How Can a College Student Invest?
I hear so many misconceptions about who should be investing. The rich, the middle and upper classes, when you are in full time employment, when you have a family. These tend to be the most common types and times stated, especially by young adults or those with less money to invest. I can tell you it surprises them when I firmly state you can start investing even when you are still in college.
Yes, it is a fact. College students are more than capable of investing. You do not have to wait until your college education is complete. Start early. There are so many advantages to starting your investing young. Ultimately though it comes down to the fact that the amount you can generate from those investments will be more.
Are you a college student wondering how can I invest? Then here I have a number of suggestions that can help you get started. At this time of your life you can be bolder and braver, learn what you need to know and you do not need a lot of money to start. The days of needing money to make more of it are way past.
I will cover things like:
- Investing online
- Tips on finding the money to use to invest
- Tools that are available to you
- How to get started
- Building a portfolio
- Investing with even small amounts of money
Advantages of Investing as College Students
- More time to build your profits up
- More interest earned over that time
- Able to step into very long term investments
- Easier to learn the ropes
- More flexibility
- More tech and online investment opportunities for this generation like apps and online low cost platforms
- Becoming less of a burden on parents and family
- Pay back loans quicker
Are you ready to create a better short term and long term future for yourself? College should be about study, passing exams, making friends and maybe enjoying yourself too! But it can also be about so much more. If you are ready to explore this opportunity read on.
How Students Can Start Saving to Invest
You can invest starting today, even if you are a college student, with just a part time job. Put aside a dollar a day. Use your summer vacation job to make some extra money and set aside some of it for investment purposes. You could reach up to multiple hundreds of thousands of dollars over a 35 to 45 year period of investment.
Ideas to save as a college student are going to be similar to the ones I would suggest to people with less money.
- Save change in a jar
- Use an app like Acorns which rounds up spending on your credit or debit card and invests it
- Cut back a little on coffees, beer and eating out
- Get some of your books and supplies second hand
- Get a part time job while you study
- Cycle rather than drive
It is a smart student who thinks of their future financial security while still in college. This is the time when you can get the best returns. Even if you took $1000 invested it and then did nothing with it, you would get at least $13,000 back.
Really what makes more sense, over spending on beer and take out now, or still having your fun, just cutting back a bit and then seeing rewards later in life. It just needs a little will power and discipline and a little saved money.
How a Student Can Start Investing
If you have made a decision to invest well done. This is a big decision, and it is the right one. 9 tips on getting started are;
- Look for brokers that are willing to deal with investing smaller amounts. They are out there, online is especially a good place to look. Then you can invest regularly as much as you can afford.
There are two options really, traditional brokerages with people offering services and discount brokers online. The latter takes small investments and have low fees so this is a better option for students investing with small amounts of money. They are a good way to get started investing and at a later date you can always move to something more traditional. Many online options have apps that allow you to invest and monitor from your phone.
- Think carefully about how much of your hard saved money you are willing to risk. This is called an investor’s risk tolerance. Make sure you have enough funds still for your student life and education. Investing does come with certain risks.
Some investors are more willing to take risks for higher returns, than others. Different personalities also create different levels of risk acceptance. When you are ready to start adding more risky investing, start gradually.
- As mentioned above start saving. Anything you can, nothing is too little.
- Learn about the different options available in terms of mutual funds, stocks, ETFs looking for ones that take low amounts. Avoid procrastinating about this. Even a small sum can be invested today so you can start working on larger returns later on. The longer you are investing for, the longer you can be earning compound interest on those investments.
Howard Dvorkin, founder of Consolidated Credit Counseling Services says, “”With the powers of compound interest, time really is money….”
- Do your research. This will add more study to your already study heavy schedule but knowledge is power, and in this case also wealth. Before you start investing in companies learn about them, how they have performed before, what others are saying about their future.
Get as much knowledge as you can about investing, how to analyze things like mutual finds, stocks and such and what strategy to take. As a student you have access to various sources of information so take advantage of that. Books at your campus library and the public ones, the internet, the news, papers and such. Then you can set the perimeters for your investing and stick to them.
Elle Kaplan from LexION Capital Management observes, “….none of us are born experts. It may be like learning a foreign language at first, but the basics are not complicated.”
- Find and use tools to help you. Today investing does not have to be confusing or hard. There are a variety of options where you can seek help. Look for places with low fees and low or no minimum account requirements. There are traditional firms you could turn to, but there are also online options too. The former offers more personal help but usually comes with a higher cost. The latter is easy to use and often less costly but lacks that personal touch.
- Get rid of any debt that has high interest. These should be the first things you clear off before you start investing. Otherwise you could do damage to your records. If you have a lot of debt on your credit cards take care of that before you start risking money as a student investing on the market.
That does not mean you have to rush out and try to clear your student loans before investing. Those are low interest so you can still start investing while also taking out or paying off subsidized government student loans.
Expert professor from John Hopkins University Carey Business School agrees with me, saying paying off low interest loans between 1 to 3 per cent would mean delaying investing when you could already be earning on the market.
- Diversify when you can so the risk is less and the reward is more. Buying stocks with everything you have all in one or two companies is not a good idea. Make small regular investments, over a range of options. As soon as you can start diversifying your portfolio.
- Be wary of fees. These can really quickly add up so make sure you look out for them. When you are scraping together money to invest, you need to make sure you are not wasting any.
Students and Stocks
A good starting point for a college student to invest are stocks and bonds. Stocks are easy to understand firstly, and one of the most commonly spoken about types of investment options. You can get an investment portfolio started today just by opening an account with an online brokerage. If you want you can open several as long as they are free to open.
A stock is essentially a share in a business. It is how companies raise money to further invest. If you own a stock you are a stockholder. Essentially it means you own a small part of that company. Knowing which companies to invest in can be tricky. Do your homework on them.
If you are wary of choosing your own stocks to invest in, some companies actually make those decisions for you. Often there is some kind of questionnaire to get more familiar with you and then automatic trading in stocks will be done for you. If you want to be more hands on, look for individual investment options. You should also start following the markets regularly.
Investment Options for Students
There are several options for investing when you are still in college.
- Mutual Funds
- Real Estate
- Brokerage Accounts
- Money market accounts
- Savings bonds
- Certificate of deposits
Options like mutual funds and ETFs are riskier, and ones like savings bonds and certificates of deposits are low risk and more of a saving option. Therefore the former offer more reward than the latter. Or if you have the money you could dabble in both types so you know you will have some return at least.
5 Reasons Students Think They Cannot Invest Right Now
Naturally I hear a lot of reasons why students feel it is impossible for them to start investing. The future is too vague, the reward not soon enough, no sense of urgency, spending on other things. Here are 5 common reasons given by students why they are not investing yet. Here are also 5 reasons why their excuse is just that, an excuse.
- It is for people who have a lot of money. Not true, there are plenty of ways people with less money can start investing right now.
- I cannot save any money. Not true, make a few changes in habit and most people can find something, even if it is just around $5 a week.
- It takes too much time and I need to study. Make the time. If you have time in between your studies to party, socialize and hang out, you can make the time to get some investing started. Alternatively if you can afford the fees have an expert get it started for you!
- It is too confusing, I don’t know what to choose. Just the one that you do understand and just get started. If it is not working out you can always move on to another option. Or try several options.
- I am scared I will lose make bad investments and lose the little I have. Investing is a risk, but you do not have to go with high risk options if that is what is stopping you. Chose safer options at first. Right now, not investing at all makes no sense. When you feel more confident you can start to dabble with the riskier ventures.
Opening an Account – Where Do I Go?
As mentioned becoming an investor is a lot easier today. If you do not want to have to go to a sit down meeting with an expert, or you cannot afford that more traditional option, the internet is the place to go. There are many online discount brokers. Most are free to sign up to, and most have no minimum requirements in terms of account balance or investment amounts. They walk you through the process step by step so it is simple and quick.
A few suggestions from myself include;
- Robinhood – Free platform and good for individual trade and stock options. May not be the best option if you are completely new to it all as there is no fractional share investments allowed, which is what people with low amounts to invest tend to do.
- M1 Finance – Better for completely new investors as it does allow fractional share investing. You can invest in both ETFs and stocks with no charge and set up automatic investments so it is less time consuming for you.
- Fidelity – Actually a firm that offers full service but there are some free investing opportunities such as ETFs that are free (no commission) and minimum amount IRAs. The good thing about using a firm like this is as you grow as an investor, more able to diversify and take more risk, the firm can grow with you too.
Using a broker means you have the most options available to you when it comes to the types of investments you can make. Sometimes though too much choice can be what is putting people off. The online so called robo advisor or apps can take away that problem making the choices for you.
Opening an Account – What Type Should I Start With?
There are several different investment options once you have selected a brokerage to join. These include;
- Cash account – this is the simplest option and very suited to investing students or people investing with smaller amounts. It also means your money is not complete locked away for 40 something years. High interest checking accounts can be found at banks and you should look for ones that have no or low overdraft charges, and no monthly fees to pay.
- Margin account – somewhat similar to a cash account but it allows investors to borrow money to invest with. It also has a few other extra features.
- IRAs (individual retirement account) – there are two types of IRA to mention here that are suitable for investing students, as long as you have earned income from working. The traditional type and the Roth IRA. These are retirement accounts so thinking especially long term, but starting on that now means you could have a very nice retirement fund later. IRAs cannot have any withdrawals till you are at least 591/2. There is a tax benefit to traditional ones on what you invest in to it, but you pay taxes on what you withdraw from it later. The Roth IRA does not give you tax benefits as you pay in, but you also do not have to pay taxes on later withdrawals.
- 401k – even as a student if you are working and your employee offers you to join their employer retirement plan, do it.
- Mutual Funds and Low-involvement Index Funds – You can invest in small amounts, they can be low risk and you can find them with low fees too. Also a good way to have a more diverse portfolio when you are investing in small amounts.
- Bond investments – brings in small returns but is a safer option. However those returns are long term.
Conclusion – How College Students can Make Investments
In this article I was asked about how can a college student invest? But I also wanted to make it clear to readers that before you even look at how, make sure you understand the answer to can a student start investing is absolutely yes! Starting early means you are more flexible, more able to learn and you can build up bigger returns for any long term investments.
As a student you are all about thinking about tomorrow. You are likely studying with a career in mind, thinking about passing exams so you can get your future started. Part of that planning should be about your financial security and success too. Whether you want to be a doctor or a teacher, bank manager or work in wall street itself, your investing can start now.
Here are some key points from today’s article I hope you walk away with.
- Start saving even if it is in small amounts. Stop thinking about instant rewards and think longer term.
- Educate yourself on your investment options. Look for free advice both online and from the experts.
- Avoid risky options to start with – stick to safer options.
- Get an account open and get started right now.
- Investing with even small amounts is better than not at all.
- Investing is like gambling – when you are ready to take more risk there is the potential for more reward but only work with money you are able to say goodbye to if it does not work out.
- It does not have to be super hands on and complicated, let a platform do it for you.
- Limit how often you check in them. Focus on the long term market rather than day to day ups and downs.
- Do not be put off if you do not meet with success or great profits in your first efforts. If you fall off the investing horse, get back on it!
- You are NOT too young to invest. Start the habit now and it will stay with you.
Investing can be as simple or as complicated as you make it. Start somewhere, with something you can manage and with amounts you can manage. One day you will look back on the day you read this and felt motivate to plan for a better future and you will be so glad you took this step. Investing might not give you short term gains or be glamorous, but it can be long term life changing.Updated on: March 2, 2019