Most college students, we’re willing to bet, put off “adulting” until they’re finished with their studies and their degrees are in hand. That’s understandable. A college education takes an enormous chunk of time and energy over multiple years. Setting up a financial structure seems like something that can wait until one gets their first 40-hour paycheck — usually well after graduation.

But it’s never too soon to start investing in the stock market. While students are challenged for capital and spare time, keeping an active stock portfolio throughout their college career can reap tangible benefits they’ll be glad for later in life. Here are some approaches, advice, and strategies for being a college student and a budding investor at the same time.

The College Student's Guide to Investing

College student’s guide to investing

Why invest now?

With at least four years of challenging work in front of you, you might question whether you’ll have enough time (and income) to bother with securities investments, or whether it’s more logical to wait until you’ve graduated. Keeping track of an investment portfolio might seem like just another arduous task on top of reading, coursework, and surviving the low-income life of a student.

There are several advantages to starting to invest while you’re still in college. One factor that influences the success of a stock portfolio is time — the sooner you jump into investing, the greater your chances of long-term profits. Even if you can only invest tiny amounts of money while attending college, they’ll be building blocks in creating a diverse and profitable investment strategy that will grow for decades in the future.

You don’t need a huge chunk of cash to start investing, either. Sure, if you’re starting from scratch, you may not have the necessary funds to buy into major blue-chip stocks like Amazon or Netflix that cost thousands of dollars per share. But most shares are nowhere near that expensive. It’s currently possible to obtain a share of proven profit-makers like Apple or Johnson & Johnson for less than $200. Many more stocks trade at less than $100 or even $50 per share — and they’re not all small, up-and-coming companies just finding their way. They include several successful businesses, recognizable brands with sizable market shares.

Getting involved in the investment market while you’re in college is also a low-stress way to learn about the “real world” that you’ll face when you graduate. Even some post-grad and master’s students find it tricky to adjust to after-college financial responsibilities. Nurturing a nest egg while you’re in school and gradually understanding how the stock market operates is great prep work for building a solid financial foundation later on.

Speaking of later, a stock portfolio can be a great start for paying off post-college debts, like student loans and financial aid. Having all your spare cash in a bank-issued savings account is certainly safe and generates modest interest over time. But with just a little more attention and legwork, a stock and securities portfolio can generate money more quickly than a savings account. Over time, those profits can add up and make a serious dent in loan repayments.

Yes, stock investments are risky — that’s why the payoffs are usually greater. You’ll lose some money as you go, just like all the best investors do from time to time. But your rewards can outweigh those losses. Risk is an inherent trait of all financial strategies, even the ones that look conservative and safe. With a few guidelines and reasonable planning, investing in the stock market while you’re still in college can make a dramatic difference in later life, and it’s probably a little less risky than you might believe. And you don’t have to have a finance degree to be successful at it.

Decide how to invest

College students have the same investment opportunities as anybody else, although they usually have to be at least 18 years old to start an account. The first decision you make should be how you want to administer your investments. You have two general approaches to choose from:

Managed investments. If you’re starting school with a residual of cash to invest, you may decide to have your investments managed by a third party. A money manager makes all the decisions about your portfolio, including what stocks to invest in and balancing the ledger. A student with a heavy class load, or who wants to concentrate fully on coursework and activities, might prefer to start with an experienced money manager at the helm.

Self-directed investments. The other option is to do it yourself. You decide where to allocate your investments and which sectors and companies to invest in. You conduct all your financial research and balance your portfolio as necessary. This can be challenging because you’ll have to educate yourself about financial matters on top of all the other education you’ll be receiving — but the good news is that, should you go the D.I.Y. route, you have more resources to do that work now than older generations had.

Both strategies have their advantages and drawbacks — managed portfolios may cost more in service fees; self-directed portfolios may cost more time and effort. Either of them can be made to work with the resources and time you have on hand.

Open an investment account

Once you’ve decided what strategy to take, it’s time to open a brokerage account. Anybody 18 or older can do so, and there are tons of options to choose from.

The best way to get this accomplished is online. Established financial companies like Fidelity, TD Ameritrade, and Merrill let you sign up for accounts through their websites. The best investment houses offer several research tools for choosing stocks, and many have step-by-step tutorials that help self-directed investors get going. Big brokerage firms cater to both managed and self-directed stockholders; most have eliminated per-trade fees and commissions for those who buy their shares.

Other stock-trading platforms have sprung up in the wake of the internet, and they’re especially oriented to helping new traders get started. These online brokerages include Robinhood, SoFi, Ally Invest, and others. Free transactions are a big calling card with most of these newer services (in fact, traditional brokerages have dropped their service fees to remain competitive with them). Web-based platforms make trading quite easy to execute, with many decent research tools and investment choices to offer.

Another option for the young investor is using a Robo-advisor. That’s something like an automated money manager that uses algorithms and user information to help investors maintain their portfolios. Self-directed investors may find this function indispensable, as a Robo-advisor can administer everything from account setup and goal planning to automatic funds management. They can issue automatic alerts on your smartphone when a good opportunity to buy or sell stock arises. Many online brokers, and traditional ones with online presences, offer Robo-advisors for an additional, usually very affordable cost. Some Robo-advisor platforms, like Betterment and M1 finance, work in conjunction with outside brokerages.

Whatever brokerage or service you choose, it shouldn’t be difficult at all to find one that’s low-priced or totally free. Many have no minimum required account balance, so even if you’re not ready to start contributing, you can at least get your account set up.

How much to invest

Every college student’s financial situation is different from the next. But whenever possible, the best strategy is to set aside a given amount every month or so to put toward investments. Low or no-cost brokerages are especially amenable to investors who can only make add small sums at a time, with no service fees to cut into their balance.

Whatever amount you can afford is suitable for regular contributions to your investment account. Even setting aside just $5 to $10 a week — skipping a latté or two — can add up quickly and start generating surprising gains without breaking your budget.

Keeping a regular investment schedule also encourages taking a more active interest in the stock market. Money has a way of motivating people to pay more attention to how they’re handling it. When you adopt an investor frame of mind, you’ll find it easy to access research, tools, and resources that explain how the financial market works. Making regular payments, even small ones helps develop that investor mindset and gain valuable experience.

The College Student's Guide to Investing

What stocks to invest in

When you enter the stock market for the first time, you’ll come face to face with an impossible number of choices for investing your money, and they’ll include more than straight stocks. You’ll come across exchange-traded funds, mutual funds, bonds, index funds, treasury notes, gold — a veritable department store of different investment mechanisms to choose from.

Buying straight stock is usually the best route for a college student just getting started in equity investments. It’s the most fundamental component of the securities market, and it’s the simplest to explain: in exchange for money, you get a small piece of ownership in a company, which rises or falls in value depending on how well the company performs. That’s about it.

But how do you choose a stock to start your investment profile? There are a few guidelines first-time investors of all kinds are encouraged to follow:

Pick one that’s cheap — but not too cheap. As we’ve mentioned, some of the most successful, solid, profitable companies in the world — “blue-chip” stocks, as they’re called — may have stock share prices that are too high for first-time investors. Your typical college student probably doesn’t have $500 in spare cash to pick up one share of Netflix, let alone $3000 or more for a single share of Amazon. Besides, even if you did, it’s not the best idea to commit a large amount of money to a single company, no matter how profitable they are.

Many investment professionals recommend capping your first stock purchase at $200. That amount gives you access to several high-profile companies; you can get one share of Apple, Proctor & Gamble, or the Disney Company for that price, or multiple shares of AT&T, Verizon, GM, and other major economic players. Even a $100 limit can be a good start.

One kind of security you’ll probably hear about when you enter the market is the “penny stock,” generally described as a share that costs less than $5 each. Penny stocks are usually for companies in their first few years of existence. While it may be tempting to buy dozens or even hundreds of shares in a company you think is going places, it’s not a good idea for a first investment. Penny stocks are inherently volatile, and many will lose value before they turn a profit — which is never guaranteed. Stick with an affordable but trustworthy stock; if you build a successful portfolio down the road, you’ll have more financial freedom to invest in speculative stocks if you wish.

Pick a company whose business you can understand and explain. It’s pretty easy to explain what companies like Walmart, Microsoft, Costco, Coca-Cola, T-Mobile, and Sony do to earn money. Even if you don’t understand every little detail and every department, you have a good grasp on their overall business strategy.

But unless you have deep experience and knowledge about, say, agriculture, tech, or science, you may not be able to concisely explain what Evogene does. For the record, their website says that Evogene is “revolutionizing life-science product development utilizing cutting-edge computational biology technologies.” Although that sounds promising and Evogene may be great at it, it doesn’t explain exactly what Evogene does.

For your first stock investment, pick a company that you recognize and can explain in a sentence or two. You’ll have multiple options to choose from with this strategy. Also, if possible, pick a company whose business you have some inherent interest in. If you’re interested in sports or footwear, Nike’s an excellent choice. If you’re nuts about animation, Disney will work. If you’re an expert in life-science and computational biology technologies, then go ahead and pull the trigger on Evogene if you like.

Pick a stock that’s doing well. This probably goes without saying, but the company you choose to invest in should have a good track record. You should have no problem finding data on company revenue, assets, and liability. You’ll be able to tell how consistently a company has turned profits over the years on their annual reports and brokerage profiles, all of which are easy to obtain.

Look for a company that’s generated steady and dependable profits over the years. You’re looking for a general, overall upward slope in earnings and revenue — occasional dips or downturns are fine, as long as the bar keeps going up.

A few tips to remember

Now that you’re set up with a brokerage account, with at least one share in a known company with a good track record, your college investment adventure is underway. Before you hit the books and start your studies in earnest, keep a few things in mind about your stock holdings:

Be patient. Stock market success takes time. You’ll have periods of steady gains and sudden losses — don’t overreact to either.

Be informed. Set up a news alert for the company you’ve invested in. It’s an effective way to stay on top of its financial profile. (Choose your news sources carefully, though.)

Be disciplined. Keep investing what you can, as often as you can. Don’t invest more than you can afford — never borrow money to add to your portfolio.

The College Student's Guide to Investing

Informed stock tips for all traders

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