Investing early can set college students on the path to financial success. This guide provides investment tips for college students such as calculating risk, diversifying portfolios, and taking advantage of time to maximize returns through stock buybacks and dividends. Start making your dollars work for you today.
You can take control of your financial future early by investing while you’re in college. Many investment vehicles are well suited for college students, providing low-cost opportunities with solid return potential.
As a college student, you have a strong advantage over older investors in that you have much more time to work with. Time is money when it comes to investing, simply due to compound interest.
The first step to investing while you’re still young is to keep learning about various aspects of investing as you go. The more you know about investments, the better you’ll fare in the long run.
There are a wide variety of different types of investments. Finding the right investment vehicle for your needs and desires means knowing what’s available to you.
Here are some tips for investing as a college student:
1. Start small. Begin with a small investment, like $25 or $50, and increase how much you invest over a period of time as you become more comfortable. Starting small will help you build an investment portfolio without wearing yourself too thin, too quickly.
2. Calculate risk. Know ahead of time how much risk you’re willing to take when it comes to your money and investments. All personal finance investing will come with some risk. How much risk are you willing to take on? How much risk does each investment demand?
• If you are a risk-taker, then the risk of losing money may be outweighed simply by the prospect of seeing a positive return on your investment. Taking risks is a part of investing that you may simply have to accept.
• If you’re looking to avoid as much risk as possible, then choose guaranteed investment vehicles like federal savings bonds, student savings accounts, and money market mutual funds. These low-risk investments offer smaller rewards but the tradeoff is worthwhile for many investors because of the increased security.
3. Determine how quickly you want returns. If you’re willing to put your money into longer-term investments, mutual funds are a solid choice because they offer access to stocks, bonds, and a number of other security types and involve investing as a group rather than on your own.
• Certificates of Deposit at your bank are safe and pay higher than checking or savings accounts. Plus, the longer you lock in the funds, the higher the rate.
4. Take advantage of time. Mutual funds are an example of how an investment may not do well in the short term, but can still pay out well over time. As a college student, you definitely have time on your side. Choose funds that have historically paid out better than the stock market average.
5. Diversify. There are a wide variety of different investment vehicles to explore. Some require small investments while others ask for larger ones. Diversify your investment portfolio rather than putting all your eggs into one basket. This way, if one investment doesn’t perform, you have others to fall back on.
• Start with smaller, long-term investments that you can continuously invest into such as a mutual fund. Wait until these investments bring positive returns before experimenting with other investments like stocks and bonds.
The Bottom Line
Investing always carries some inherent risk, but many investment vehicles offer low risk and fair returns. As a college-aged investor, you have time on your side. Use this to your advantage to invest in long-term investments with substantial return potential.
Above all else, consider diversifying your investment portfolio. What this will do is protect you from serious losses by allowing you to invest in a variety of different investment vehicles rather than one single investment type.
With a diversified portfolio that you continue to add to on a regular basis, you’ll graduate from college with an already-established firm financial footing.
