How To Invest As A College Student – The Guide You Need

The typical college student jumps into adulthood when starting their higher education. Moving to the dorms, making their own meals, and taking out student loans, are among the new adventures that await them. While many college students wait until after graduating to start building their nest egg, the best time to start is actually at the start of college. The earlier you start the better because you will gain first-hand experience while building money well beyond the interest rate a savings account can offer. So, let’s take a closer look so you can learn how to invest as a college student.

College Students

Why College Students Should Start Investing

Money expert Robert Farrington is well known for being one of the top experts on student loan debt. Robert Farrington also talks about the importance of learning how to earn more money and get started with long-term investing as soon as possible. College students don’t have as much disposable income to start investing as someone who is working full-time. However, the amount of money you have to get started with investing shouldn’t be a reason why not to start on these long-term goals.

College Students

Here are a few reasons why you should start investing as a college student:

  • Nest egg – You’ll have a small sum of money after graduating which gives you an edge because of the time value of money.
  • Experience – College students will already have some experience as an investor upon graduation.
  • Knowledge – The education gained about the stock market, bonds, Roth ira, etc. will be invaluable since it’s not something that can be picked up by becoming an avid reader of stock market blogs or books.
  • Initiative – Think about the level of achievement that’s accomplished as a student who started investing while in school on limited money. Many students have online jobs or side hustles in college, so why not take on something that challenges you while providing a variety of financial benefits like investing. Once you have a full-time job, you’ll have more money you can do much more with.

How To Get Started With Your Investment Journey

Investing, just like other personal finance topics, doesn’t have to be intimidating. The industry has changed so that Robo-advisors, apps, and other services have made it easy for college students to start their retirement account in a Roth IRA or invest in the stock market. You don’t need much money or put in a great of time or effort. Since we’re talking about investing in the stock market, you will have to comfortable with taking on some risk. But the time value of money is on your side and having a long-term investing strategy, you work in your favor.

College Students Saving

Time in the market will always beat timing the market. Giving your money more time to grow will only give you benefits. Putting your money in a savings account will never give you the type of return you see in the stock market. The interest rates on a savings account have been low for years, most recently at 0.05% according to the FDIC. This means your actually losing money by putting it into a savings account due to inflation. So instead of trying to accumulate money in a savings account, start investing with one of the strategies below.

Retirement Account

Thinking about retirement is probably not even on your radar. But investing early will put you in a favorable position during your golden years. Individual retirement accounts (IRAs) can be started as soon as you turn 18. These retirement accounts typically have low expenses, though you should be sure to have some form of income (not the bank of mom and dad) to open one. There are two basic types of these retirement accounts: Traditional and Roth IRAs. These accounts will invest in mutual funds, bonds, stocks, and other investment vehicles. In both types of accounts, you must be at least 59 and a half years old with few exceptions to start taking withdrawals, without paying a penalty.

Traditional IRA

You are investing before-tax money in this type of account. Once you start withdrawing money, you will pay taxes on these withdrawals. The money put into these types of investments is usually tax-deductible.

Roth IRA

A Roth IRA uses after-tax money so your withdrawals are tax-free. Money that is contributed to this investment is not tax-deductible.

401K Account

The chances of having a 401K offered by an employer aren’t likely when you’re in college. You’re probably working part-time at most if you do have a job. But if you have a job that offers one, take advantage of it. These accounts make contributions automatically through payroll deductions. Some employers even provide matching funds up to a certain percentage.

There are three tax advantages of 401k accounts that you benefit from as well. The first one is that all your contributions are pre-tax so you don’t pay much on it until you retire. Next, contributions made to a 401k are not counted as income. This could potentially put you in a lower tax bracket. This is particularly important later when you graduate and start your career. Last, your contributions will grow tax-deferred as long as you keep them there.

Investment Brokerage Account

If you’d rather be getting started on your own, open up a traditional brokerage account. These accounts give you access to buying and selling stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more. There aren’t the tax advantages of a Roth IRA or Traditional IRA and you will have to pay capital gains tax on profits (these can be offset with losses). But you have no restrictions on buying or selling, giving you the flexibility and freedom to grow your money.

Fractional Shares

As a college student, you probably don’t have the money to invest a lot in buying individual stocks. That’s the beauty of fractional shares. You purchase a portion of a stock instead of a whole share at a more affordable price point. For example, you could get $25 worth of Facebook stock instead of buying a whole share for $380. Investors using fractional shares can take advantage of owning stocks that might have been out of reach.

Tools To Help You Invest As A College Student

Apps have made personal finance topics like investing easier for the average person. Want to know what type of tools are out there to help with your retirement and savings goals? Here are a few tools to consider below.

Robo Advisors

Using your financial information and goals, a Robo advisor uses an algorithm to determine the best investment strategy. It may invest in stocks, mutual funds, and other investments based on your goals. You get investment advice and management without the higher fees and expenses associated with having a human financial advisor. Many of these Robo advisors don’t have a minimum amount of money to start your account. This low-cost structure makes Robo advisors make it among the best tools for college students.

S&P 500 Index Funds

Since college students don’t have a lot of money to invest in the stock market, index funds are a great option. Shares of all stocks are held in the index, holding hundreds of these shares. An S&P 500 index fund can hold stocks across different industries and offer a diversified portfolio. This lowers the risk to investors. Another benefit of an S&P 500 index fund is that you typically see market returns on these investments. You will learn how investing works, gain experience, make money and use a strategy that great investors like Warren Buffet recommend to others.

Investment apps

You could also opt to open an account with an investing app. Many apps like Stash have low initial investments that make it attainable for college students to become investors. You can buy/sell individual stocks, ETFs, or other investments. Decide what type of investing you want to get into so you can narrow down the apps that are a good fit. Make sure to identify any expenses that might be associated with opening an account.

Investment apps such as Acorns allow you to link up your debit or credit card. All the purchases you make will round up to the next dollar. These extra funds can really add up per month and used to invest in a couple of ETF portfolios that they offer. You’re already going to be swiping that credit card anyway. These types of tools will help make investing your money an automatic process.

How Much Should You Invest?

As mentioned, you don’t need much cash to get your investment account started. As a college student, you have a very limited budget. If all you can do is invest a little bit at a time, that’s all that’s needed. Start investing by carving out a set amount of money on a weekly basis that’s for saving and investing. Putting aside just $20 a week or $100 per month will be just over $1000 in a year’s time. That’s more than a lot of people who are working a regular job can manage to save for investing.

If you have a savings account or other funding that been set aside, use it to open an investment account of your choice. A few hundred dollars to $1000 is an excellent initial investment per year to make. Using low-cost, index-based ETFs can get you investing when you have limited funds. Here are a few other ways you can increase the amount of money you have to invest as a college student below.

College Savings

Side Hustle

A side hustle can be a source of funds to help pay off student loans and funding your investment. Just make sure that it won’t get in the way of your studies. You could consider delivering food with apps like Roadie or DoorDash, ride-sharing with Lyft or renting out your car with HyreCar, starting an Etsy business, housesitting, tutoring, or even dog-walking. All of these are some ways you can earn extra income.

Invest Windfalls

Did you get a bunch of cash from graduation or a birthday? Don’t use all of it on Chiptole burritos and Starbucks coffee. Using some to put into your investment or minimize the amount of student loan aid you need will benefit you in the long-run. Use these events where you have a sudden windfall to make money this way.

Automate Your Investments

As much as you can “Set it and forget it” with investing as a college student, the better. This tactic is tried and true for financial goals like building emergency savings. Apps that round up your purchases are great for that. Another thing you can try includes setting up an automatic withdrawal each month to go towards your investments.

Investing Tips For College Students

If you’re using all these suggestions, but want a few more tips to help with investing, take a look at the advice below.

Consider Real Estate

Not all new investors have the chance to get into real estate. But if you do, real estate is a great return on investment. Purchasing a home or a small multifamily property while in college is one way to get into real estate. The extra rooms can be rented out to other college students to earn additional income or cover mortgage payments. You will need to qualify for a home loan and have a down payment to purchase a property. See if your parents, other family members, or friends would consider partnering in this endeavor.

Another option is to invest in REITs. Real Estate Investment Trusts are real estate holding companies that invest in real estate with the funds provided by their shareholders. It’s similar to mutual funds. This real estate could be apartments, shopping malls, or just about any type of real estate you can think of. Profits are shared with investors.

Real Estate Investment

Keep It Simple

New investors shouldn’t try to use every investment type that’s out there. It’s best to keep it simple. It will be less confusing and you won’t feel overwhelmed trying to scourge up funds for all your investments, pay on student loans, and afford weekends out with your friends.

Have A Long-Term View

Investing for the long run is the best way to mitigate risks when it comes to investing. You’re going to have good days and bad days. Don’t panic and sell shares of stocks that have decreased significantly. Market conditions could be affected by the economy, news, or as we’ve recently experienced, a pandemic. Time is your greatest asset when you start investing as a college student and you’ll be able to ride out these waves.

Set Limits On Spending

You don’t have to start a budget to start investing while in college. But if all you do is start limiting your spending on things like drinking coffee, dining out, or other extras, you’ll find funds to invest. For example, give yourself a cap of $25 each week to spend on eating out. Saving money here will create more investment potential. There are apps that can help keep track of your spending in certain categories or your bank may offer that capability on their mobile app.

Check-In Regularly

You should know where you stand by reviewing your portfolio on a regular basis. You only need to check on it a few times a year to see how you’re progressing. It’s also just motivating to see how you’re progressing towards your goals.

Develop Smart Habits That Stick

Young investors in college, in particular, have to be consistent with their investing. Making regular contributions and using a continuous or periodic investment plan is the key to growing your nest egg. The practice of saving and investing, despite the lack of income during this time, will only benefit you in the future.

Build habits that work for you. For example, if you create a budget and are having problems sticking with it, change what you’re doing. It could mean you need to re-calculate if you’re coming short on your monthly income or expenses or need to try a different type of budget that enables more flexibility.

Get Stock Recommendations that 5X the Market!
Stock Market Investing LEARN MORE
Motley Fool Benefits
  • 2 Fresh Stock Picks Monthly
  • 20-Year Track Record of Beating the Market
  • Instant Access to Top Starter Stocks

Anjana Paul

Anjana Paul is a financial writer with extensive education and experience in the financial industry. She received a Marketing and Management degree from Kansas State University and a Masters in Business Administration (MBA) from Baker University. Anjana also holds a Business Analytics Certificate from the Wharton School. Throughout her career, Anjana has worked in multiple roles within the financial industry. She has worked in banking, finance, student loans, consumer credit cards, and tech. Anjana's experience and education allow her to bring a credible, well-informed perspective to the content she writes at Wealth Pursuits, where her primary areas of focus include investing, credit, and personal finance.

Leave a Reply

Your email address will not be published. Required fields are marked *