When packing up your bags as a freshman for your first year in college, it might seem daunting to leave the safety of your parents’ nest and financial stability of your childhood. Welcome to the real world! However, it doesn’t have to be as scary as it sounds. Many college students are wise enough to know they should start investing their money, but aren’t sure where to start. From online checking accounts, to creating an investment portfolio, we will cover the important basics. If this is your first time being financially independent, you came to the right place! Keep reading to find out five ways you can start investing your cash in your college years.
1. How Much to Invest
It’s important to initially pick an amount of money you can commit to putting away. Pick an amount that you’re comfortable with stowing away at the end of each week or month, depending on what your current income is. If you have a part time job, this will be a lot less than if you’re working full-time throughout college. Or maybe, you just work the occasional weekend, or pick up some babysitting jobs when coming home for holiday. That doesn’t exclude you from become an investor today! Just evaluate your income and what you’re comfortable with budgeting. Even if you can put away less than $100, you can still be eligible for ETFs trade in stocks, if you purchase the stocks for share price. If you have a more steady income, then a good starting goal is to invest 10% of your earnings each year.
2. Create a Savings Account
If you don’t have already, make sure you have a savings account. Discuss with your preferred bank to create a savings account as a place for you to continually put your money away. If you’re the forgetful type, then this can be made much simpler with the use of digital online banking. Companies like MoneyLion or Wealthfront, for example, allows users to transfer money away from their bank account every month to be invested. This is done without any management fees, ATM fees, or monthly fees, allowing you to keep all your earnings from each investment. Every month, your diversified portfolio will be added to by a determined monthly amount, across various domestic and international stocks and bonds.
3. What Should You Invest In
As a beginner, you may have some confusion about what you can or should invest in. There are several investment instruments from you to choose from as you get started.
- Stocks – Stocks are shares of ownership in a company. These prices move depending on ever-changing evaluation of the company’s performance. This can be swayed by factors from anything from changes in management, to financial stability, to new product releases in the market. These stocks, also known as equities, are sold to the public by companies to pay off their debt or to increase the overall net worth of the company.
- Bonds – Another option that you can invest in is a bond, or a loan to a company or a government entity. Bonds function by giving loaners interest over a certain number of years, and eventually promising to pay you back. These are a viable option for new investors because bonds are less risky than stocks. You will get exactly how much you are promised to be paid back, and you can predict how much you’ll earn before signing up.
- Exchange-Traded Funds – ETFs are a great option for investors looking for a variety of the previous options. They are a cluster of stocks, bonds and commodities, or securities that you can buy through a broker.
4. Create an Investment Account
To Invest in stocks, it is essential that you have an investment account. This could be either an online brokerage account or a robo advisor account. If you would like to be more hands on with your investment account, then you will want to open a brokerage account. This allows you to open an individual retirement account, or a taxable brokerage account. If you would like to have a more passive experience investing, try out a robo advisor service. This will not only be a lot easier, as investment goals are up kept by machines, but the management fees are a fraction of that of a human financial advisor.
5. Start Investing
Once you decide how much money you’re comfortable in investing, what investment instrument you want to start using, and whether you are going to pursue a brokerage account or a robo advisor service, you are finally ready to start investing. If brokerage accounts appeal to you, companies such as Ally Invest or Merrill Edge will lay out intricate plans for your investing. While this article doesn’t cover the various approaches to implement while starting your investing, we hope this guides you in how the basics of investing function.