Many college students miss out on the great opportunity to invest because they wrongfully believe that investing is only for older and wealthier people. This, of course, is not the case. Investing is something that anybody can do, even college students. In fact, the earlier you start investing, the better it will be for you since your money will have a lot more time to grow.
Investing doesn’t have to be hard — it does not even need to take more than $20 or $30 a month. In fact, senior investing and wealth management reporter James Royal says that it’s a good idea to start with just a little because even having a small amount of money in the market will motivate you to do more research and learn how to analyze your “holdings.”
Krista Baum, a personal finance writer, helps put this in perspective. Let’s say you invest an initial amount of $100 and contribute $25 every month. If, for example, your rate of return is 8%, in 45 years your investment will be worth a whopping $110,509.23 and all you have to do is set aside $25 a month. However, growth takes time. Always beware of scammers who promise you overnight success and riches; an important rule to remember is that if an opportunity sounds like it may be too good to be true … then it probably is. According to Baum, “Adopting a long-term mindset at a young age is one of the best things you can do.” Give your money time to grow.
U.S. News author Coryanne Hicks urges her readers not to let a lack of expertise keep them from the market and from investing. College students often underestimate themselves and end up not taking the first step toward investing.
A great way that college students can begin their investment journey is through a certificate of deposit (CD). A CD is a type of savings account in which you put a certain amount of money for a certain amount of time, and, in exchange, the bank pays you interest. A big reason that this investment opportunity is great for college students is that it’s very low maintenance. Royal puts the advantages of getting a CD into perspective: “For example, if you have money for next year’s tuition, you probably want that in a super-safe account that won’t fluctuate with the stock market. A CD fits the bill for exactly this kind of requirement.” The best part is that when it’s time to pull that money out, you’ll have more than you started with in the first place.
Another great option is to turn to an online broker — it’s very possible to find one that is either low-cost or even free. Some options include Fidelity Investments or Charles Schwab. Both of these online services offer no-cost stock and ETF trades, and on top of that, they also provide resources and educational tools that will help you get started on your investment journey. Another great and free option is Robinhood.
A third option for investing as a college student is to look into buying an index fund. Index funds are easy and convenient because they do not require a whole lot of background knowledge. “An index fund holds shares of all the stocks in the index,” and “by holding so many stocks across a wide variety of industries, the fund is highly diversified and typically offers less-volatile returns than owning individual stocks.” This option is a good way to dip your toes into the world of the market while still reaping the benefits of monetary growth. Index funds can help you learn about how investing actually works and is a strategy “recommended for most investors by legendary investor and billionaire Warren Buffett.”
Another option that many investing self-help websites will recommend is a Roth IRA. While it may seem like it is too early to begin a retirement fund as a college student, it’s important to remember that your money will grow larger the longer it is invested. This is a great option because it’s so low maintenance that you will probably even forget that you ever put money into it — even better, one day you will have all that money (plus earned interest) just sitting there, waiting for you. The cherry on top of all this is that tax is paid before you put the money in, so when you go to take it all out, it’s all yours, tax-free.
There are many great options for college students to get their head in the investment game. However, with great options come great responsibilities. There are several things that all investors need to keep in mind, no matter what stage of the journey they are at.
One of the most important things to know before you make any accounts or any purchases is what exactly you are paying for and how much you are paying. Many online resources require some type of fee, and it is important to know what the fees are for, how often they need to be paid and how much the fees actually are. Watch out for fees and never put yourself in a position where you are surprised by some type of charge that you were not prepared for.
Another good thing to keep in mind is that you should work on stretching your money far and wide. If you keep all your eggs in one basket, then you are at a much greater risk for a severe loss than if you invest a little in multiple stocks. A great way to do so is to invest in the aforementioned index funds or ETFs.
Another huge recommendation to remember is to just be patient. Good money takes time, and if you are told that you can make millions overnight, you are most likely being scammed. Do not jump into something risky right away — gradually take bigger chances as you learn more and become more experienced. And more importantly, once you’ve purchased your investment(s), you have to just walk away and let it fluctuate with the market; there is no use checking it every single day.
Lastly, and most importantly, just have fun with it. Take the time while you are young to learn about all these different opportunities, build up your investments, and maybe take a few risks. Do not let your age or lack of expertise stop you. Time really does equal money (at least in investing).