How to Invest Safely as a College Students [Complete Guide]

There can be several reasons a college student may want to invest.

You may want to invest because you want to make more money, have a steady source of income, or aim to save to meet your future short-term or long-term goals. By all means, having the authority to grow money from money can be an excellent start for your financial future. And the earlier, the better.

Despite its benefits, investment has long been a confusing subject to many. Especially for college students, it can be most challenging at the beginning. But this article will take you through everything you need to know for a safe and profitable investment.

Is it better to save or invest?

While both options are plentiful and essential to lay a solid financial structure, one might be more profitable than the other. In the case of savings, you are not making more money but securing what you already have. In the case of investing, you are making more money out of what you have.

When you put your money in savings, you get a lower return rate, which involves almost no risk. But when you place your money in investments, you are in the possibility of receiving a higher return, which comparatively involves higher risk.

While both are great strategies for college students to accumulate wealth, it is necessary to choose your option wisely. Savings is better when there are chances you may need the money sometime soon, say the next few years. Investment is a better option for you if you want to build a fortune, are comfortable with taking risks, and can spare the amount for at least five years.

When is the right time to start investing?

There is no right time to invest. You can step into the market as early as you want or delay until you feel ready; the choice is yours. However, the earlier you begin, the longer you can reap the benefits.

If you start early, you will have hands-on experience and understanding of the market while you’re still young, with little to lose and the possibility of growing money with more time.

Consider this- from the age of 20, you start investing $100 every month for a return of 6% annually. By the time you are 60, you will have about $201,240.

Now think of this – you start investing from 30, with $100 monthly for a return of 6% annually. By the time you are 60, you will have about $101,556 — quite a difference when you see it this way.

Also, as a general rule, you are ready to step in when you have at least three months’ worth of expenses saved as an emergency fund and your high-interest debt, such as credit card debt, is paid off. You can make your high-interest debts more manageable and quickly paid off if you consolidate debts.

These are two situations worth considering to determine whether or not it is the right time to invest.

Investment options for college students

There are several investment options to choose from, even as a student.

High-yield savings account

This is the most fundamental financial investment where you can safeguard your money while receiving interest. This way, you can keep your everyday spending money in a checking account separate from your savings required for a later time.

Certificates of Deposits

CDs are similar to savings accounts but with a fixed period. The money invested in CDs is set for three years, five years, etc.,

before which you will not be able to relocate or withdraw the money. Hence, you must ensure this is the money you can do without for a specific time.

Money-market funds

Money-market funds are low-risk investment options and are usually a good backup option to begin with. Low-risk investment means low return, and starting with a low-risk investment can be a good strategy as it acts as a backup.

S&P 500 index fund

One significant advantage of investing in S&P index funds is that you don’t need much knowledge to begin. It is like investing in an entire market and receiving the market return.

The money you invest in index funds is used to acquire shares of all the businesses that comprise that index. Hence, this also gives you a portfolio more diversified than you would have with individual stocks.

Mutual funds

Mutual funds work by collecting money from various investors and investing them together in multiple companies. Hence, instant diversification and low risk for investors.

Mutual funds are a good option when you want to invest less money, have low risk, and have a more diversified portfolio.

Stocks

Buying a stock means purchasing a portion of a company in exchange for sharing its profits. When investing in stocks, you can earn a return on your investment when the stock price increases. You can either sell off the stock at a profit or earn through dividends, i.e., the company’s revenue.

Bonds

Investing in bonds means lending money to a particular company and earning interest. Investing in bonds can help to balance your portfolio if the stock market crashes.

ETF

ETFs are funds that often track a specific index and can be traded on exchanges. Investing in ETFs means receiving a collection of assets you can buy and sell within market hours, which can help reduce risk and diversify your portfolio.

However, one crucial point to remember is to do your research well and choose what works best for you.

Essential tips for investing safely

For a college student, investing for the first time can be daunting. While investing, you must keep certain aspects in mind, which can help ensure safer and better financial planning.

Pay off high-interest debts

The first and foremost idea to consider when you have some extra money to invest is whether or not you have any high-interest debts, like credit card debts. The investment will make sense only if you can make more money than you pay.

You might not be able to reap the benefits from your investments if your debt amount is piling up with high interest. Thus, you consolidate debts instead. With one lower interest rate, paying off debts can be more convenient.

Once you have sorted off high-interest debts, your investments will be worthwhile.

Understand the risks

Investments often come with a certain amount of risk, some less than others. You need to know how much risk you can take with your investments, and you must never invest money you may need anytime soon.

Some investments can yield a higher return, but these usually involve a higher risk, too, meaning you are also in the position to lose more money. In such a case, if your portfolio drops, you can leave it as it is and wait for it to bounce back.

Understand your knowledge about a particular market, the money available to invest, and the worth. Compare with other investment options, and then make a decision.

Save before investing

Saving and investing go hand in hand. It is the first step to smart investing.

Investment involves risks, and it is necessary to have enough money to back up in case of uncertainty. The main idea here is to have access to enough cash when you need it. Hence, it is advisable to have a financial cushion before making investments.

Do your research

You can receive a lot of information from social media and such sources. However, doing your research carefully before stepping in is better. Look for experienced sources and try to get as much information as possible.

Once you do thorough research, you will better understand how the market works, its past performance, and future predictions. This can prepare you to develop strategies and what to expect in the future.

Develop strategies that can yield maximum returns; for instance, when you think of long-term investments, you must buy and hold the investment to let it grow over time.

On the contrary, when you think of a short-term investment, you must have a well-sought strategy for purchasing and selling securities.

Diversify your investments

Diversifying your investments is another good strategy. With a single investment, your investment’s level of risk and unpredictability increases, and you are dependent on that one investment without having others to back up.

Instead, you can diversify your investments with different levels of risk. With this, you can minimize your chances of incurring losses and maintain a balance. For example, if you have three different investments and one is going down, you still have the other two, which could be going up.

Start investing with little money

It can be an excellent strategy to begin investing with little money. When appropriately managed, small investments can grow into large fortunes with time. And with time, once you get a better working experience in the market, you can decide on investing more significant amounts.

Some options like fractional stocks, mutual funds, and ETFs allow you to invest with small amounts, and these are great options to diversify your portfolio with a smaller amount.

Understand your investment capability

As a beginner, knowing how much you can invest is essential. Creating a budget can help you understand how many expenses you have monthly. You must include food, utilities, rent, traveling, cable, etc.

You may also include estimates for shopping, entertainment, etc. Once you have a calculated monthly budget, put away the surplus towards creating an emergency fund.

Make it a habit to invest as much as you can each month.

Opt for the safest investment option with the highest returns

As a college student, investing in high-yielding savings accounts is advisable. This guarantees your cash is safe even if the institution is not doing well.

Other options include municipal bonds, certificates of deposit, and ETFs. These are great investment ideas to hold some money until a particular time.

Bottom line

Investing young not only helps you to save more for the future but also helps you to learn necessary financial habits and skills much earlier. Such practices and abilities give you a better chance of being financially responsible and independent as an adult.

There are enough benefits to investing right from college. However, it is necessary that before investing, you have your emergency fund stocked, pay off or consolidate your credit card debt, if any, and have done thorough research on the ins and outs of the market from valuable sources.

About The Author:
Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003.

He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a Principal Attorney.