Step by Step Guide: Investing for College Students

Warren Buffet once said, “Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time.” This explains the adage — the earlier you start investing, the better. In fact, time is probably the single most powerful factor in investing.

So, why wait when you can already start investing in college? If you are a college student thinking about starting your investment journey, you will most certainly find this article helpful and fascinating. We have written this article specifically for college student investing.

In this article, we will cover:

• Why should you start investing in college?
• What do you need to start investing in college?
• How to start investing as a college student?
• What to invest in as a college student?
• What are the common mistakes in investing for college students?

Why should you invest in college? Investing for college students

Even though most college students think of investing as something for the rich or grown-ups, college can be a great time to start investing. Here are the reasons why:

1. Investing early can yield huge payouts in the long run.

   The compound interest has always been crowned as the world’s eighth wonder, and it is not exaggerating.

   Let’s say you invest $1,000 at the age of 20. Assuming an annual rerun of 10%, by the age of 30, it would have been worth about $2,594. That is a 159.4% return. However, if you start 5 years later at the age of 25, your $1,000 would only have grown to $1,611, giving you a return of 61.1%. By delaying your investment for 5 years, you would have lost a return of 98.3%!

   Time can really do wonders to your investments.

2. College student investing can provide a steep learning curve with little stake involved.

   Starting your investment journey early can provide you with a great opportunity and platform to learn about the art of investing.

   One of the best ways to learn about investing is to actually stride into the market yourself. Nothing will allow you to pick up investing skills faster than learning from your own investment decisions, both the right and the wrong ones.

   All of us will inevitably make some mistakes in our journey of investing. So, ask yourself, would you rather lose a couple of hundreds of bucks while in college or lose your life savings when you are 35?

3. The experience can greatly improve your financial literacy and prepare your for real-world money problems.

   When learning to invest, you would surely bump into books, blogs, articles, or investment clubs discussing personal finance and financial planning. Just like this blog!

   Immersing yourself in this financial knowledge will help you make the right financial decisions at every step of your life. This will dramatically decrease the number of financial mistakes you would make once you get a job and step into the career world, saving you a huge sum of money.

   Low financial literacy and poor financial planning are arguably the main reasons for poverty. If you can start improving your financial literacy and developing good financial habits, I have no doubt that you will lead a bright financial future.

What do you need to start investing as a college student?

So, you now know why you should start investing while at college, but what do you need to embark on your investing journey?

Contrary to belief, you actually don’t need much to get started. I will point out 4 things that will help you to kickstart a fruitful and rewarding investing journey.

1. A small amount of money

   Yes, you heard it right! Even though most people think of investing as a rich people game, to start investing, all you need is just a small amount of money. In fact, you can even start investing with as little as $1.

2. A reliable investing platform

   Now you have the money — you will need a place to put them into your investment. These places are called investing platforms.

   When it comes to investing, you can either do it yourself, i.e., invest your money with your own investment strategy and decisions, or outsource the strategy and decision-making part to other parties.

   If you want to invest with self-made strategies and make your own investment decisions, you will need a broker. In this article, I will recommend a few best investment apps for college students to get you started.

   If you are in the US, try Robinhood, WeBull, and Etoro.

   If you are living in the UK, I recommend Trading 212, FreeTrade, and Etoro.

   If you are a college student in countries other than US and UK, Etoro, Trading 212, or WeBull are the best investment apps for college students as they are widely available in most countries.

   If making your own investment decisions sounds a bit too daunting for now, no worries, you can always opt for the following options:

   • Mutual funds

     A mutual fund collects money from investors and hires portfolio managers to invest them. The 3 most reliable and trusted mutual funds are Vanguard, Fidelity, and Charles Schwab.

   • Robo-advisors

     A robo-advisor helps you invest your money by applying algorithms. The whole process typically involves little human decision-making. Here are some best robo-advisors: Betterment, Wealthfront, Acorns, Nutmeg, and Wealthify.

3. Eagerness to learn

   The motivation to constantly learn and up-skill yourself is probably the most essential aspect of achieving a successful investing journey.

   As mentioned, you will inevitably encounter downfalls and make mistakes along the way. However, by learning from them constantly, you will eventually reach the top of the mountain.

4. Patience

   Most people fail in investing because of lack of patience. Investing is not a get-rich-quick scheme. On the contrary, it takes time to grow your money.

   Most people could not handle the wait. They sell their investments after 3-6 months of investing in them and take the small gains or the loss. This is not the right way to look at investing.

   Investing is a long-term game. It may not get you impressive results in 6 months, one year, or even two. But if you stick to a trusted investment strategy long enough, I guarantee the results and returns you gain will be life-changing. The following graph speaks for itself.

   To understand more about investment strategies, please read Best Investment Strategies To Learn for Beginners.

How to invest as a college student?

So, you now have all you need to start investing, but how to start investing as a college student? Let me present you with a step-by-step guide to help you navigate your way along your investment journey.

1. Set your investment goals

   The first step is to decide on your investment goals. It can be to buy your first car, pay for the deposit of your first house, or even retire.

   I know it all seems a bit too far-fetched, considering you are still in college. But setting up your investment goals will make you more focused and hugely increase the odds of having a fruitful investing experience.

2. Start with a virtual money account

   It is wise to start your investing journey with a virtual money account as it allows you to learn the dynamics of investing with absolutely no risk. A virtual money account is an investment account that has some “fake money” for you to invest in real-life investments and stocks.

   Using the virtual money account means you no longer have to worry about losing your hard-saved money in the markets when you start out. It allows you to learn and feel comfortable with the market dynamics before investing with your real money.

3. Decide on an investment platform and investment strategy

   Once you have made up your mind to start with your own money, it is time to decide on an investment platform. You can refer to the section above to understand what kind of investment platform suits you most.

   Next, you will need to decide on an investment strategy you are comfortable with. For beginners, it is recommended that you stick to something safe and stable, such as passive investing, before going into something more technical and risky, such as value investing.

4. Invest regularly

   Investing does not stop after you put your money in for the first time. Investing regularly is the best way to capitalize on the power of compounding interest. Set an amount for yourself, and invest it into your investments every month. This will not only help you to develop a strong financial discipline that will benefit you in the long run, but it will also help grow your money at an incredible rate. Just take a look at the figure below to witness its effects.

5. Be patient and learn along the journey

   Once you have done all the steps above, now all you need to do is wait and learn. You can open your investment account regularly to understand what is going on in the market and how it affects your investments. One thing to keep in mind is that you need to be very patient when it comes to investing. Investing will not make you rich overnight, but it can make you wealthy in the long term.

   Your investments may seem volatile initially, but give it some time, and you will notice wonders. As a beginner investor, I will strongly recommend against selling your investments, especially when the market is going down. Panic selling is the biggest reason why beginner investors get their fingers burnt. I will explain this more in the last section of the article.

   Just remember, wait and learn!

What to invest in as a college student? Best investments for college students

Cool, now you know how to invest in college. Next, let’s talk about the most exciting topic — how to build an investment portfolio for college students? As a college student, it is easy to be overwhelmed by the millions of financial instruments in the market nowadays. But worry not, as we are here to point you in the right direction and provide answers to the question: What to invest in as a college student?

When you first start to invest your money, it is recommended that you start with something safe. They are usually the best investments for college students. Hence, index funds are no-brainers if you are a college student looking to invest your money in the market.

Personally, I would recommend investing in the S&P 500 index fund. The S&P 500 is one of the safest investments out there. Yet, it still provides you with impressive returns. Take a look at the graph below for yourself: if you invested $1,000 in the S&P 500 index fund in 2000, it would now be worth around $2,916.80. That’s a return of 185.15%!

That said, investing early also allows you to take more risks as your risk tolerance is relatively higher when you are young. Thus, it is not a bad idea to allocate some part of your fund, like 10% to 20%, to some riskier investments, such as individual stocks.

Doing this will not only allow you to understand how the stock market works but also bring you potential great financial returns. However, it is crucial to understand that you should only allocate a small amount of your portfolio to these investments and never blindly follow the trend. Remember, risks come from not knowing what you are doing.

Common mistakes in investing for college students

Before you leave, I would like to point out a few common mistakes of beginner investors that you should be looking out for. Knowing them will help you better navigate your direction, leading to a fruitful investing journey.

1. Waiting for too long to get started

   The first mistake of young investors is waiting for the “right moment.” As a young investor, there is no “right moment.” The biggest advantage you have is time, so start as soon as possible.

2. Investing money you need in the short term

   Remember, investing is a marathon, not a sprint. Your returns might be pretty volatile in the short term, but if you invest wisely, your money should grow consistently in the long term. Hence, do not put the money you will need in the next 3 years into the market. The worst thing you want is to sell your investments when the market is down just because you need to buy your dinner.

3. Not doing research on investments

   Investing is probably the easiest way to grow your money, but this only applies if you know what you are doing. Thus, before you put any money into an asset, make sure you have thoroughly researched them.

   ETF is often an easy choice for young investors to start. If you want to learn more about ETF investing, check out our blog — What is ETF?

4. Putting everything in one basket

   Portfolio management is essential in investing, and diversification is the secret sauce of managing a successful portfolio. Putting your money into different businesses helps you hedge your bets and protect your returns in the long run. The easiest way to build the best investment portfolio for college students is to invest in a well-diversified index fund such as the S&P 500.

5. Panic and sell when the market drops

   Panic selling is probably the worst mistake one can have as it hurts your returns heavily. When the overall market is going down, the last thing you want to do is sell, especially if you are investing in safe assets such as the S&P 500 index fund. When the numbers are going down, don’t panic; hold tight, or even invest more to capitalize on irrational fear from other investors, and you will eventually reap an amazing return.

6. Forgetting to learn

   The last but also most common mistake for beginners is to be too focused on the returns and forget to learn. As a young investor in college, you have a lifetime ahead of you. So, don’t worry about the temporary numbers. Instead, focus on learning from your success and mistakes. This will take you further in your investment journey.

Next steps in investing for college students

You should now be ready to dive right into investing. If you are interested in learning more about investing, I would highly recommend you read the following articles:

• How to start investing in stocks?
• Best investment strategies to learn for beginners
• What is passive investing?

If you like reading, here are some books that you might find helpful along your investing journey:

• The Little Book of Common Sense Investing
• Rich Dad Poor Dad
• Broke Millennials: Takes on Investing

You can also find more book recommendations here:

• Best investing books for beginners
• Best books for personal finance

Remember, never stop learning, and you will eventually get to where you want to be. That’s all, good luck!