Investing has become increasingly popular among young people, and this is good news! The sooner you start, the better. However, you might be hesitant. First of all, you don’t have spare money, to begin with. You’re probably taking a student loan to cover the tuition and work to earn your upkeep. Second, you have enough on your plate as it is with studying, working, adapting to a new environment, and making new friends.
Adding another thing into the mix sounds like a bad idea… Especially serious, boring, grown-up stuff like investing. People invest when they start planning their retirement, right? Yet let me tell you that if you think so, you are wrong on all accounts. Let’s unpack this together!
Why College Might be the Perfect Time to Begin Investing
Okay, from the top: spare money. Large expendable income is not a prerequisite for investing. You can start small. I mean, really small. Like $30 a month or less. Starting now and adding bit by bit is a far better strategy than waiting until you somehow inherit $20,000 to enter the investing game.
Then, the hassle. There are tools and apps like low-interest brokerage platforms or robo-advisors that fully take everything on themselves. All you have to do is open an account, pour money in drop by drop, and set a reminder to check how your investments are doing every month. Even every other month will suffice in most cases.
Finally, the timing. Yes, people tend to think about their retirement suddenly, when they are hitting their forties – or later in life. That doesn’t mean it’s a good strategy. They also tend to go to the dentist when it already hurts and remember they have to exercise when their checkup says their heart is not in good shape.
As they say, time in the market beats timing the market. If you start early, you don’t have to be prodigiously gifted as a trader or incredibly lucky to see significant returns. You just have to keep going. Plus, the earlier you start, the more experience and maturity you will have compared to your peers when you graduate.
That said, of course, there are some restrictions. First of all, you must be at least 18. Second, experts advise you to start investing only when you have already paid back all your high-interest debts (like a credit card, for example.)
“Wait, what? You should have started with that. What about my whale of a student loan, hah?” Chill, my friend. Your student debt doesn’t preclude you from investing. Quite the opposite! Investing can help you manage student loans!
Jeff Rose, a certified financial planner, points out that while “student loan debts gradually declining due to amortization, [your] investments will increase in value. At some point in the future, [your] investment portfolios may rise to a level where the money can be used to pay off the student loans.” You see, the average interest for a student loan in the USA is 5.6%. An average annual interest rate on S&P 500 stocks is 10%. That means, by investing in a portfolio of S&P 500 companies, you can finance your loans and pay them off in 10 years instead of 20.
“Now, that sounds more like it! But what’s S&P 500?” Let’s jump to the next section for the answer.
Where to Invest?
When it comes to the “where” of it all, you have many options – even as a student with little cash. These are the most suitable.
If you don’t have time to research investment opportunities, experience to manage your investments, or a decent sum, to begin with, look no further. Robinhood, Acorns, Stash, Webull, and eToro are some of the most well-known micro-investment apps out there. They are user-friendly, accessible, and allow you to start with very little money. They are using algorithms to make investment decisions and manage your portfolio automatically – you don’t have to do anything. This makes them perfect for beginners, as all you need is your willingness to start investing. Acorns app even helps you to put money away for investment seamlessly. You just link a card to your account, and the app rounds up all your purchases to the nearest dollar, stashing spare change for investment.
The drawbacks of micro-investing apps include monthly fees, the smaller return on investment compared to other options, and little flexibility in choosing where to put your money. Still, they are the most popular way to begin investing as a student.
Robo-advisors are investment-managing platforms that are very similar to micro-investing apps. Betterment, Wealthfront, M1 Finance, Motif, SoFi, and Vanguard Digital Advisor are some of the prominent examples. They use AI to select the best investment options based on your goals, age, risk tolerance, and other metrics. However, the final word is ultimately yours. Robo-advisors allow you more freedom and better return on investment than apps but require you to do some research. Usually, they charge you a percentage of your assets annually but can waive the fee for small accounts.
They are still a great place to begin. Still, if you feel tentative, better start from micro-investing apps and then transition to robo-advisors when an app starts feeling too restrictive.
Discount Online Broker
Again, this is an excellent option for a newbie with little funds. Some well-known discount online brokers are TD Ameritrade, Ally Invest, Interactive Brokers, E*Trade, Fidelity Investments, and Charles Schwab.
They don’t have minimum investment requirements and don’t take commission, which is a good thing. They also offer great research and educational tools for beginners. However, you will have to make decisions on your own. That means tons of research on investment opportunities, balancing risk against profits, and other homework. If you have less experience but are eager to learn, this might be the best fit for you. If the market mechanics claim too much of your time, just outsource your routine college tasks to our essay writing service and invest your efforts to learn what really matters.
S&P 500 Index Fund
The name comes from the Standard & Poor’s 500 index of large American companies, and there are many funds based on it. The main principle is that a fund holds shares of all the stock in the index across various industries, thus creating a diversified portfolio. When you invest in such a fund, you balance your risks and can expect more stable returns than owning individual stocks could offer.
This strategy is considered safe and is recommended by business magnate and investor Warren Buffet. The most significant advantage for the newbie investor is that you don’t have to know a lot about the market fluctuations and worth of individual companies in the index to invest.
Regular IRA or Roth IRA
IRA stands for an individual retirement account. It can be established at any time with an authorized institution (a bank, brokerage company, credit union, etc.) Investment options, fee structures, and minimum account balances vary from one IRA provider to another. Which one to choose will depend on your risk tolerance and preferences. It is a great option for students who work to fund their studies since it saves them money on taxes.
Roth IRA works similarly. The only difference is it doesn’t offer you any tax savings immediately since contributions to Roth IRA are made in your post-tax money. However, when you withdraw money from the account during retirement, it won’t be taxed.
Certificate of Deposit (High-Yield Savings Account)
If you have a considerable sum of money that you will need in the nearest future, the best choice is to put it in a high-yield savings account. Such accounts allow you to commit your money to a bank for a specified time in return for higher interest rates than traditional savings or checking accounts allow.
For example, you have 15,000 towards your tuition for the following year. Putting the money in a CD account for 12 months will allow you to park it safely until you need it and earn a couple hundred bucks on top. Although most people don’t see bank products as investments, they totally are!
Rookie Mistakes to Avoid
Of course, these are not the only options, but they are optimal for a newbie. According to James Royal, PhD, investment and wealth management reporter for Bankrate, “The hardest part of starting to invest is beginning to think of yourself as an investor.” When you have more hands-on experience in investment, you will learn much more than can be covered in a blog post. Meanwhile, let me warn you against some of the beginner mistakes.
Not enough patience
Investing is a long game. Don’t expect to become rich overnight – even over a year. Of course, seeing your $1,000 turn to a whopping $1,085 after 6 months doesn’t seem so exciting. Yet, in the words of Paul Samuelson, the first American Nobel laureate in economics, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
Not enough research
Okay, how do your pick stock to invest in? Is it that big and famous company like Apple? Is it a small and ambitious startup promising to become “the next Netflix”? Or is it this one, with a cute green logo, that your magic eight ball approved? If only it were that simple! Yet the answer is predictably boring. Do your homework, look at the dynamics, compare reported growth figures with shares prices, and so on. If you don’t have time and energy for all that, better turn to apps and robo-advisors.
Not enough diversification
Diversifying your investment portfolio is the first advice any aspiring investor hears, and it’s very reasonable. It’s just common sense – don’t put all eggs in one basket. If you invest everything you have in one company – however promising – that is a high risk. You can lose everything. That’s why you should balance your investments between safer options like bonds and riskier ones that promise high returns.
Not Enough Gameness
Market fluctuates. There will be times when it drops, and you might be afraid to lose your hard-earned money. You will be tempted to withdraw your investments, but that is exactly what you shouldn’t do if you don’t want to lose. Things get back to normal, and the market rebounds. If you just keep calm, you will see that you still win in the end.
Okay, these are the basics. Let me recap the most important things you should remember:
- the best time to get started is today
- you don’t have to wait until you’ve paid off the student debt
- you can begin with small sums
- prepare to wait and keep investing by and by
- investment always involves some degree of risk, so don’t invest money you will soon need
- diversify your portfolio
- don’t withdraw money when the market drops
Also, don’t forget to invest in yourself: your interests, education, health, wellbeing, and even little things that bring you joy. No investment opportunity is more important than this. Live long and prosper!