Best Ways to Invest While in College

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Contributor, Benzinga
June 19, 2023

Investing during college might seem nerve-wracking, but it doesn’t need to be. Tools such as high-yield savings accounts and trading platforms can help educate and inform new and curious investors. College investing can build your financial stability for the future because investments often grow over an extended period. One benefit of investing as a student stems from your ability to weather market downturns over the long run. Although you might not have much to invest at the start, investing early allows you time to grow your money. Meaning, investing as a college student can pay off down the road. 

Quick Look at the Best Ways to Invest While in College:

The Best Ways to Invest While in College

Properly investing when in college can lead to an excellent financial future. One positive of starting early is that your investments and portfolio can carry more aggressive options such as stocks. The reason, over an extended period, the investments have time to grow and develop. As a young investor, learning new information about the stock market can help strengthen and change your investment approach. If you have a limited amount of time in your daily schedule, consider investments that require less attention such as a high-yield savings account or a CD. Before investing, access the research and tools available to you and understand your level of risk. 

High-Yield Savings

A high-yield savings account is a relatively simple and safe way to invest. The account offers interest on your investment at a higher rate than regular savings accounts. This attractive option for students requires a lower level of attention than other investments. Alternative investments to high-yield savings accounts often require an elevated level of awareness and frequent attention that might be difficult to achieve as a busy student. The account doesn’t offer larger returns like some more aggressive and risky investments, but it does offer a sense of stability. Overall, a high-yield savings account provides small but steady returns that help keep your principal safe while also adding interest along the way. 

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CDs

A certificate of deposit (CD) is a special type of product often offered at a bank or credit union. It’s similar to a savings account but differs because money placed into a CD cannot be accessed for a certain amount of time. The benefit of such an account is that in exchange for being unable to touch your investment for that period of time, you receive an interest rate that’s higher than a regular savings account. 

Check the offered interest rates on CD accounts before investing to better understand if the interest rate offered is likely to beat the rate of inflation over time. If the rate of inflation is higher than the interest rate offered then it is likely that your investment will decrease in value. Luckily, most CDs tend to keep up with inflation. Overall, a CD account provides stability and protection for an initial investment and offers the added benefit of an elevated interest rate that tends to keep up with inflation.

Stocks

Stocks can offer larger returns on initial investments but are considered a riskier investing option. Before investing, it’s important to understand your level of risk tolerance. One way to better guard against the volatility and the risks involved with stocks comes from investing in stocks that are undervalued, often called value stocks. Investing in stocks offered by quality companies can help lessen — but not eliminate — uncertainty. 

Alternatively, if you don’t have the time to search for undervalued companies, then consider investing in tried and true alternatives like blue chips. Blue chip stocks are stocks offered by companies that are considered recognizable leaders in their fields and tend to be reliable over the long term. Although blue chips are generally more expensive, the relative stability to the rest of the stock market may be viewed as attractive to a young investor looking at the future. 

Index Funds

An index fund is a combination of investments in certain baskets that include items such as stocks. It’s a type of mutual fund or exchange-traded fund that keeps prices lower while also mitigating risks. One reason they are beneficial is that they tend to be safer than individual stocks because of the diversification provided within the portfolio.

Open an IRA

An IRA account is also known as an individual retirement account and can help you plan for your future while providing tax benefits down the line. You can use two types of IRAs depending on your eligibility and preference. A traditional IRA account offers tax-deferred growth, so the investments placed into the account can be free to grow without taxes until distributions. In contrast, a Roth IRA provides tax-free growth because the money placed into the account for investments was previously taxed and therefore cannot be taxed again. Research the rules of an IRA to see if it’s a possible option for you.

Try Crypto

Cryptocurrency is a type of digital currency that can potentially be beneficial in the long run. It can prove a worthwhile investment if you are looking to hold it or stake it. You can stake cryptocurrency by locking it away and potentially earning interest during that time. However, cryptocurrency also exposes you to a higher level of risk because of its speculative nature, so it’s important to research the different currencies before investing.

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Why Should Students Invest During College?

Investing during college can lead to many benefits down the road. The good thing about investing is that you don’t need a large sum to start. In actuality, investing small but consistent amounts can add up to a big difference in your financial security. Planning for the future may seem abstract, but investing early and often can help lessen the amount of financial uncertainty in your future. Being a young student offers you the freedom to invest more aggressively with your portfolio, but it’s still important to diversify to minimize loss. Consider investing with different tools to have a portfolio that’s better able to perform during times of uncertainty. 

Prepare for the future:

Preparing for the future might seem vague and intangible, but taking small steps such as investing a few dollars each week can eventually lead to a larger and stronger investment. When thinking of your future, consider financial goals that you would like to achieve between 5 to 10 years from now. Although that window of time is relatively brief, this might help you to start your goal setting in terms of investing for the future. 

Start thinking of retirement:

Retirement might feel far away, but saving early can help you reach that eventual goal. Consider placing money into accounts such as IRAs to earn tax benefits in an account specifically designed to help with retirement. If you already have a job, then look into what your job might offer in terms of retirement plans. 

Set money aside for emergencies:

In life, it’s advised to plan for the unplanned. Although this advice might seem counterintuitive, it’s important to save and put money aside for an unforeseen emergency. It’s recommended to eventually have around three months’ worth or more of funds set aside in case an emergency happens. It’s important to keep in mind that your original estimated amount needed for an emergency will likely need to increase as the cost of your lifestyle increases. 

Get in the habit while you’re young:

Consider frequently investing small but consistent amounts now to form a positive habit into your more mature years. Positive financial habits can help you set aside funds for investing and grow your overall investments at a higher rate. Learning about investing early can lead to a wealth of knowledge over the years that may help you to make more complex investments in the future.

Frequently Asked Questions

Q

Which investment is best for students?

A

Investing for college students varies depending on your financial situation. Research tools can help balance your investment and academic success. If you have already started working, then opening an IRA account might be ideal for you. For example, a Roth IRA account is a type of investment account that’s aimed at helping you retire. If you are a college student who is busy studying without a steady stream of income then alternative methods such as a high-yield savings account might be right for you. The best option for investment depends on your level of risk aversion, where you stand financially and how much time you can commit to investing.

Q

Can a college student invest in stocks?

A

Yes, college students can invest in stocks. Legally, you must be 18 years or older (depending on the state) to start trading without the help of a custodial account. A custodial account in terms of stocks is a type of investment account that is managed by an adult but placed under the name of a minor. For college students over 18, accessible stock investment tools such as Robinhood, Fidelity, and many others are available. However, a high level of risk ties into investing in stocks as opposed to high-yield savings accounts or CDs. Given the volatile nature of the market, it is possible to lose your investment.

Q

How do I start investing while still in college?

A

To begin investing while you’re still in college, you might start with some low-fee trading platforms.  Platforms like Schwab, TD Ameritrade or Fidelity offer lower fees to help you begin investing without having to pay a lot to the platform.