College students: Investing guide
The advantages of investing at an early age, especially as a college student, are plenty. If you start investing while you are still studying, you gain an edge over your peers who are still waiting to take this big step once they begin earning a stable monthly income.
But the problem that most students face is with understanding the basics of investing. Worry not! Here is an all you need to know guide to your first step into the world of investing as a college student. It is short, simple, and will answer all the questions that boggle your mind.
What is investing?
Before understanding why college students should invest let us begin by answering the most fundamental question for a novice investor i.e. the concept of investment.
Let us talk in terms of money. Money lying in your pocket loses its value over time due to inflation (in simpler terms, a rise in prices). So we put money in banks to gain some interest on the spare money. But in today’s economic conditions, even this interest rate isn’t enough to beat inflation.
Thus people turn to investment. Investment is essentially asset creation. You put your money in financial instruments like stocks, bonds, index funds, etc., and hope that with time the value of your initial capital appreciates.
But there is a catch here. There is no instant gratification. For your investments to yield good results, you need to be patient. The longer you wait, the better your reward will be.
Why should you consider it when you are not even earning a regular income?
The next obvious question that pops into a college student’s head is shouldn’t I invest when I start earning?
Well, go back to what was said about no instant gratification. The biggest advantage of starting investing early is that you give yourself a head start. Starting early means giving your money more time to grow and you stand to gain higher returns in the future. Let the power of compounding do its wonder for you!
As a young investor, you have a lot to learn. Starting early gives you time to gain a ton of experience and gives you a chance to learn practically. Moreover, the younger you are, the higher your risk-taking capability is. Therefore, you have the opportunity and capacity to make mistakes and learn from them.
So where should you put your money?
If we talk in general terms, there is no dearth of investment opportunities out there. There are low-risk-low-return investments in government securities and bonds.
There are also high-risk and potentially high-return investment opportunities in the stock markets. You have Mutual Funds, ETFs, Index Funds, Bonds, Gold, Real Estate, Cryptocurrency and I can go on and on. But we are getting ahead of ourselves.
As a college student who is just a beginner in investing it is advised to start slow and start small. Instead of jumping straight into the ocean, consider flapping your limbs in the pool first.
My advice to you is to consider government bonds and mutual funds in the initial days of your investment. Once you set your foot firmly, diversify your portfolio. You will have to keep yourself up to date with the economy and keep learning more about the financial markets.
A few essential tips
- Educate yourself:
A college student’s life is all about learning and before you start investing, learning about the subject matter as much as you can will take you a long way. Learn about investments, companies, markets, and make yourself familiar with the commercial jargon.
- Remember your long-term goals:
Once you move towards stocks trading, don’t fall prey to daily fluctuations in the market. Remember, you are in this for long-term gains.
Never put all your eggs in one basket. Diversify your portfolio to minimize the risk and better the chances of returns.
- Revisit and revise your portfolio:
This is very important at all stages of investment. You want your portfolio to be healthy and up to date with the emerging trends in the markets.
- Assess your decisions:
Since you are a novice investor, there is no harm in pondering over your decision more than a couple of times. Being cautious is better than being sorry. Beware of instant money-back schemes and don’t fall prey to nefarious policies.
With this college student guide to investing this is your time to stop waiting and start your journey of today. The sooner you start your journey to financial independence, the better the returns. Bon voyage!
Frequently asked questions
1. Should I invest in stocks as a college student?
- Investing in stocks is investing in growth. As a college student, you have to focus on capital creation and your risk-taking capacity is much higher as you have a long life ahead. Therefore, for generating capital assets, stocks are your best instrument for investment.
2. What are the 3 main reasons for investment?
- Investment is done to beat inflation and increase the value of your portfolio. Some people do it to save for retirement, travel, weddings, to start a business, etc. But investments can and should be made without a targeted goal in mind.
3. What is the safest investment?
- Some of the safest investments are government bonds and securities. But, as they come with low risk, the returns are also low.
4. What do you mean by diversification?
- Diversification is an investing tactic to reduce risk on investments by spreading them across different financial instruments and industries. This technique allows you to maximize your returns as each category of investment reacts differently to any given situation.
5. What percentage of your money should you invest?
- It is recommended to invest between 10 to 15% of your total annual income. This number ensures that you have a diverse portfolio and you can take up risks as you have the remaining income for essentials.
6. How can I earn money to invest as a college student?
- As a college student, you can take up part-time jobs or freelancing gigs to earn a side income and start investing along with your studies.
7. Why do people invest long term?
- The most important reason for long-term investment is that long-term investments provide higher returns compared to day-to-day trading which is generally governed by emotions instead of reason.