I first started investing at the age of 21, when I was in college. Lets learn how you can actually start to invest money in college. But before that, why should you start so early (or even earlier, if possible)?
Let’s take a look. If you invested $1,000 in the stock market when you were 20, here is how much you will make by the time you are 50, if you earn 15% gains a year. [Just take a look at how much stocks like Amazon has grown in the past year if you do not believe me!]
The truthis your investment gets compounded. If you were to re-invest your gains eachyear, with compounding, you will be able to achieve financial freedom beforethe retirement age.
So what should you do?
1. Invest in yourself
The most important thing you could ever do first, is to invest in yourself. Buy investment books (such as ‘The Intelligent Investor‘ and ‘One up on wall street‘) watch YouTube videos, attend workshop and seminars, read websites, talk to your friends and family.
There is more than one way to learn. Choose the method that suits you the best.
It is crucial to learn about investing before you invest your money anywhere. If you do not have the required knowledge, then the figures that I showed you above might be very hard to achieve (unless you are really lucky).
We want to invest, not gamble. If you buy a company just because you “like the company”, then you might as well go to a casino.
There is so much more to understand about a company before buying it.
2. Open your own brokerage account
Next, is toopen your own brokerage account that would allow you to trade or invest. Donote that buying stocks involves risk and you should be prepared to lose themoney if you do not understand the company well.
For myself, I opened a Prepaid Account in Philips Investment Centre (POEMS 2.0) as it allowed students with no income to buy shares in the stock markets. (There are pros and cons to this brokerage account, so do your research!) However, this is only for Singaporeans.
There are also many online brokerage accounts available too, such as TD Ameritrade,
3. Settle your debts first!
Paying off your student loans are going to be hard. So, if you have a debt that collects interest, then investing a large amount of money into the stock market might not be the wisest choice for you.
The last thing you would want is to make your financial situation worse as investing comes with a risk. However, local university students do have interest-free loans, then you could consider investing the extra spare cash that you might have. It is crucial to set aside money to pay back your debts first.
4. Time to invest your actual money.
Now thatyou have done that, it is time to start saving money to invest. Could you saveup $3/day? Could you put aside $100 a month? There are many different forms ofinvestment you could make in college, depending on how much funds you have. Thefirst thing you have to do is to learn these different forms of investmentmethods and decide what is the best strategy for you.
Mutual Funds
A mutualfund works on getting pools money from many investors. This money is theninvested into securities. In this case, your money is being managed by someoneelse. However, in mutual funds, the operating expenses are high. If youinvested in these securities, such as stocks on your own, you could potentiallyearn a lot more. Mutual funds also require a large minimum amount ofinvestment, which is why it might not be the best method for you. Research wellbefore investing in any mutual funds and use a mutual fund calculator tocalculate your actual returns.
Exchange-Traded Funds (ETFs)
An ETFgenerally tries to replicate the indexes (for example, S&P500, STI index).Examples of some of these ETFs are Vanguard 500 Index (VFINX), Schwab S&P500 Index(IVV) and Vanguard Total Stock Market (VTSMX). ETFs generally growwith the market, about 7-8% a year.
Stock Market
Buyingstocks would be the best way to achieve 15%, 25% or even 50% gains a year.However, it is important to realize that investing in stocks come with a risk.It is also possible to lose all of the money that you have invested. However,you can minimize your risk by conducting your research well before buyingstocks. There are many factors to consider before buying a stock which I willtalk about more in another post, if you are interested.
If youwould like to see big gains, you have to be willing to hold your stocks forlong term (like Warren Buffet). But as a college student, time is definitely onyour side, which is why it is good to start early.
With that, you are ready to start investing. Good luck!!! Remember, it is important that you start early if you want to be ahead of everyone else financially!
