Last updated: January 2024
In an age where being young, wild, and free is the dream, the idea of students investing can be quite far off. However, when student debts start racking up, and the prices of commodities get higher, learning how to make the most out of your money may take a load off any financial burdens in the future.
Contrary to common stereotypes, students make for a great investor. Aside from being able to start at an earlier age than most, they are also risk-takers and fast learners. So, if you are a student looking to make a smart investment, here are the steps and tips to get you started.
How to Start Investing as a Student
Get to know the stock market first
Like any other examination, one must prepare himself before jumping right into investing.
There is stock market jargon like Long/Short Position, Square off, and Face Value, which you will encounter every time you are investing. To better understand the role these terms play in the system, you have to know what they mean.
As a student, it is in your best interest to learn about the stock market at zero cost. There are several platforms that you can use to get a head start on stock market investing without shelling out expenses. Here are some of the best ones.
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Library Books
Not many students take advantage of the free books that are available in the school libraries. Most universities offer business courses, and undoubtedly, one of the areas of interest is the stock market.
By going over these materials, not only will you get to learn about investing from reliable sources, but you also acquired knowledge for free.
Online Courses
The rapid development and popularity of the world wide web have made it the go-to guidebook for beginners in every field. In just a simple search, everyone can get access to millions of reading materials and tutorials to get themselves started. Investing is no exception.
There are tons of online universities that give out stock market crash courses. Most of them usually come with a price, but this is so because they give out certificates of completion if you “graduated” or finished the course.
Getting a new achievement that you can place in your resume and all the while learning about the stock market makes it a win-win situation.
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Attend lectures
All universities will occasionally hold seminars and conferences. Make sure that you keep posted on the activities that will happen not only in your university but also with other schools.
By attending lectures, you get to hear firsthand from notable investors about the know-hows of investing. If you want to take it up a notch, you can even organize a lecture in collaboration with the business majors in your school.
Join investing clubs
Contrary to popular ideologies, investment is hardly ever plausible when done alone. Certain pieces of information are best acquired when you join investment clubs. As a student and a beginner, you must find a group of people that will guide you throughout the whole process of learning the trade.
On another, investment clubs also provide beginners the opportunity to start investing without the burden of having to make big decisions. By contributing to a mutual fund and having those with the majority shares decide, you will get to see your capital grow if your partners are competent in dealing with the trade. Some investment clubs grow out to become a legal partnership or even corporations.
Yet, if you want to stay on the downside, it is still much better that you get to call the shots on your own. So, better save that money and learn about stock market investing before diving in the trade.
Take care of high-interest debts
After learning the basics of the trade, it is in your best interest to deal with high-interest debts first. For every investment in the stock market, one exposes himself to the risk of losing his capital. The risk is part and parcel of the trade, and anyone entering it should be practical.
For this reason, it is crucial to prioritize debts with a high-interest rate. These loans can quickly become a considerable burden, especially when you are still beginning to invest. Money does not grow from trees, and rarely does anyone acquire profit from investment within months.
It is highly recommended that when you start investing, you do not have any outstanding loans or debts, especially those that are mortgaged with properties. It is important to remember that debts can become a substantial financial burden in the future, and paying them off should be a priority because the stock market will always provide opportunities for anyone at anytime.
Brokerage firm
Once you are finally sure that you can invest, the best way for young investors to start is by using online brokerage firms.
What are the brokerage firms?
A brokerage firm is highly crucial as it is through them that you get to open a brokerage account that is used in purchasing investments. You must first deposit a balance and then buy the stocks that you want. Also, you can sell the shares and money that you acquired from your investment through these accounts.
On the other hand, online brokerage firms also provide additional benefits. These kinds of firms allow individual investors, such as students, to manage their stocks by using their tools personally. These tools include a monitoring system, an automatic purchase system, and a portfolio analysis system.
Furthermore, these online brokerage firms may also include additional educational materials as well as research reports that can assist you in making better-investing decisions.
Learning all about stock market investing is not the end all be all of the trade. You also need to find the right tools that can help bring profit to your investments.
Don’t put your eggs in one basket
If you diligently studied about investing in the stock market, you will know that one of the rules of thumb in the trade is always to diversify your investments.
Putting all of your savings in one company is a surefire way to put the investment risk at a 50-50 rate. You either profit from it or lose your capital all at once. This is an impractical way to start investing. As such, being a student, it is crucial that you learn to vary your stock purchases. This way, when one stock is at a low rate, your funds from the other capital are not affected.
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Getting to know the different kinds of investment
Contrary to the general idea that investments are only in the form of stocks, there are three other means to make a profit out of your savings. These are through:
- Bonds
- International securities
- Real estate funds
What are bonds?
When you want to invest in bonds, you are basically lending money to a corporation, organization, or even the government. To gain profit, you will agree to give capital, and the borrower will pay back with an interest rate. This is akin to loan agreements that you can find in banks.
What are international securities?
International securities are probably still far off if you are still starting to invest. However, to give you an idea of what awaits you in the long run, investing in international securities is a way for big investors to diversify their investment and enter the foreign market.
It is basically similar to local bonds, yet the companies you are dealing with are those from other countries.
What are real estate funds?
To simply put it, real estate funds are simply stocks that involve properties rather than company shares. It is probably one of the most practical ways to invest your money as properties naturally tend to increase in price over the years. In addition, you get to enjoy certain perks such as tax benefits and get to sell the property at a time of your own choosing.
Start A.S.A.P.
Most students would not even think about investing their money until they reach the point of living independently. That is why most investors would tell young people to start investing as soon as possible.
When you start investing at a young age, not only will you get to be one step ahead of everyone else, you will also improve your spending habits. Knowing that there are tons of possibilities that your money can go to, you are less likely to spend your money impulsively.
Building your wealth is not a priority for most people. But, when you are finally living on your own, you will find that participating in the investment trade is one of the best decisions that you have made.
Set aside an emergency fund
Many are blinded by the idea of the possible profit that one can get when they start investing. Most people make the mistake of putting all their savings into investing. It is essential that before investing, you should have an emergency fund.
Risks increase every time you place a large amount of investment, which is why having an emergency fund becomes more critical by the day. Emergency funds protect investors from being bankrupt and you will also be assured that you will have enough to sustain yourself when anything happens.
Invest in tools
This digital age has provided beginners an easy way to start investing. Thanks to various digital tools, the process of streamlining the process from being an amateur investor to a full-fledged one has become much quicker and more efficient. Make sure that you invest in tools that help evaluate asset allocation, an algorithm-based advisor, and an investment portfolio analyzer.
Compounding Interest
If you are still in doubt, you better familiarize yourself with compounding interest. Compounding is the process where your earnings from assets are reinvested in order to generate passive revenues over time. There are several compounding interest calculators, but one thing is for sure, the earlier you start, the higher your profit capacity becomes.
To illustrate, take, for example, Student A, who started saving at the age of 18. On the other hand, Worker B only started saving upon reaching the age of 35. Both these people saved $100 per month until ten years after when they stopped saving and left their accounts to accrue interest.
By the time both of them reach the age of 65, the Student will most likely have a higher ending balance as his principal amount garnered interest over the span of 47 years. Meanwhile, Worker B accrued interest for only 30 years.
Therefore, the earlier you begin saving and investing, by the time you reach the age of retirement, you will end with a higher ending balance.
Youth is an advantage for investing
What can a university student invest in?
Financial savvy university students can invest in a variety of options, such as stocks, mutual funds, certificates of deposit, and exchange-traded funds.
Stocks can be a volatile option but potentially offer higher returns than other investment choices. Mutual funds and ETFs offer diversified portfolios of stocks and bonds and typically require a minimum investment.
Fixed deposits are also safe, low-risk liquid investment that provide a guaranteed return after a set maturity period.
Finally, university students may opt to invest in socially or environmentally conscious funds that focus on socially and environmentally conscious companies or investments.
How do I grow my money as a student?
As a student, there are several options to help you grow your money and prepare for a financially secure future. Investing is a popular choice since it presents the opportunity to expand your money over a longer period of time.
Alternatively, you can look for higher-interest accounts or certificates of deposit to help your money grow faster.
If you have a reliable source of income, like a part-time job, you can start budgeting, setting aside a predetermined amount of money that you save each month.
Finally, remember the power of compounding when possible; reinvesting your income instead of spending it will allow you to accelerate your returns on investment and make your money grow faster.
Should young adults invest in stocks?
Investing in stocks can be a great way for young adults to grow their wealth and set themselves up for financial stability in the future.
While investing can be intimidating at first, it is important to remember that stocks historically have generated higher returns than other types of investments, such as savings accounts or bonds.
Moreover, with the rise of apps and platforms that make it easy to invest and manage one’s portfolio, investing in stocks has never been more accessible.
While there is always risk involved with investing, young adults who take the time to educate themselves on the stock market and invest wisely can reap significant rewards in the long run.