Hey college students – there’s no better time to start investing than NOW. Why? Investing early is the key to financial success.
However, there is a challenge.
As a college student, you’re probably focused on getting higher grades, finding a career, and having a good time. Investing as a college student can be quite intimidating since you already have too much work to do.
Investing can seem like it’s meant for the rich. After all, how can you invest when you have other expenses like housing, food, student loans, and other expenses?
The worst part is that there is a lot of misinformation out there. You can easily get confused about where, how, and when to invest.
In this article, you will learn how to invest as a college student. We will teach you the best investments available, tips to invest the right way, beginner investment mistakes to avoid, and more.
So without further ado, let’s dive in.
Why You Should Start Investing as a College Student?
Even if you didn’t invest in your early, you can do it while in college. The earlier you start investing, the more the chances of becoming successful in the long run.
Think about it. If you invested $100 in stocks today, and your money grows with an interest of about 8% per year, the next year, time like this, your money will have increased to $108. In about 40 years from now, your investment in stocks will have reached $4,320.
Assuming you don’t start investing today, forty years later, you will have lost a lot of money.
The reality is that you already have a lot on your plate. However, there are many reasons to consider investing as a college student. Investing while in college can also help you manage your student loans.
After all, you don’t need a lot of money to start investing.
You don’t need too much money to start investing while in college.
You can start with as little as $5 to $10 a month.
The good news is that you can get this amount by taking online gigs, online tutoring, virtual assistant work, etc.
That said, let’s learn where to invest as a college student:
Best Ways To Invest as a College Student
Given the expenses involved in college life, it can be hard to invest as a student. You have books and other materials to purchase, you need to go out and eat or have fun, etc. In other words, the little amount of money you have is expected to cater for a ton of things that you might be left with nothing to invest. However, with some little discipline, you can still invest with the small amount you have.
Here are some of the best ways to invest while you’re in college.
- High-yield savings account
The first strategy on how to invest as a college student is a high-yield savings account.
With this investment strategy, you save a small amount in a safe account that will generate a compound interest in the long run.
The good thing about this investment method is that it isn’t as volatile as investing in the market. However, you must ensure you get high-yield savings account that’s insured by the FDIC. This will help to keep you safe in case of bank failures. This investment method requires a lot of patience and time though since you’ll put some money into your savings account for a given period.
The interest rate you get using this investment opportunity can be 20 times more than that of a traditional savings account.
You can open a high-yield savings account with your bank or use an online bank that has a good annual percentage yield.
Remember that a high-yield savings account has some requirements for the minimum or maximum amount you need to keep in your account. There are fees charged for the low principal balance.
- Purchase stocks
Purchasing stocks or equities is a type of investment where you own a share, or ownership in a company. In this case, you get a small percentage of the total amount the company is worth.
The good thing about purchasing stocks is that the value increases over time which means that when you purchase stocks worth $1,000 today, you might become a millionaire in like 5 years to come.
- Invest with low-cost or discount online brokers
As a college student, you probably don’t have much money to invest. Nevertheless, you can invest the small amount of money you have through online brokers.
Online brokers are online platforms by financial companies that let you invest your money in mutual funds, index funds, stocks, etc.
The good thing about online brokers is that they offer low-cost or commission-free options that let students invest small amounts of money. Besides, many online brokers offer tools to help you learn about investing.
Besides, there are many great low-cost online brokers out there like Charles Schwab, Fidelity Investments, and many others. There are also free options like Robinhood that are great for college students that let students trade on the platform for FREE.
Online brokers are extremely addictive though and depend on technology like the internet and investing apps to make trades.
This means that a small malfunction or internet problem could make you miss out on profitable trades or purchase the wrong stocks.
IRAs is the short form for Individual Retirement Accounts.
This is a type of retirement plan that offers tax benefits for investors. This type of investment might seem unsuitable for students but it’s the best investment option for college learners.
Typically, there are two types of IRAs namely traditional IRA and Roth IRA.
With the traditional IRA, you don’t incur taxes when investing your money. The money you put in generates interest until you retire. You will only pay taxes at the time of withdrawing your money.
On the other hand, a Roth IRA charges you taxes when investing your money but you don’t incur taxes by withdrawing it.
This implies that your money will compound interests tax-free until you take it out. This is the best investment option for college students since most students aren’t either employed or making much money.
The good thing about this investment option is that it’s suitable for anyone but to open a Roth IRA. Also, Roth IRA rates keep fluctuating so you need to review the International Revenue Service before opening your account.
Remember that with an IRA, you will have to wait for a long period before you take out your money.
- Purchase mutual funds
First off, a mutual fund is a company that uses money from multiple investors to invest in bonds, stocks, and other securities.
Buying mutual funds is also another impressive way to invest as a college student because the money you contribute is managed by a professional fund manager who makes all the crucial; investment decisions at no extra cost.
With mutual funds, you don’t have to worry as you would when purchasing individual stocks. You’re in the safe hands of a professional fund manager who takes care of the rest while you wait for your investment to grow.
- Index funds
Index funds work fairly as mutual funds but have some differences. For instance, with mutual funds, a company takes in funds from multiple investors and manages the fund including making important decisions. The company is responsible for investing the money in a way that benefits all the investors.
When you purchase index funds, you’re investing in high-performing stocks of a certain market index at low prices. S&P 500 is the most popular index fund out there with an average return of around 10% per year.
An Index fund is a low-risk investment option hence it’s suitable for college students. Besides, it’s a suitable investment strategy for anyone. Don’t expect huge gains overnight with this investment option though because Index funds are designed for gaining wealth over time.
- Invest in exchange-traded funds
Exchange-traded funds, also known as ETFs operate fairly similar to index funds as they track indexes like S&P 500 Index, Nasdaq 100 Index, and more. When you purchase EFTs, you also put your money in the stocks of a certain marketing index. You need to conduct more research before you invest in EFTs.
A bond is similar to IOU. With this type of investment, borrowers use bonds to raise money from investors. This means that you’re loaning your money to a government, municipality, or corporation and then you will get the money you loaned with interest.
Bonds are considered low-risk investments but you won’t make as much money as you would when you purchase stocks or invest in index funds.
- Target-date funds
Target-date funds are another type of mutual fund that involves a combination of stocks and bonds.
As the name suggests, when you put your money into a target-date fund, you invest with a specific end date in mind. For instance, you could invest with an end date of like 10 years from the time you invest.
As the name suggests, Robo-advisors is a popular online investment platform that advises investors like you on the best investment options. The platform uses algorithms that use your age, tolerance for risk, and financial goals to help you choose the best investments for yourself.
Robo-advisors have low annual management fees thus making these platforms suitable for college students.
- Take advantage of investing apps
From tracking your stocks to researching and reading stock news and updates, there is a lot of work to do before you invest in any of these investment options mentioned here.
This is where you need to find the best investment apps for beginners.
Typically, investment apps are platforms that simplify the investing process for you.
Most of the investing apps are easy to use, mobile-responsive, and come with noteworthy features that allow you to set up recurring investments in just a single swipe, offer automatic balancing, and more.
Here are some of the best investment apps for college students investing for the first time.
Vanguard is one of the best investing platforms for beginners. This stock trading app for college students lets anyone purchase and sell securities such as index fund EFTs. As a shareholder, you pay no commission on Vanguard products like VFLAX, VTI, or VTSAX. The application is available for Android and iOS devices.
This investment app offers personalized financial advice, appropriate marketing insights that help you build a great future, incredible investments, etc.
Public.com is a social investing app that lets you invest in stocks, build your portfolio, connect with other investors, discover companies, influencers, and invest with any amount of money.
You can also share real-time investing operations with family through public posts or private messages. Think Facebook.
This investing platform is great for beginners as it offers useful tips and information about how stocks work.
Acorns is perhaps one of the most popular investing apps for young adults as it is specially designed for beginner investors who want to venture into purchasing stocks.
How this platform works is simple. It rounds up your daily purchases on your debit card to the nearest dollar then invests the money for you at a small fee based on your plan.
For college students, all you need is an email address that ends with .edu to register an account.
There are also different plans to choose from depending on the service you buy.
Webull is the new kid in town. The free stock trading app comes with impressive investing tools that simplify the stock trading process. The investment app features a simple trading platform for beginners and experts alike.
If you’re looking for a platform to invest without paying fees or using complicated features then look no further than Webull.
What’s more, when you open your Webull brokerage account, you get your first free stock. When you deposit any amount directly, you get another free stock.
The good thing about this investing app is that you pay zero commission fees. You can also buy or sell cryptos and get real-time market insights.
Stash is a personal finance app that was designed with beginners in mind. This platform makes investing easy and affordable for you to build wealth and achieve your financial targets.
The investing app has three easy plans for long-term investing:
Beginner: Stash beginner: This plan costs $1 per month and is suitable for beginners with small investment capital.
Intermediate: Stash growth: This plan costs $3 per month and is suitable for anyone looking to expand their long-term wealth-building goals.
Expert: Stash: This plan costs $9 per month and is suitable for advanced wealth-builders and debit card spenders.
M1 Finance is another powerful finance solution that lets you open your account in just a few clicks.
When you set up a new M1 account and deposit $1,000 or more, you get a $30 bonus.
The app has features that let you create Portfolio Pies that rebalances to help you reach your financial investment goals.
The app is designed for beginner and expert investors alike.
Not sure how to start investing as a college student?
Read on to learn more.
Tips to Help you Invest as a College Student
Investing as a college student can seem daunting to almost impossible, but there are many investments options out there than you can imagine. For instance, you can invest in individual stocks, index funds, IRAs, etc.
Here are useful tips to help you invest the right way as a college student.
Conduct thorough research
Before you start investing, conduct enough research around the type of investment you want to start, the amount you need to begin with, etc.
The last mistake you want to make is to choose an investment method that charges higher fees than the profit you get. Or you risk making the wrong investment decision if you don’t conduct enough research.
Determine your investing goals
According to financial advisors, when it comes to investing, you need to define your investing goals. Yes, you have to know what you want to achieve with your money. Are you looking to manage your student loans? Do you want to save and start a big company later? Whatever the goals you have for investing:
Thinking long-term when investing as a college student is the best thing you can do. Of course, at this age, many students are after short-term profits. Don’t let this short-term profits mindset take over your head.
Think about it: By contributing $25 per month with an 8% compound interest rate and an initial investment of $100, you will be worth $110,509.23 by the time you reach 45 years.
Define a good investment strategy
While there are many investment options from saving money into a high-yield saving account to IRAs, and many others, not all are suitable for everyone. You need to determine an investment strategy that suits you.
As a beginner, the easiest investment strategy would be to open an account with a low or discount online broker, micro-investment app, or Robo-advisor.
Here, you can seek help from a financial advisor or planner.
Be wary of hot tips
When looking for information on how to invest as a college student, you’re most likely going to encounter companies or guys who will promise you some get-rich-quick investment strategies. Most of these get-rich-overnight promises are just mere scams.
The last mistake you want to make when investing while in college is to put all your eggs in one basket. This implies using a single investment strategy.
“When it comes to investing, diversifying is one of the best things to do”, says Joash Gregory, a professional financial consultant. You can use mutual funds or ETFs together with other investment opportunities like stocks, and more.
Think about yourself first
Even though investing is good, you need to think about yourself first. The last thing you want to see is spending everything you have in investing- including your time, money, and resources at the expense of your studies. You must enjoy the freedom that comes with college life since this is a once-in-a-lifetime opportunity.
Automate and make it easy
As a student, your plate is already full. Your education, social life, and other things happening around you can make it easy to forget to invest.
To make things easy for you, automate your investments.
Review your investments
When it comes to investing while in college, time and consistency are key. After automating your investments, you don’t necessarily need to monitor your accounts daily, weekly, or even monthly.
This doesn’t mean you stay hand-off entirely. You need to monitor your investment strategy periodically to determine whether it’s working or not. You can set up a calendar reminder for reviewing your investments.
For beginners, you can review your investments once, twice, or three times per year.
When investing as a college student, you must have long-term goals. If you expect to build a huge wealth overnight, you’re in for a shock. You risk falling into the tricks of scammers or making rookie mistakes.
According to Brill, a company that helps students with business and finance assignments, no matter your investment strategy patience is your biggest investment asset. Give your investment strategy lots of time.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. -Paul Samuelson
This is one of the best investment quotes by Paul Samuelson, America’s first Nobel laureate that applies more to the millennial generation who only perceive the short-term returns of an investment instead of the long-term.
The sooner you learn how to invest as a college student the sooner you begin saving for your financial future.
As stated earlier, there is no better time to start investing as a student than now. The good news is that you don’t need too much money to start investing. You can invest with what you have and grow your knowledge and portfolio with time.