New Year, New Investments: Investing 101
Investing may seem out of reach for most college students. College is stereotypically the time when most students are broke and are living off Ramen while trying to find cheap textbooks, pay their rent, and afford their other basic living expenses. But investing doesn’t have to be an unattainable dream. You can start with a small amount of money and work your way up, and it is actually one of the best times to start investing. You start learning to invest with low risk which allows for extra income for the future. Time is also your most valuable asset, and your compounded interest can build up without doing anything. What a dream!
When investing for the first time, consider thinking about your goals. Do you want to build long-term wealth or set up a plan to retire early? Where do you want to be in a few decades? Do you want to buy real estate in the future or move somewhere warm when you retire? Consider all of these questions before you setting up your portfolio in order to take the correct actions.
Next, you need to determine how much you can afford to invest each month. It’s best to have at least three to six months worth of living expenses saved up in the case of emergencies before investing. Create a small budget to figure out how much you can afford when prior spending on things like groceries and rent. Don’t invest more than you can afford. Start building your knowledge by doing some research into investment lingo, market trends, etc. The most important strategy is to invest regularly to be disciplined with your investing and build up good habits regarding saving money.
A good starting point is to put your savings into a high-yield savings account or get a certificate of deposit (CD). These accounts offer higher interest rates than traditional savings and checking accounts. They are also a safe way for you to be paid in a fixed rate of interest for putting your money into that bank for a specified period of time. This money doesn’t fluctuate like a stock would, so you are guaranteed that money back.
Another way to just get started is to buy an S&P 500 Index Fund. It is one of the most popular index funds out there and contains a portfolio of large American companies. You get to hold shares in all the companies in the fund, and the fund is already well diversified which offers less risk to the beginner investor. You’ll get the market return, and you’ll dip your toes into investing for the first time in a risk free way.
Utilizing brokerages like Charles Schwab or Fidelity Investments provide a lot of information for those starting their investing journey. just starting as well as free stock and ETF trades. There are also completely free online apps where you can trade on the platform directly like Robinhood and Webull. They also have crypto and options if you are interested!
If you are a little wary to select stocks or even funds yourself, turn to a robo advisor. Betterment and Vanguard Digital Advisor have low advisory fees and minimums so you can get started with your limited budget. They will build a portfolio for you and charge usually 0.25% of your assets.
Most college students don’t have a retirement plan ready for action. It may seem a long time away but it's best to be prepared now so you don’t get stuck in your career for longer than you have to. A Roth IRA is a great way to get started; any contributions to a Roth IRA is tax-free so you’ll be avoiding larger taxes when you withdraw money down the line.
There are many ways to start investing as a college student. The most important thing to do is to just start researching and invest today. Make sure to be patient as well and not go all in on anything. By taking these steps, you’re building yourself a bright financial future that will support you for the rest of your life.
By Mirula Prasad