Invest as a college student

How to Invest as a College Student – 5 Easy Steps

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You definitely should invest as a college student. Don’t just take my word on it. Many financial advisors recommend investing as early as possible. Why? The power of compounding and an early start extends your investment time horizon. It’s is an excellent way to achieve financial security

Now, you might be thinking you don’t have the money to invest with a minimum wage job and future student loan debt payments. But, I can attest to why investing just $5 can set you off for a better financial future. Get ahead of the majority of other students and start investing.

The most challenging thing about investing is getting started and creating the habit that creates wealth.

In this article, you’ll learn why investing in college should become a priority, the different types of investments available, and where to open your account.

Why Invest as a College Student?

Chances are you didn’t start investing in your early teens, but investing while in college is an excellent time to begin. The earlier you start, the more your money gets to through compounding interest and the general appreciation of stocks over a long time horizon. Many don’t know that waiting four years to start investing can mean tens of thousands of dollars of potential gains lost.

For example, you have $100 invested, and it grows about 8% per year. The following year it turned to $108 and increased 8% that year too. The next year it’s now $116.64. Basically with compounding the interest, you earned starts to earn interest too. Jump ahead 40 years, and the $100 investment would have grown to about $2170. It seems like a long time to wait. But, you’ll be ahead of the game.

Steps to Start Investing as a College Student

It may seem daunting to start investing, but know you have many options. You can trade individual stocks, invest in index funds and exchange-traded funds (ETFs), or aim to invest for financial independence.

Make sure you’ve done a budget to determine your monthly expenses and estimate your cash flow. Read this budgeting article for more details. Let’s stay focused on how to start investing as a college student.

The following are simple steps to take on your journey.

Step 1: Define your investing goals

Before you start investing, make sure you know what kind of goals you want to achieve with your money. It’s essential to think long-term and allow your money to grow through the power of time. 

Whatever your goal may be, there will always be more than enough opportunities to help you reach them. It would help if you considered how much risk you are willing to take when making investments. Some people prefer to invest conservatively by sticking to low-risk options such as index funds, while others like taking more significant risks by putting their money into stocks.

Step 2: Determine a good investment strategy

There are many investment choices, from saving money into a high-yield savings account to contributing to tax-advantaged Individual Retirement Accounts (IRAs) or investing using a taxable brokerage account

You can speak with a financial planner for investment advice or use a Robo-advisor to help you determine your investment goals, risk tolerance, and projected rate of return. They can review an existing investment portfolio and create a portfolio tailored to your age and risk level. Many Robo-advisors have no or low minimums to start investing.  It can be a passive way of investing–meaning less work for you to do.

Step 3: Set up your brokerage account

Whether you decide to trade actively or passively invest, you will need to have a brokerage account. Choose your investing platform and complete the setup of your online brokerage account. 

A few things you want to keep in mind as a college student, choose low-cost options for investing your money. Chances are you don’t have much money to invest. Fortunately, many brokerages offer no minimum investment and charge little to no fees are best. Some of your options include:

BrokerageBest forMinimumPromotion
M1 FinanceGuidance and no-fee investing$0Get up to $500 when you sign up for M1 and make a deposit of $1,000 or more within 14 days.
AcornsBeginners and auto-saving$0Get $5 after you make your 1st investment.
StashGetting Started with $0.01$0Add cash to your Stash and get a $20 bonus stock.
BettermentRobo-advisor$0None
Public.comCommunity and education$0Get a $10 share of stocks

Want more options? Read our list of the best online brokerages and best Robo-advisor platforms.

Step 4: Automate and make it easy

As a college student, you’re life centers around your education, social life, and everything else happening around you. It’s easy to forget to invest. That’s why it’s vital to set up automatic investments. Set it and forget it. Here are a few tips:

  • Make your initial investment. Some brokers offer incentives by making the minimum deposit. Take advantage of those bonuses at signup.
  • Start small. Don’t invest more than you’re able to which might cause you to stop doing it all together. 
  • Connect your bank account. Set up your automatic contributions.

Remember, the goal here is to invest regularly for a longer time horizon.  

Step 4: Review your investments

The rule of thumb for investing success is time and consistency. Investment advisors often agree that reviewing your investments once a year is enough for beginners. When you graduate and start a career, you may want to make adjustments. You can invest more to achieve your investment objectives.

Step 5: Investing after College

After graduation and landing a job, you’ll gain access to employer-sponsored retirement plans such as a 401k. Additionally, some publicly-traded companies offer stock options, restricted stock units, and employee stock purchase programs. Read more on the best employee benefits to use.

Make sure you contribute to your company’s 401(k) plan. A good rule of thumb is to start with at least the minimum to get the total contribution match offered by your employer. Then, work your way to investing at least 10% of your pre-tax income. You can learn more about 401(k)s here.

Risks of Investing as a College Student

We’ve talked some about how investments, particularly stocks, can go through down cycles. It’s part of the risk that is inherent in investing. Unless you invest your money in fixed-income assets, there are no guarantees that any single investment will be profitable.

Coming to grips with this risk is an integral part of the investing process. You can’t panic anytime an investment is down or even when your entire portfolio is down. Recognize that declines are entirely normal with investing. 

Some beginner investment mistakes are to react to daily market conditions. It often leads to amounts of money lost trying to “beat” the market.

Some of the very best investment opportunities will come on the heels of significant stock market declines. At that point, you’ll be buying up stocks at depressed prices because everyone else has sold out. Once the market begins turning up again, you can be on a virtual elevator ride to the top.

That’s why investing as a college student will benefit you long-term. There will be market highs and lows and possible crashes as part of the cycle. The sooner you start, you’ll come to grasp this reality and stay the course.

Some general reminders:  

  • Start small, and continue building your nest egg.
  • Diversify into multiple investments and let Robo-advisors do the work.
  • Be prepared to ride out the rough spots.
  • Always continue adding to your portfolio.
  • Look for new investment opportunities.

Investing is nothing more complicated than that.

If you can get a handle on that process, you’ll be well on your way to becoming a successful investor after your college years.

There are a few more things I want college students to know about investing. Continue reading to gain more insights.

What is investing for college students?

Investing is the act of committing money to an endeavor with the expectation of earning additional income or profit. There are several investment options such as stocks, bonds, mutual funds, real estate, or your own business. There are many pros and cons to investing, but one may be a better fit for you, depending on your risk tolerance. As a college student, investing in the stock market can be a gamechanger for your future self.

Should You Invest While Having Credit Card Debt?

The short answer is yes. Consider investing a small amount while you prioritize debt repayment. With the S&P 500 index average a return of 10% in the last 70+ years, credit card interest rates are often 2-3 times that amount. The reason you want to invest while paying off high-interest debts is to keep you motivated. It’s essential to look forward to what you’re growing, not just eliminating. Learn more about how to pay off credit card debt.

Investing While Having Student Loans?

Whether you have federal student loans or a private student loan, it’s vital to invest in your future. With brokerage accounts offering no minimum investment requirements, you can invest a few dollars while paying off student loans. Learn more about student loan payoff and refinancing.

Is Saving and Investing Similar?

It’s vital to understand saving money is typically for short- to mid-term goals. For instance, you are saving for a downpayment on a car or a security deposit on an apartment. You’ll want to have cash stored in savings accounts to pay for these goals. In addition to investing for your later years, consider investing for your near term. Set up a purposeful savings strategy with accounts set for specific purposes such as “Emergency Fund.” 

Where to find extra money to invest as a college student?

The good news is that there are many opportunities to make money through side hustles. The great thing about hustles is how they can work around your school schedule. For example, you can drive for Uber or Lyft or deliver food, packages, and products to other people. If you don’t have a car, then online gigs might be well suited for you. Consider online tutoring, virtual assistant work, and using your talent in graphic design and content writing. Read more creative ways to supplement your income.

Need some basics? The following questions can help you gain a better understanding of investing basics.

What is the stock market?

The stock market is the term used to talk about where stocks and bonds are bought and sold. When most people think of investing, the first thing that often comes to mind is the stock market. In a stock market, shares of public companies are issued and traded either through exchanges or over-the-counter markets. 

What are stocks?

Stocks are a type of security that gives stockholders a share of ownership in a company. Stocks also are called “equities.” When a company needs to raise money for business operations or growth, they have two choices: 1) borrow money or 2) raise it from investors by selling them a piece of the company by issuing shares of stock. When you own a share of stock, you are a part-owner in the company.

What are mutual funds?

A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.

What are index funds?

Index Funds are mutual funds that invest in a basket of stocks that track a specific index. The indexes are the S&P 500, Nasdaq 100, Dow Jones Industrial Average, Russell 2000, or other market benchmarks. Index funds provide exposure to the overall market, and they are considered passive investments since the fund manager doesn’t pick individual stocks. Fidelity Investments and Vanguard offer a popular index fund.

What are exchange-traded funds?

Exchange-traded funds (ETFs) are investment vehicles that track indexes such as the S&P 500 Index, Dow Jones Industrial Average, Nasdaq 100 Index, Russell 2000 Index, etc. ETFs trade like stocks, and they offer diversification benefits similar to owning individual securities.

What are bonds?

A bond is a debt security, similar to an IOU. Borrowers issue bonds to raise money from investors willing to lend them cash for a certain amount of time. When you buy a bond, you are lending to the issuer, a government, municipality, or corporation.

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