld. The amount put in then grows tax-free until retirement, where the employee is taxed on the amount that they withdraw. Under this system, the employee has a lot of control over how the money is invested and which funds to invest in. However, that means that the employee needs to be responsible to check their investments and make sure their asset allocations fit in with their retirement goals.

I was speaking idiomatically.