Moving away from home, making new friends, and managing a new schedule are some of the major changes college students face after high school. With all these new challenges, it’s remarkable if there’s time for anything else, especially investing.
Surprisingly, college is an ideal time to start investing. Even with a small amount of money, students can begin building a portfolio and learn how to invest without the risk of losing a large sum.
Investing as a college student: How to get started
College can be a challenging time to find extra money, but it doesn’t take much to start investing. With today’s free or low-cost options, even a modest $20 or $30 can get you started. More importantly, it helps you start thinking about investing.
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The hardest part of investing is beginning to see yourself as an investor, whether as an owner of publicly traded companies or a holder of cryptocurrencies. Adopting a long-term owner’s mentality toward your investments, periodically analyzing market trends, and making informed decisions are key steps. Learning these lessons early, when the stakes are lower, is invaluable.
Investing isn’t just for the wealthy. Students can use investing to secure their financial future even before starting their careers.
Here are seven ways college students can start investing, ranging from super-safe to bold approaches.
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1. Consider starting with a high-yield savings account or CDs
One of the simplest ways to grow your savings is by opening a high-yield savings account. These accounts offer interest rates significantly higher than traditional savings or checking accounts while allowing you to withdraw funds at any time. In 2024, interest rates on these accounts are increasing, making them even more attractive.
Bank products like high-yield savings accounts and certificates of deposit (CDs) are often overlooked as investments, but they are among the safest options available. CDs offer a fixed interest rate in exchange for committing your money to the bank for a specified period. These are excellent places to park money that you won’t need until a specific future date.
For instance, if you have money set aside for next year’s tuition, a super-safe account that doesn’t fluctuate with the stock market is ideal. A CD fits this need perfectly.
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2. Turn to a free or low-cost broker
Starting to invest has never been cheaper. Many reputable online brokers, such as Fidelity Investments and Charles Schwab, offer free stock and ETF trades, along with excellent research and educational tools to help you get started. Fidelity and Schwab are highly rated for their client service and investor-friendly platforms.
For those looking to minimize costs, Robinhood is a great option. Robinhood’s main appeal is its free trading platform, which includes options and crypto. Robinhood Gold, which costs $5 per month, provides access to Morningstar research. With its user-friendly mobile app, Robinhood is perfect for cost-conscious students.
Webull is another option for budget-minded investors. Like Robinhood, Webull offers commission-free trading but also provides more customer support options and retirement accounts, which Robinhood does not.
3. Invest a little each month
Using a commission-free broker allows you to invest small amounts each month without worrying about fees eating into your capital. This means more of your money goes directly into stocks or funds. Even investing $20 or $30 a month can get you started in the stock market. Many brokers now offer the option to buy fractional shares, making it easier to invest modest sums.
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It’s crucial to start investing regardless of the current economic conditions. Having even a small amount invested can motivate you to follow the market and start thinking of yourself as an investor. This practice encourages you to research and analyze your holdings, which is beneficial in the long run.
4. Buy an S&P 500 index fund
One of the simplest ways to start investing is by purchasing an index fund, particularly one based on the S&P 500, which comprises large American companies. An S&P 500 index fund holds shares of all the stocks in the index, providing broad diversification across various industries and typically offering less volatile returns compared to individual stocks.
An index fund is ideal for beginners because it requires minimal knowledge to start. By buying an S&P 500 index fund, you effectively buy a slice of the market and receive market returns. This approach is highly recommended by legendary investor Warren Buffett as a solid strategy for most investors.
5. Sign up for a robo-advisor
If choosing individual stocks or even index funds seems daunting, consider using a robo-advisor. A robo-advisor automatically creates a portfolio tailored to your time horizon and risk tolerance, investing in a mix of funds on your behalf. You can start with a small amount, such as $20, and add money incrementally without incurring transaction costs.
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Robo-advisors typically charge a small percentage of your assets, often around 0.25 percent annually, though some waive fees for smaller accounts. Wealthfront and Betterment are two prominent robo-advisors offering services at this price point.
In addition to managing your investments, robo-advisors often provide other benefits, such as competitive interest rates on cash accounts, without requiring you to lock in your money. This makes robo-advisors an accessible and low-maintenance option for beginner investors.
6. Turn to an investing app
Simplify the investing process even further with an investing app. Stash is a popular mobile app that allows you to buy individual stocks or a selection of ETFs. You can start with just $5, and the basic account costs $1 monthly. Stash is ideal for those who want to learn how to invest and manage their investments independently.
Another highly regarded investing app is Acorns. Acorns made our list of top investment apps due to its ease of use. By linking a debit or credit card, Acorns rounds up your purchases to the nearest dollar and invests the difference into one of several ETF portfolios. Acorns offers a core all-in-one membership for $3 a month and a family version for $5 a month.
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7. Open an IRA
It might seem premature to think about an IRA while still in college, but it’s an excellent opportunity to build future savings if you have a job. An IRA allows you to defer taxes on any profits or dividends and deduct your contributions from your taxable income, saving you money on taxes. The earlier you start investing in a tax-advantaged account, the more you can benefit from compounding over time.
A Roth IRA is another excellent option for retirement investing. Contributions to Roth IRAs are made with after-tax dollars, providing no immediate tax savings, but withdrawals during retirement are tax-free. Contributing in college, when you likely have a lower tax rate, can help you avoid higher taxes in the future when your income increases. Both traditional and Roth IRAs allow your investments to compound tax-free.
These advantages make opening an IRA a smart move with minimal effort.
Summary
The most crucial point for college students looking to invest is to get started today. The sooner you learn about the market, the sooner you can begin planning your financial future. Starting with modest amounts of money can help you grow your knowledge and portfolio.
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A measured approach is sensible when starting out. Going “all-in” on a stock or specific asset class is risky and could result in significant losses during a decline. Volatility is inherent in most investments, and learning to manage the emotions it triggers is a vital part of the investing journey.
