How to invest as a college student?

Susan Fernandez November 11 2021

As a college student, you likely have some extra time on your hands. The school year gives you plenty of time to enjoy campus life and discover new hobbies and interests. Your class schedule probably leaves you with at least one or two free periods during the day and more importantly, lots of free money!

With summer break fast approaching (or already here), many students may be wondering how they can make their summer vacation memorable and educational!

Why investing in the future is so important?

Well, it's time to take advantage of the opportunity! If you want to be financially stable when you are older, one of the most important things is for you to start investing money now. Only if you have enough savings when one is old can he/she live a better life without having to depend on others.

  1. You don't need much money in your initial college student investment. When it comes to making investments, students usually assume that they cannot afford anything big because they lack sufficient funds in their bank accounts. However, this does not apply here because the only thing that matters is where you put your money. Whether it is an index fund or treasury bonds or 10 shares of Apple stock, as long as there are buyers who purchase the investment from you, it means that you have made a great investment.
  2. Dividend-paying stocks benefit a lot in long-term investments because of compound interest  Over time, each share invested in dividend-paying stocks produces earnings that accumulate into an account balance known as dividends over time. These company's policies and strategies of distribution reflect in the income stream which you will be receiving. There is no doubt that any investment plan should start with dividend-paying stocks because it is a strategy for increasing passive income.
    Dividend: The total amount paid by a company, divided by the number of shares outstanding Capital gains tax: A capital gain occurs when an individual or corporation sells a property or asset at a price higher than what they purchased it for.  For example, if an investor buys 1 share of Ford for $350 and later on sells 2 shares worth $800 each, then there is a capital gain of $300 per share.
  3. Having zero capital gains doesn't mean zero taxes!  On average, one can save up to $15,000 per year by minimizing capital gains. Making small investments can be helpful if your goal is to minimize capital gains tax for future investments.

We've just told you that investing in income-producing stocks is one of the easiest ways to invest but I haven't mentioned anything about how to make it work. The best thing about investing money now is that you can earn interest on it while you are making more money! Investing now means earning an income later.

Depending on your investment choices; whether long or short term, there are high chances that you would be able to earn money even before the investment period ends.

College students take advantage of this opportunity because they know that their paychecks will grow over time and also help pay the bills.

How to start college student investing?

The first thing that you have to do is set up a savings account. You can find banks that are offering higher interest rates for investing in their bank products. If interested, the investment process is not hard at all!

When you start investing, you should know the best ways for a college student to invest money. Although the list of investment vehicles isn't too long, it is important to know which ones are risky and which ones are best for college students.

Real estate

Ever wanted to make money by "flipping" houses? If yes, then college students can certainly benefit from this strategy because student loans are one of the biggest expenses every month. By selling a house for a higher price than what it was bought, you can easily save yourself from paying high-interest rates on your student debts.

It's time to take charge and start making the right investment decisions now! The earlier you start, the more successful you will be in the future and that is something that we all want as college students. So go ahead: check out ways how can a college student invest money and take control of your life today!

As you go through these choices, keep in mind that this list differs depending on your age. If you are just starting your career or have less experience at 21 or under then certificates of deposit are probably not a good option because they require you to tie up funds for set periods of time. If buying individual stocks is not something that fits into your budget, then mutual funds can be another choice!

Opening accounts

Mutual fund managers will choose several stocks usually in related areas so it's possible to have an ownership share in various companies without having any direct responsibility for them. You can even open multiple accounts with different mutual fund companies. 

Investing in the market is not that hard if you know how to do it, but most people find it difficult to learn about investing with little or no guidance. There are many resources online that teach about investment strategies with tips on what types of investments are best suited for college students who are still learning about long-term investments.

With the information out there, all you have to do is take advantage of them! Also having zero capital gains doesn't mean zero taxes! On average one can save up to $15,000 per year by minimizing capital gains. Making small investments can be helpful if your goal is to minimize capital gains tax for future investments.

Individual retirement accounts are not just for retirement! 

College students can take advantage of this savings tool too. If you are employed, then opening an IRA is the simplest way to save money for your future. And if you are thinking about where to invest in college, Roth IRA has great potential because it's an easy way to get started with saving for retirement.

With this account, all the funds are tax-free when withdrawn at retirement provided certain conditions are met. Your contribution ceiling is $5,500 per year and if you decide to open both traditional and Roth IRA accounts then be aware that the total limit would be $6,500 plus catch-up contributions under age 50.

If you start off early enough then you will have more time at your disposal to enjoy the fruits of your labor. Since we are talking about investing as a college student, it's best to start now and let your investments pay off in the future!

Online brokers also may help you start investing

You can buy stocks, ETFs, indexes, and mutual funds for your investment portfolio. These services are easy to use and you can open an account with just $5. The online brokerages will set the price of the share-based on market value so you pay what everyone else is paying at that time.

Index funds are also a point

Since these are passive investments, you don't have to worry about things like monitoring the ups and downs of individual companies. And if you as a college student invest in an index fund then your stocks will be automatically diversified which reduces risk even more! You can buy low-cost index funds or ETFs with a click of a button. Just make sure that you are aware of any fees associated with them first.

How to invest each month?

Hack #1: You can use your cash rewards credit card for investing. As you accumulate cashback, you would be able to invest in various stocks and mutual funds directly from your account. This also gives you another reason to use a cashback credit card besides the typical reasons like travel and shopping!

Hack #2: Open a zero-fee trading brokerage account. Since we are on the topic of stock market investments, it's possible that many college students will consider this option when looking at ways to invest money in college.

The good thing about using an ETF or index fund is that even if it doesn't perform well then at least there won't be any transaction fees involved with buying and selling shares. There are several websites where you can open an account without having to pay any monthly fees.


College Student Investment mistakes to avoid

Number 1: Not paying attention is the number one mistake. Usually, people buy and sell shares when they see them taking an upward trajectory so there is a chance that you can end up losing money if you do this! And since we are talking about investing in stocks, try not to do it based on rumors or unreliable information like what your coworker told you about his stock picks.

You need to know how much revenue and expenses contribute to the daily performance of a company; with this knowledge, you can make accurate judgments on whether or not the share price will go up or down.

Number 2: Not having any clear goals in mind is another way people lose money in the stock market. Remember that when you invest in stocks, it's an investment for the long term (more than a year). You can't play with your investments like they are casino chips- if not then you will end up losing all of them eventually!

Number 3: Not knowing what you are doing is definitely one of the things to avoid when investing. If you have selected an online brokerage firm to open an account but don't know how to select shares or funds to invest in, then your money might be managed by someone else who might choose risky high-yield options without consulting you first.

Don't let this happen because even if they get lucky once or twice, eventually there will be a time when they lose everything.

Number 4: If you don't have the money that you wanted to invest then simply do not put any money into your 401(k) or IRA plan. Just like with your bank savings account, if it's in there then you are most likely going to touch it (and most of the time people tap their investments prematurely before the market crashes).

If you see that you are unable to resist dipping into your investment money, consider using dollar-cost averaging where each month, an equal amount of money is pulled out for your investment portfolio. But remember to set up automatic transfers so that this process is done without having to manually remind yourself every month!

Number 5: Spending more than you earn is another reason why people lose money. If your 401(k) contribution limits and tax deductions aren't enough for you to buy stocks that meet your criteria then simply do not use this option! The market forces everyone to rein in spending because if they don't, then the economy will weaken over time.

Number 6: If you are using a mutual fund or an asset allocation strategy, do not charge into it just because there are some months when your returns are high. This can be attributed to luck rather than skill so rather than being greedy, try balancing out your portfolio with more defensive assets like treasury bonds/blue-chip stocks instead. After all, if you have invested in index funds or ETFs, one of the main reasons why it's considered is because of its passive nature!

Number 7: Not knowing your options or waiting for the perfect time are some mistakes that are easy to commit. You can buy stocks at any moment- just don't wait too long, consider the risks and then place your orders. Why not take a few minutes out of your day to research new investment techniques?

For instance, if you selected an S&P 500 index fund then try reading up on how it works so that you will know what to expect when you get dividends or capital gains in the future.

Number 8: Finally, don't be afraid to talk to professional managers who have years of experience in trading different kinds of financial assets. They might charge fees but this is what they are paid for; letting them handle your money is like receiving an investment bonus.

Final word

By avoiding these common mistakes, you should be able to improve your chances of winning in the stock market. If you can invest smarter then you will end up earning more returns over time!