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Medical School

Question: I recently inherited a small life insurance from my mother's passing. There are no guidelines how I should spend the money, but it was hinted that I use it toward going to medical school. I'm about a year and a half away from starting med school, and wanted to know the best way invest the money until then. Is it actually better to invest the money until I graduate or to use it to help offset loans? Or should I, in all reality, use it to save for my retirement... something I have yet to do? Patrick, Detroit.

Answer: You're about to make the biggest investment in your life--a medical school education. And you'll reap a stream of healthy income off your career choice.

The cost of a medical school education is high. The average debt of graduates with debt from the class of 2006 (including pre-med borrowing) was nearly $131,000, according to the Association of American Medical Colleges. And 72% of medical school graduates have debt of at least $100,000. With numbers like these, I'd lean toward following your mother's wishes and use the money to limit how much you need to borrow for your medical education.

If you agree, I'd park the money in a low risk investment that preserves the value of your principal and earns you some interest. It isn't sexy--far from it--but boring money market mutual funds from a brand-name financial institution, or U.S. Treasury bills bought directly from the Treasury (www.treasurydirect.gov) would meet your needs. Plus, with inflation running at a 4.3% pace over the past 12 months, an additional advantage of these two investments is that they will match or even beat the rate of inflation with minimal risk.

Now, you could use the savings to limit how much you borrow. You could also husband the money until you graduate and then pay down debt. I lean toward the latter choice simply because it gives you a bit more financial leeway when you graduate. Either way, you'll reduce the debt burden from getting a medical education.

As for your retirement, I would look at getting a medical degree as the key investment in your long-term retirement savings plan. It will give you the income and the means to enjoy the latter stages of life.

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