The following information is for educational purposes only and should not be taken as financial advice. Please do your own research before investing in stocks or securities.
As a college student, money is often one of your biggest concerns. From paying rent to paying tuition, college students are often strapped for money. However, that does not mean you can’t invest. Anyone can invest with very little money and it is all meant to grow your portfolio in the long term. As a college student, you have time on your hands, meaning if you start now, your portfolio has a great deal of potential in the long run. Investing may seem difficult and scary. However, there are basic rules you can follow to ensure that you make smart moves in the stock market.
Don’t keep all your money in a low-yield checking account
One of the most ignorant things you could do to your money is leave it in a low-yield checking account. For the most part, if you are not using in-person banking services, I recommend everyone switch to an online-only bank, such as Ally Bank. These online banks save money by not having physical branches and thereby offering customers higher rates on their checking accounts. If you leave all your savings in a low-yield checking account, you could be missing major returns just for leaving your money in a competing bank. Although the paperwork to open a new bank account may seem overwhelming, you might find yourself with a checking account with ten times the interest rate of a typical brick-and-mortar bank in the long run.
Understand your risk tolerance
Before you invest, you should certainly note your risk tolerance and take note of how much money you are willing to invest. Are you planning to invest 40-50 percent of your savings? Will you take 30 percent of every paycheck to put it into the stock market? Before you open a brokerage account, be sure to understand your risk tolerance. Will you stick with broad stock market ETFs such as SPY or will you be trying to invest in the next Amazon? If you go into investing without a game plan, you may find yourself listening to bad advice from people telling you what to invest in. Study the fundamentals of a company; are they on an upward trajectory? What are the ratings that it is getting from large investment firms? All this information is key in understanding what stocks you should buy.
When you begin, invest in low-risk securities
For the most part, the more you invest, the more comfortable you will be with buying and selling securities. However, if you begin trying to invest in penny stocks, you may get burned and refuse to invest anymore. For a beginner investor, particularly a college student, I recommend investing in simple, low-cost, sector or index ETFs. These ETFs allow you to invest in a certain sector or index, through low-cost securities. When investing in ETFs, be sure to take note of the expense ratios to ensure that your investment does not lose money in the long run. Are you interested in investing in green companies? There are ETFs for that. An example would be iShares Global Clean Energy UCITS ETF. Are you interested in investing in AI technology? There’s an ETF for that: Global X Robotics and Artificial Intelligence ETF. Please do take note, the more selective and specific an ETF, the more expensive the expense ratio is. The inverse is also true; the more broad an ETF, the cheaper the expense ratio is.
As you invest more and more, you may find yourself more willing to make riskier investments, and that is totally fine. You will be better at analyzing the fundamentals of a company and seeing trends in earnings per share. You may find yourself more comfortable and even willing to invest in derivatives. As always, invest smart, save safely, and use compounding interest.