If you’re in college, you’re spinning a bunch of financial plates in the air – perhaps budgeting for a new laptop, making sense of financial aid and saving for spring break, to name a few.
Probably the last thing on your mind is investing in the stock market.
But here’s the thing. Because you’re young and have time on your side, it’s ideal for you to get your feet wet with investing now. “You might have heard the saying ‘time in the market beats timing the market,’ ” says Robert Farrington, founder of The College Investor. “The idea behind this is simple: Compound returns over time will help drive portfolio returns. If you can start in college, you get a huge leg up in time versus people who start in their later 20s or 30s.”
So how can college students get a jump on investing? Here are a handful of tips.
Even if you can only commit $100 or $200 at a time, that’s better than nothing, explains Farrington. “Start small, and focus on investing for the long run.” The good news is that if you don’t have thousands of dollars to start with, there are plenty of ways to get started with investing for very little money.
With micro-investing apps such as Stash or Acorns, you only need as little as $5 to get started. And when it comes to fees, Stash charges $1 for accounts with balances up to $5,000 ($2 for IRA balances up to $5,000). Acorns also charges $1 for accounts with balances up to $5,000. After that, you’ll be charged a percentage of your account.
There are also options such as Stockpile, where you can invest in fractional shares of stocks. Like Stash and Acorns, you only need $5 to open a Stockpile account, and each trade costs 99 cents.
Make Trade-Offs So You Can Afford It
If you want to set aside $50 a month to invest, commit to making trade-offs. Maybe that means brown bagging your lunch a few times a week instead of eating at the food court on campus. Or check out a movie matinee during the week instead of at prime time to save a couple of bucks. Maybe you can ask to take on a few extra hours a month at your job. Saving a little here and there could add up to $50 or $100.
Don’t forget to set that money aside to be used solely for investing. Open a separate savings account and label it “Investing” – if you’re making a deliberate effort to save, the last thing you want to do is have that cash siphoned into something unnecessary.
Fees are something you should always consider when investing. This is even more crucial when you’re starting out and don’t have a lot of beans to throw down. A study by Vanguard showed that 25 years of paying 2% or more in investment fees could eat away as much as 40% of your 401(k). Ouch.
Familiarize yourself with common investment fees, such as expense ratios, which are annual fees that all exchange-traded funds (ETFs) and mutual funds charge their shareholders. Look at front- and back-load fees, investment management fees, transaction fees and other annual account fees.
No matter the investment service you use, be sure to know the total fee amounts, recommends Larry Ludwig, founder of Investor Junkie. Robert Farrington agrees. “Some of the fees aren’t as obvious to the customer,” he says.
Hunt for Discounts
Take advantage of any sweet discounts offered to students. For instance, for accounts over $5,000, Acorns doesn’t charge college students the usual .25% fee per year. All you need to do is provide a valid .edu address and you’re good for up to four years from the date you register for an account.
Farrington recommends looking at brokers who charge no monthly or annual fees and who have low expense ratio funds. “Many large brokers have no-minimum IRAs and other accounts you can take advantage of,” says Farrington.
While on the hunt for discounts, Ludwig warns students to read the fine print with a free stock brokerage or commission-free ETF. “There’s no such thing as a free lunch,” says Ludwig. “Someone is paying for it, and/or the quality of the service is reduced in order to make up for the difference for the free service.”
Invest In Yourself
Amazing as it would be to get rich overnight by putting your money in the right stocks, the truth is you don’t get rich by investing in the stock market, points out Ludwig. “You use the stock market to maintain your wealth.”
As a student, besides hitting the books and making the grades, focus on career growth. Make the most of internships. If you have an entrepreneurial spirit, start your own business. Come up with an idea for app. Learn to market your own services, and make your own money tutoring or selling your creations on Etsy.
Be Okay with Making Mistakes
Don’t be afraid to make mistakes with your finances, says Ludwig. “You are going to screw up,” he says. “It’s better to make mistakes now while the stakes are low, than do something stupid with millions of dollars.”
Remember that you can always make tweaks along the way. Think of this as a valuable training ground to learn the ins and outs of investing. Plus, you’ll learn how you react to the inevitable highs and lows of the stock market.
Investing in your 20s while you’re in college is prime time to get your feet wet. It’ll give you the knowledge you need to be a lifelong investor, give you the most time for your money to grow, plus get in you the habit of investing part of your income.
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