It’s never too early to start investing, even if you are still in college. Unlike a professional investor, you may not have near unlimited amounts of capital, however, you can start investing with just a dollar using a few different methods. To become more financially literate in the field of investing, take up an economics or finance class, where knowledge is always a key to becoming a successful investor.
Open a Savings Account
The easiest way to invest as an undergraduate is to head to the nearest bank and open a savings account. The risk you take on would be extremely minimal. Put any supplemental income you earn in your savings account and watch your money grow quite literally. The interest rate is not as high as in the stock market, but your money would be better off than spent on new clothes or stored away in a drawer.
Understand the Risk Associated with Cheap Stocks
Some college students are only too eager to “play the stock market.” Students with limited amounts of capital are highly likely to invest in penny stocks, which are securities with little to no oversight that cost less than $5. Though these stocks seem so cheap to buy, you are taking on more risk than you should. Before buying any stock, particularly penny-grade stocks, it’s advised that you understand the type of risk you are undertaking. This type of trading is highly vulnerable to scams, particularly pump-and-dump schemes. College undergrads should invest in blue-chip stocks that are financially transparent to actually expect returns. While there’s nothing inherently wrong with low-end stocks, buying these without realizing the risk is a surefire way to lose all your money.
Think about Repaying Your Student Loans
Paying down debt is also a form of investment. It is, perhaps, one of the most important forms of investment for regular income earners. Unless your parents are wealthy, you will probably end up tens of thousands of dollars in student debt when you leave campus as a graduate. The student debt trap affects millions of graduates. However, you don’t have to fall into the same debtor crisis like so many others. If you earn income right now by working on-campus or at an internship, save that money for repaying your student loans. The grace period will eventually end, at which point you will have to own the debt. Think about how it might affect your future ability to take on other essential forms of debt such as a mortgage, therefore, make repaying student loans a priority to protect your post-graduate financial status.
Open a Retirement Account
If you are a young college student looking forward to a satisfying career, you may wonder why you should start investing towards retirement right now. Would your future employer take care of all that with a 401(k)? Yes and no. You can formally start investing in your golden years by matching your employer’s contributions toward a 401(k), however, until you are employed full-time, invest on your own towards retirement. You could do so in a savings account that you can later combine with an IRA or a 401(k). The reason to start this early is simple: the compounding factor. If you invest towards your retirement now, your contributions would mature impressively in the next 40 to 60 years. The longer the investments have to compound, the more money you will have to spend in your senior years. That’s why you should open a retirement account right now, even if you are not formally employed.