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Think investing is only for older adults? Wrong.
Think investing in college is only for finance majors? Wrong again.
The truth is that investing is incredibly important to be able to make large purchases later in life. The earlier you start investing, the more time your money has to increase. It also takes a lot less to invest when you’re young than it does when you need to catch up for lost time. Let’s take a look at what exactly investing is, why it’s important to do now, and some good investments for you to start with.
What Does It Mean To Invest?
Investing involves putting money into assets such as stocks, money-market funds, bonds, and real estate. Depending on what works for you, there are several different ways to invest your money.
No matter what you choose, your goal is the same: Save and grow your money. One of the things you want to pay attention to when you’re researching investment opportunities is compound interest. This means interest will accrue on both your initial deposit and the interest previously accumulated, which enables your money to grow faster than with simple interest alone.
A key point to remember when you’re beginning your investment journey is that you don’t need a lot of money or time to start investing. We understand that the investing process can be quite intimidating at first. This is why doing your research before you start investing is important—it helps to have a bit of knowledge about the process, what to expect, and where to start before jumping right in.
Why Investing Is Important for College Students
Starting your investing while still in college has plenty of benefits, including setting yourself up for smart financial decisions in the future. Let’s explore why starting your investments right now is important.
By investing earlier, you learn how to manage your money, do financial research, and assess risk before the stakes become higher. Plus, with a personal stake in your investments, you’ll likely feel some pride about your financial future.
The sooner you start investing, the higher your chances of understanding important financial concepts, and the better your personal financial situation will be down the road. You’ll also develop disciplined spending and saving habits that will pay off in the long run.
Where To Get Started
There are a few things you’ll want to consider before starting your investments.
Consider Why
First, consider why you want to start investing. It can be as simple as wanting to retire early or to save money for a home purchase.
Set Goals
Then, set some goals, such as where you see yourself in a few decades or at which age you want to be able to retire. For example, if your “why” is to purchase a house, your goal would be at which age you want to purchase the house.
Decide What You Can Afford
Lastly, consider how much you can afford to set aside. It’s important to not invest so much that you can’t afford necessities such as food, rent, or other necessary expenses. Generally, it’s also a good idea to build an emergency fund with approximately 3–6 months’ worth of expenses before you start investing.
Don’t despair if you don’t have plenty of extra cash left over after your necessary expenses. Having just a few extra dollars a month is all you need to get started.
Adopt a Strategy
A realistic strategy is one that can be done in your free time between classes, homework, and studying. It also shouldn’t involve more money or risk than you can afford.
Options To Start Investing for College Students
When you’re ready to start investing, here are some popular options:
Stocks
Stocks are a small percentage of a company. If the company makes a profit, the stock also goes up in value. It’s important to note that stocks come with some risks, so you’ll want to think long-term with this option.
Bonds
This is generally a low-risk option. The person who took out the bond pays the lender for it, and it collects interest until it’s cashed in.
Retirement Savings
Retirement seems like a long way away when you’ve barely started working on a degree program for your career. But keep in mind that you need a lot of savings set aside for a comfortable retirement.
Individual retirement accounts (IRAs) are the most common retirement investment option because of the tax benefits they offer. For example, with a traditional IRA, taxes are paid on the money that was invested once it’s withdrawn.
Prepare for Your Future
It’s never too early to prepare for some of life’s biggest events. Make sure you’re financially prepared for college by exploring our education resources.
