The word “invest” is thrown around all the time, whether it be by social media, professors, your parents, or even peers. Variations of the phrase “start investing early!” is the extent of the advice we hear in passing. But what does it actually mean, and how do you do it? It may feel like we should already be experts, but we all start somewhere.
Between textbooks, classes, coffee chats, and late night Joe’s runs, it feels like college productivity has no room for investing. The reality is: you don’t need a Ross degree or thousands of dollars to begin investing, let alone understand it.
Here are some basics every college student should know before diving into the investing world.
What actually is investing?
Before actually investing, it is critical to not only know its definition, but to thoroughly understand it. By this, I don’t mean knowing every financial vocabulary term in the books, but simply having understanding of how investing will work for you.
By definition, investing means putting your money into something like stocks, bonds, or funds with the hope that it will grow over time. It is different from saving, where your money just sits over time. Investing focuses on growth, and making your money work for you.
If you are still a little lost, think of the word invest in a general sense. You invest effort into schoolwork hoping your effort pays off with good grades. You invest time into relationships hoping you gain a friend. Same thing, you invest money into things hoping you gain a financial profit.
As a college student, the greatest advantage that you have is time. When people recommend starting young, its because investing takes time. Picture this, you invest $100 in freshman year and it grows by 10% each year, so by senior year you will have $207.36 without investing another dollar.
You can literally start with $3
As college students, most of us don’t have thousands of dollars to spend or invest. Luckily, you only need as little as $3 to begin investing. Beginner friendly platforms such as Webull, Robinhood, Fidelity, and so many more (just give it a Google search), enable you to buy fractional shares. Fractional shares are less than one full share of a companies stock, so investors can buy a dollar amount rather than more expensive whole shares.
Remember, it isn’t how much you start with, it is how early you start.
Starter pack: your beginner friendly options
Index Funds: These tracks the performance of the overall stock market (like the S&P 500) instead of betting on just one company. They are low-cost because you get instant diversification, spreading out risk across several companies and bonds.
ETFs (Exchange-Traded Funds): These funds are basically the same as index funds except you can buy and sell them anytime like a stock. ETF’s pool together investment securities holding a collection of assets likke stocks, bonds, or commodities. It provides an easy way for investors to diversify their portfolio at a low cost with one purchase.
Roth IRA: Opening up a Roth IRA retirement account is a key move for college students because the earliker you begin, the more time your money has to grow. This account grows tax-free because contributions are made with after-tax dollars (money you have already paid taxes on).
High-Yield Savings Account: You should keep a small emergency fund in a high-yield savings account. A high yield savings account is a savings account that pays a higher interest rate which allows your money to grow much quicker. They are often low-risk and there is no fixed term (so you can access it at any time).
Tip: Try to stick to funds that are diversified, meaning the risk is spread out across different securities. This way, you won’t have to worry about losing all your money while you are studying for midterms!
Do Your Homework
Doing your due diligence on anything you put your money into is essential. Simply doing your research on companies using legitimate sources like Investopedia, Nerdwallet, or even participating in programs like UMich’s CEW+ Financial Empowerment Program can help your investments immensely. Listening to podcasts and reading articles is also a great way of educating yourself casually. However, don’t trust everything you see on social media, or anyone that guarantees you profits.
Make it a Habit
You can actually make investments automatic. Your bank’s auto-transfer feature can put a small amount into your investment each month. This is one of the easiest ways to build wealth without even having to think about it. Apart from this, set a goal for yourself to set aside a certain amount of money over a time period to invest. Before you know it, you will be a pro-investor!
Make it a habit to think about your purchases. Maybe you can sacrifice your $7 latte once in a while for investing. Taking baby steps is much more monumental than it seems, especially with investing.
Now, you have no excuse but to take these small steps and turn your investing goals into a reality!