NEW YORK (CNN/Money) – During the late 1990s, many college students thought investing simply meant watching their money grow. Not so with Matt and Cari Pentecost.
The newlyweds and recent UCLA grads were never led astray by the market's soaring gains. And today, with the market slump going its third consecutive year, they're confident in their ability to invest for the long haul.
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| Cari and Matt Pentecost |
They must be doing something right. Matt, 25, and Cari, 23, already boast a bottom line of $188,500, comprising stocks, mutual funds, real estate equity and cash.
"It all started with the starving student stuff, and then we maintained that mentality after graduation. I'm still a student now, so it's easy to do," said Cari, who graduated in 2002 and now is a Ph.D. candidate in organic chemistry, still at UCLA. Her tuition is fully funded by the Feds and the university, because she's doing research that goes to different government and institutional programs; she is paid an additional $20,000 a year for her lab work.
Not much about the couple smacks of dorm life, however. After getting hitched in April, the Pentecosts bought a Burbank, Calif. condo for $184,500, where they plan to live until Cari finishes her Ph.D. in 2007. They currently pay $1,200 a month on the mortgage.
They also own another condo in Orange County, now worth about $140,000. Matt, a 2000 graduate, bought it when he was 23 for $72,900, with money he'd invested while in school. They pay $400 a month on the mortgage, and rent it for $800 a month.
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"During college I lived at home," he said. "That let me save some money, which I was able to put into stock accounts. Also, a lot of my student loans had such low rates. I'd sock the money away. Some of them had 4 percent rates, and I could do much better by investing in stocks and funds. A lot of my Janus funds were taking off at the time."
He may not be able to do the same right now, but Matt believes the stock market will pay handsome returns over the long run. As such, he maxes out his pretax retirement account, similar to a 401(k), at Mercer Human Resources Consulting, where he earns a salary of $49,000 a year as a consultant. It currently holds about $10,000 worth of company stock, its only investment option.
In the wake of the Enron scandal, that might seem a high-risk strategy -- and Matt can't diversify his holdings until May 2021. Still, he is unconcerned and bullish on his company stock's long-term potential.
"The long-term perspective is everything," he said. "MMC is a good stock, and it will be fine over the long run. Our Roth account is a bit more diversified – it has Citigroup, Ebay, and the Oakmark Select Fund. It also has Janus Mercury, which hasn't done so well lately, but in 20 or 30 years, it will be okay."
The Roth account currently holds about $5,000. The Pentecosts also have a brokerage account with about $1,000 invested in more speculative stocks, like Aether Systems and VerticalNet, both currently in "sad shape," according to Matt.
Another $5,000 is in their emergency fund. And the couple hopes to add $15,000 or more to the fund over the next few years, in case of a layoff or another unexpected expense. Matt, who majored in English, got his teacher's certificate as well, so he can substitute teach if ever he is laid off at work.
Besides building up the emergency fund, they hope to move to a new home when Cari gets her degree and rent the one they live in now. Matt may return to school for a master's in business administration or teach. When she graduates, Cari wants to work in the chemical industry. The starting salary for a Ph.D. chemist today is about $80,000.
Matt currently saves 15 percent of his pretax income to Mercer's retirement account. After retirement savings and taxes, their combined monthly income is about $3,700, from Matt's job, Cari's stipend and the positive cash flow on their rental property. Matt estimates that he saves another 15 percent of his after-tax income as well.
If Cari were an entry-level Ph.D. candidate, earning $80,000, Matt were at his current job, and both saved 15 percent of their pretax incomes and 15 percent of their after-tax income, they'd hit the million-dollar mark in about 16 years, based on their current next egg, a combined 35 percent tax bracket, and a conservative 9 percent rate of return, according to CNN/Money's Millionaire Calculator.
That estimate does not include the equity they hold in real estate properties.
"Right now we're really focused on our careers. Cari's in the lab till 11, and I work long hours," Matt said. "But we want to have some assets in place for when Cari graduates."
When they do have some time for fun, they do that frugally as well. They take walks, hang out together at home, and review restaurants for a "mystery" review agency that pays for the meals they evaluate.
"I'm actually employed by several mystery review agencies, so that pays for a lot of our meals out," Cari said. "We try to plan eating out around that."
That mindset allows them to save for big investments, like their home, and occasional splurges, like a honeymoon in Spain.
"We dated for a long time and we knew each other's approach to money and being on the same page with that helps a lot," Matt said. "We're budget-conscious, but that doesn't mean we haven't done mammoth things together. We got married in April, took a honeymoon to Spain, and bought a house. A lot of people don't do that in a lifetime, let alone a year."
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