Investing in your future can seem like a daunting task. Because of complicated financial jargon, multiple investment paths, different investment apps and the thousands of stocks in the global market, most people pay no attention to financial advice until they start a family or make a steady income. Where do you start?
They don’t teach you finances in high school. Luckily, experts advise on how to save and invest with only a small bank account. Why does it matter? Investing and saving as early as possible gives you the biggest payoff. Even if your student loans burn a hole in your pocket, your account reads negative or every paycheck goes to rent, these investment strategies help give you a promising future. Disclosure: No rich quick schemes included—in fact, the exact opposite. This article consists of long-term strategies. These financial experts provided simple ways for college students in any financial situation to invest in their future.
Read on to find out how to start investing.
Where do I start?
Before you even think about investing, you need to get organized. Whether getting organized looks like writing out a monthly budget or writing out where you own and owe money, primarily find out your financial status. The average student owns five federal loans, a checking account and a savings account. Figure out what debts you need to pay off and how much money goes to your savings.
Next, pay off the minimum payment on your loan. “If you are in school right now and you have racked up debt, I don’t even want you to pay the debt off yet,” said Anthony ONeal, a best-selling author, speaker and Dave Ramsey personality. “Finish paying for your college experience in cash as much as possible. After you graduate college, pay off your remaining debt, set aside a savings account for emergencies, then start investing in growth stock mutual funds.” Some students owe so much student loan debt they fail to pay it off for decades. To avoid long term student loan debt and start investing, refinance your student loans. This means combining all your existing student loans and deciding manageable fixed or variable rates. After you pay off your debt, invest in mutual funds.
A growth stock mutual fund consists of multiple stocks projected to increase in value over the long term. Because mutual funds include different stocks this allows diversification, a varying of assets. Diversification ensures if one stock loses value in the market, you already own other assets in different companies, so you don’t lose all of your money. Most retirement plans and investment accounts contain growth stock mutual funds because of the relative security of their growth.
How much should I save?
Save until it hurts. Fears of how people judge someone living in a studio apartment with a handful of friends or how someone looks without a specific brand of clothes prevents us from saving money. The instant gratification of spending ten dollars on a meal from Chick-fil-a instead of sticking to your meal plan or fixing something from home feels amazing in the moment but hurts you in the long term. Do you really need to spend $4 every other day on an iced coffee from Starbucks? Buying a small coffee maker will save you hundreds of dollars in the long run. Find things eating away at your income and eliminate them or find cheaper alternatives. Don’t feel guilty if you splurge on Amazon a few times a year but stay conscious of what you buy daily.
How do I know where to invest?
Just because an investment firm or app obtains SIPC insurance, a federal protection plan against brokerage firms attempting to steal your money, it does not mean they insure the risk of your investment choices. “I am a big believer in using a traditional investment firm,” said Robert Farrington, founder and Editor in Chief of The College Investor. “Firms like Fidelity, The Vanguard Group and The Charles Schwab Corporation offer the same pricing and support as free investment apps like Robinhood or Acorns, but they offer so much more. I’m a big believer in low-cost index fund investing.” To make the safest bet when investing, rely on well-established investing firms and less on emerging investment apps.
Low-Cost Index Funds
A low-cost index fund comprises top-performing stocks in a market. The S&P 500, for example, consists of the largest 500 companies in the United States. These funds provide low risks and big rewards over time. The top 500 companies historically maintain growth over the long term. Diversification safeguards any fall out from a few stocks dropping in value. Uncertainties in the S&P 500 take the form of recessions, which rarely occur.
When it comes to deciding what stock to invest in, there are many strategies to consider. “Try to decide what it is you’re good at,” said Dr. John Banko, a senior lecturer and Wells Fargo Faculty Fellow at the University of Florida. “I usually suggest to people not to think about investing, but to think about investing in things they know.” Before making a major investment seek out advice from the fund manager handling your account or financial advisors.
IRAs
An IRA allows another way to invest your money in stocks and see exponential growth over the long term. Both the traditional IRA and the Roth IRA set up retirement funds for most Americans by investing in stocks. The main difference between the IRAs lies in the tax cuts. Traditional IRAs receive tax breaks up front and taxed when you withdraw money. Roth IRAs require taxes when you put money into the account, but you don’t pay taxes on your savings later. “I would go with a robust company that can serve your needs for a long time,” Farrington said. “Remember, investment is a game of time.” Short term investments appeal to our instant gratification, but long-term investments provide consistent results.
How much should I invest?
You eliminated debt, found a firm fitting your needs so now invest as much as possible. “College students can find $100 dollars a month,” Farrington said. “Go out and earn as much money as you can. Because when you’re young, you have the time and energy.” If your employer provides a 401K plan, a retirement plan allowing you to invest however much you want into a retirement account, apply Anthony ONeal’s 15 percent rule. “Invest 15 percent of your income starting with your 401K or IRA,” Oneal said. Remember to refer back to your budgeting and planning to find a realistic percentage to contribute monthly.
Is Cryptocurrency worth my time?
Bitcoin made a massive jump in value a few years ago. Most people who invested in Bitcoin before 2018 now swim in pools of cash. Everyone likes to think cryptocurrency sits on the cutting edge of investment, but for long term investors looking to make safe investments, cryptocurrency offers too much risk. “I don’t view it as a currency but more as a commodity like gold or silver,” Dr. Banko said. “I don’t think bitcoin is going anywhere. I don’t think its function as a currency is going to play out the way we thought it would. We already have a federal reserve looking at how to make digital currency.” Because of the recent development of cryptocurrencies, their values tend to be volatile. Cryptocurrencies do not hold a history of promising returns like the stock market. Don’t put all of your money in cryptocurrencies.
If you want to look more into investing in your future, check out these books and website recommended by the experts:
- Everyday Millionaires: How Ordinary People Built Extraordinary Wealth and How You Can Too by Chris Hogan
- Destroy Your Student Loan Debt: The Step-by-Step Plan to Pay Off Your Student Loans Faster by Anthony ONeal
- I Will Teach You to Be Rich by Ramit Sethi
- Investing for Dummies by Eric Tyson and Tony Levene
- One Up Wall Street by Peter Lynch
- MotelyFool.com
- TheCollegeInvestor.com
