School's out for summer — and, for many of you young college graduates across the country, school may indeed be out forever. Now that the parties are winding down you’re asking yourself one question: "What can I spend my graduation money on?"

After four years of hard study, it might be tempting to treat this new capital as play money. But before you go out and buy that "sick," new flat screen TV – you might consider investing in something that will appreciate in value.

The Traditional Route

One financial advisor suggests that instead of either a) spending graduation-gift money or your sign-on bonus on material goodies or b) letting it stagnate in a savings account, put it to work for you. He detailed several financial instruments that he says can make your money grow.

If you are patient and like to play it safe, there are two options for investing your money that usually payoff more than a savings account.

"If you don't want to risk your principal, CD's or Treasury Bills would be [the way to go]," said John O'Neill Jr., a financial advisor for Merrill Lynch. "CD's tend to yield a bit higher than Treasury Bills, however, their interest is fully taxable, whereas interest from a Treasury Bill is state and locally tax-exempt. Both typically provide higher yields than a Savings Account or a Money Market Fund."

For those seeking a longer-term investment with potential for higher returns, O'Neill recommends creating a diversified portfolio of stocks and bonds that one can build on over time.

"A lot of young people confuse an ‘investment' – buying one or two stocks – with ‘investing.'" O'Neill said.

Instead of stock picking, he recommends creating a globally diversified portfolio. "That way, no matter what is going on with the markets or economy, there is always a portion of your portfolio working for you at all times."

One way to achieve a balanced portfolio is to invest in a mutual fund.

"Mutual Funds can be great vehicles to use because they allow a person with only a few thousand dollars to create a diversified portfolio," O' Neill said.

Another option is an Exchange Traded Fund (ETF).

ETFs are baskets of securities that trade like stocks and track the performance of broad indicators (such as the S&P 500) or individual industries. ETFs may carry cheaper management fees than mutual funds and can be sold anytime (some mutual funds charge a penalty if sold before a certain time period). However, like a stock, the investor is charged a fee when buying and selling the security.

If you have received a signing bonus, you might consider using all or some of the money to open a Roth IRA retirement account. With a Roth IRA, you contribute after-tax money, and then your money grows tax free, (as long as you wait until you are 59 and 1/2 years old before withdrawing the funds).

That means, unlike 401k plans or traditional IRA's, when you decide to close your Roth Account, all the growth is yours – Uncle Sam takes nothing. With a Roth IRA, you can invest your money in any of the securities outlined above.

Investing in Yourself: The American Dream

For those who are a little more adventurous, another option is to harness your entrepreneur spirit and invest in yourself. Now might be the right time to act on that "great idea." Fifteen years down the road, when you might have more complex financial responsibilities (read: family, mortgage, etc), it might be too late.

Many thriving small businesses were started with only a few thousand dollars and a dream.

After college, Bill Pawlowski teamed up with his brother Tom to start a handyman business.

"We spent some money on tools and began doing small repair work for family friends and neighbors. Through word of mouth, our business spread and the jobs became larger. We were able to invest in a van and later a truck," Pawlowski said.

Soon, the repair jobs grew into apartment remodeling and then home renovating. After a few years the brothers' original handyman business has grown into Pawlowski Enterprises LLC, a contracting company that is busy building luxury homes in the Hamptons.

"Its amazing to think how a thousand dollars worth of tools has evolved into an entire contracting company," Mr. Pawlowski said.

Private Investment

A midpoint between traditional investments and entrepreneurship is investing in private businesses. These can range from a local bar, an upcoming restaurant or any small upstart company. They can provide a more hands on feel than public securities, but, at the same time, private investments can be very risky, requiring a great deal of due diligence.

After careful thought, Luke Fronefield invested a few thousand dollars in a friend's lacrosse retail and information Web site.

"I knew there was a huge demand and that no one was doing anything like it," said Fronefield, a former contributor for Ragingbull.com. "The most important factor, though, was that the guy was a bulldog -- full of vision and drive and I knew he'd make it work."

Some active investors argue that this type of intimate knowledge about a company and its leadership can be a relief from dealing with the Byzantine structure of public corporations.

"Its also more exciting," said Fronefield. "You're onboard at the ground level and can really watch the company grow."

Fronefield walked away with a healthy return. He has used the new capital to help start an independent film project titled Remember Dave Alamo, which he plans to fund using the same private investment model that the lacrosse company used.

Each of these routes have risks and perils. But, then again, that "sick" TV, trendy outfit, "banging" car stereo or whatever else you buy with your "play money" is guaranteed to lose 90 percent of its value over the next five years.

With smart investing, over the same time period, you could earn 25 percent to 50 percent of your original investment, and then buy something really cool.