Investing for College Students – 2024 Guide & Tips

You might think it’s impossible to invest as a student. When we’re young, we have lots of time and not much money. As we get older, we often have more money and responsibilities and less time. But thanks to modern technologies, investing in 2024 is multifaceted and more accessible. You don’t need thousands in your bank account or keep the actual physical stock certificates.

The statistics show that among Gen Z, roughly 50% of young people own at least one investment product. The rising popularity of investing can partly be explained by the COVID-19 pandemic, during which many people lost their jobs and didn’t have other income sources. Putting money into something turned out to be a very beneficial passive income; however, it requires some experience, patience, and analysis skills. That is why we recommend trying your hand at investing during your student years.

In this article, we’ll debunk the myth that you need a lot of money to begin investing and provide a guide on how to get to it as a student.

📖 Quick Investing Glossary

Asset	Tangible or intangible items obtained for producing additional income or held for speculation in anticipation of a future increase in value (Extension Foundation).
Asset class	Different types of investments that behave similarly and are subject to most of the same market forces. There are 3 main asset classes: stocks, bonds, and cash equivalents (The Free Dictionary).
Return on investment (ROI)	The amount of profit, before tax and after depreciation, from an investment made, usually expressed as a percentage of the original total cost invested (Dictionary.com).
Principal	The original sum committed to the purchase of assets, independent of any earnings or interest (Investopedia).
Compound interest	Interest that is calculated both on an original sum of money and on interest that has previously been added to the sum (Collins Dictionary).
Dividend	A part of the profit of a company that is paid to the people who own shares in it (Cambridge Dictionary).
Investment portfolio	The whole range of financial investments held by an individual investor or a financial organization (Collins Dictionary).
Diversification	The spreading of your investments both among and within different asset classes (FINRA).
Risk	The degree of uncertainty and/or potential financial loss inherent in an investment decision (Investor.gov).
Index	An index tracks the performance of a group of preselected investments, such as stocks (NerdWallet).
Volatility	The frequency with which a security changes in price and the degree to which it changes in price (TheStreet).

🎓 Investing for College Students: Common Questions

Why Should College Students Invest?

Investing is one of the tools that can help you gain financial independence and, more importantly, give you valuable experience. Money management is an essential life skill; the more experience you get, the better.

Some other benefits of investing as a student are as follows:

• It improves your financial habits. Before you graduate and build your career, you can learn valuable skills such as analytical thinking, budget planning, and decision-making.
• It helps pay off student loan debt. By starting to invest while at college, you can prepare yourself for paying off your student loans and ensure you never get behind on payments.
• It turns minor savings into major investments. For example, according to The College Investor, if you start investing $6 per day at age 18, you will reach $1 million by age 62.

How Much Money Do You Need to Start Investing?

Investing your savings to earn more money sounds great, but most students don’t have a spare $1000 lying around. The idea that you need a lot of money to start investing is a common misconception that demotivates many young people.

In reality, you can start investing for as little as $1 with the help of commission-free trading platforms. To calculate the right amount of money to invest, consider your budget, monthly expenses, money for emergencies, and other savings goals. You might end up investing $10 a month or $2,000 a month, but the amount should be sustainable so that you can commit to it every single month.

Should You Invest if You Have a Student Loan?

There’s no universal answer as to whether you should start investing if you have student loan debt. While some experts say you should get rid of debt before you begin investing, others believe that it can actually help you.

A general rule is to check if your student loan interest rates are lower than the average return on investment. Let’s consider a plausible return on assets of 6% per year. If the interest rates for your student loan are higher than that, it’s better to pay them off first. However, if your student loan interest rates are less than 6%, you might consider putting extra money into investing.

💰 Types of Investments for Beginners

There are many types of investment; let’s see which ones might work for you.

Certificates of Deposit

A certificate of deposit (CD) is an account that withholds a fixed amount of money for a certain period, such as six months, one year, or more. In exchange, the bank pays interest. A CD is one of the safest savings options, suitable for students.

Another advantage is that CDs offer flexible account options, so you can choose the amount of money to invest and the time frame that suits your needs. As of May 23, 2023, the average rate for a one-year CD is 1.59%.

Bonds

Buying a bond means lending your money to a government or a company for a set period, from about a year to as long as 30 years. In return, they pay you interest. Most bonds have fixed interest rates, but some might have floating rates that go up or down. On the bond’s due date, you’ll get back the money you invested plus the interest earned.

One of the main advantages of bonds for students is that they provide a predictable income stream. Usually, bonds pay interest twice a year.

Stocks

When you buy a stock, you purchase a small piece of a firm, called a share. If you buy stocks in a company that goes up in value, the company’s stock also increases in value. However, in the worst-case scenario, the company may go bankrupt, making your stock worthless.

There are 2 ways you can make a profit off stocks. Firstly, you can sell the stock for more than you paid and have a capital gain. Secondly, some companies pay shareholders dividends in cash quarterly. Buying stocks is a great opportunity for students to earn money and improve discipline and patience.

Mutual Funds

A mutual fund is a company that collects money from many investors and puts them in stocks, bonds, and short-term debt. Mutual funds are typically a good place for a student to start investing. When you buy mutual funds, you rely on professionals to invest money in multiple assets at no extra cost. Like with stocks, you can get regular dividend payments or sell your fund when it increases in value.

A mutual fund is a good choice for students because it’s affordable and offers professional assistance from fund managers.

Target-Date Funds

Target date funds (TDFs) mix different types of bonds, stocks, and other investments into a single portfolio for your future savings goals. TDFs are commonly used for retirement savings, but you may have different financial goals. As you get closer to your set date, the fund shifts from a mix of stock investments to lower-risk options.

It’s a good idea to consider TDFs if you have long-term financial goals and want professionals to manage your investments so that you can focus on other things.

Index Funds

Index funds are very similar to mutual funds. The main difference is that instead of employing a professional manager to build your portfolio of investments, you invest in all the stocks of a particular market index. For instance, the S&P 500 is a market index that contains stocks of the 500 largest companies in the US.

Investing in index funds is another good option for students because it is relatively low risk. Index funds have minimum investment requirements, meaning you can begin investing for less than $100.

Exchange-Traded Funds

Exchange-traded funds (ETFs) are quite similar to mutual funds because when you purchase ETFs, you’re also investing in the stocks of a specific market index. The main difference is that you can buy or sell ETFs like regular stocks.

ETFs are also considered more tax-efficient than mutual funds and more transparent. You can do an internet search and see price activity for a specific ETF. You should consider buying ETFs if you’re genuinely interested in investing and ready to do some research.

🪙 Other Investment Types to Consider

Investing comes in many forms, each with its unique characteristics and considerations. Cryptocurrencies, real estate, precious metals, and collectibles carry their own complexities – these investments require careful analysis and strategic decision-making.

Cryptocurrencies

Cryptocurrency is a digital asset that allows you to buy or trade goods and services for profit. Due to cryptographic techniques, people can purchase, sell, or trade digital currencies without assistance from the government or any financial institutions. When the demand for a particular cryptocurrency rises, so does its value, which attracts more investors. However, since cryptocurrencies are a high-risk investment, experts believe they shouldn’t make up more than 10% of your portfolio.

Top cryptocurrencies that could be worthy of investment include Chainlink ($6.92), Avalanche ($16.96), Binance Coin ($333.39), and Bitcoin ($28,412.93). Since some are very expensive, you can purchase a small part of one. For example, 0.000001 Bitcoin is worth 0.26 USD as of May 23, 2023.

Real Estate

Generally, students cannot afford to buy, manage, or finance property. But you can still invest in real estate and profit from it. The two options for investing in real estate are ETFs and real estate investment trusts (REITs). We’ve already discussed ETFs; here’s more on REITs. Since REITs trade on public exchanges, they are easy to buy and sell. However, there’s a significant disadvantage: most REIT dividends are taxed as regular income.

Collectibles

Collectibles are items that cost far more than they were initially sold for because of their rarity or popularity. Examples include antiques, toys, coins, comic books, stamps, fine art, and limited-edition sneakers.

Investing in collectibles is an excellent opportunity to expand your portfolio while owning things you love. However, there are no guarantees that your collectibles will rise in price. Moreover, the price is often determined by the condition of your collectible, making this an unreliable investment.

Precious Metals

Another way to invest outside the stock market is to buy precious metals such as gold, silver, and platinum. However, like other speculative investments, they can provide high returns or losses. If you don’t want to buy physical quantities of precious metals, you can invest in them through the stock market or ETFs.

As long as you don’t over-invest in precious metals, you can use them as an insurance policy for your portfolio since precious metals tend to maintain their value.

💻 Investment Options for Students

The next important step is to choose a platform or tool that will best match your financial goals. Here’re our top 4 recommendations for student investors.

Investment Option	How It Works	Pros & Cons	For Whom
Online Brokerage Accounts: Vanguard Fidelity Charles Schwab	A brokerage account is quite similar to a regular bank account in that you can transfer money in and out. A brokerage account lets you purchase and sell stocks, bonds, and mutual funds.	➕ You can open an online brokerage account quickly and for free to get a hands-on investment experience. ➖ A brokerage account is taxable, so you need to set aside some money.	An online brokerage account is the best option for beginner investors who are ready to spend some time researching to ensure they make smart choices. This option allows you to tailor your investment portfolio to your financial needs.
Robo-Advisors: Betterment SoFi Automated Investing	Robo-advisor services automatically balance your investment portfolio. You can invest $200 or $2,000 without worrying about investment research or picking individual stocks. Instead, the algorithm-based robo-advisors will tax-optimize your portfolio.	➕ Robo-advisors are great for student investors due to their affordability. You can invest as little as $1 on some platforms for 0.15% per year in fees. ➖ A robo-advisor lacks some customization and may not be the best choice if you want to work on your financial skills. You should be careful about the cost of extra services since they can be pricey.	Robo-advisors are ideal for student investors who don’t have much money to invest. These platforms are for fans of passive investment strategies or long-term investors who lack the desire or time to research the best options.
Micro-Investing Platforms: Stash Robinhood Acorns	Micro-investing platforms allow beginner investors to save small sums of money regularly. They don’t have any brokerage account minimums and motivate people to invest even if they have limited income, which is a perfect solution for students.	➕ Micro-investing apps make it easy to start investing at a low cost. ➖ However, they offer small returns and little flexibility when choosing your investments.	Micro-investing apps can be useful for beginner investors and college students who want to avoid complex services and processes.
Individual Retirement Accounts (IRA): Charles Schwab IRA Fidelity Investments IRA Betterment IRA	An IRA allows you to save money for retirement in a tax-advantaged way. In a traditional IRA account, you can invest in various financial assets, including stocks, bonds, and mutual funds. However, you can diversify your portfolio through a self-directed IRA and invest in real estate and precious metals.	➕ IRAs are very accessible, and you can manage your investments on your own or with the help of a financial expert. ➖ The disadvantage of having an IRA is that you’ll have to wait to get your money out because most IRA plans will penalize you for making early withdrawals.	Opening an IRA can benefit students who don’t work for an employer that offers a retirement investment plan.

🧑‍💻 How to Start Investing as a College Student: Step by Step

If you’re a college student who wants to start investing, don’t miss out on our step-by-step guide.

1. Determine Your Goals and Current Situation

If you plan to invest, it’s crucial to determine your goals. Your investment strategy will significantly depend on your short and long-term objectives.

Examples of short-term financial goals include making payments towards your student debt, buying a car, or taking a vacation. These are expenses you will have in the next one to five years, so you don’t want to invest in anything risky.

Your long-term financial goals might be purchasing an apartment, retirement savings, or a wedding. Since long-term investments usually have a timeline of five years or more, you can afford to be a bit risky with your investments.

2. Pay Off High-Interest Debt

Paying off your credit cards, student loans, or any other debt can be frustrating and leave you with less money to cover daily expenses. If you find yourself in this situation, it’s better to pay off debt before you start investing.

With no debt repayments, you have more money in your budget to invest and the opportunity for higher returns. Paying off your debts will take a weight off your shoulders, motivating you to make smart investment choices.

3. Decide How Much to Invest

The sum you can invest depends on your financial situation, investment goal, and time frame. The best strategy is to be consistent with your savings and regularly set aside a given amount. Remember that you can start small, even just $5 to $10 a week. This way, you can quickly generate surprising gains without breaking your budget. A regular investment schedule will also help you develop that investor mindset and boost your financial skills.

4. Decide on an Investment Type

When you start building your investment strategy, it’s time to revise your financial goals again. If you have a long-term saving goal, like retirement, almost all your money can be in stocks. Since it might be challenging for a beginner to pick specific stocks, you might want to invest in mutual or index funds.

For short-term saving goals, keeping your money safe and building a low-risk investment portfolio is better. If you can’t or don’t want to decide, you can always open an investment account through a robo-advisor.

5. Open an Investment Account

Choosing the right type of investment account for you is the next important step. Firstly, you need to consider what kind of investor you want to be. While some investors find it satisfying to monitor investments daily, others prefer a more passive approach. You should also consider fees and minimum balance requirements. It’s best to create a table to compare several investment account options and choose the one that best matches your needs.

6. Start Making Investments

Here comes the most exciting part: making your first investment. A great and safe place to start is a low-cost index fund, like the S&P 500 index. It is a cheap way to diversify your stock portfolio. However, if you want to invest in a specific organization, you can do that too. Just be sure to do your research. If you’re working with an investment manager, you can relax, sit back and monitor your accounts.

7. Invest Regularly and Diversify

When building your investment portfolio, you shouldn’t put all your eggs in one basket. Instead, diversify so that if one investment drops in value, another might increase. Experts recommend ensuring you have investments across a wide variety of sectors as well as risk levels. A complex and diverse portfolio might include a mix of stocks, bonds, index funds, and alternative assets.

To determine how to allocate your money among various assets, you might get advice from friends or an investment manager, but you also need to do your own research.

🙅 Beginner Investment Mistakes to Avoid

Investment can be risky, and some things are beyond our control. However, there are some common mistakes beginner investors make that you should avoid.

❌ Investing Before You’re Ready

First, you shouldn’t start investing until you’re financially and mentally ready. To build your financial foundation, you must create a budget, pay off high-interest debts, and set aside some emergency money. A general recommendation is to have an emergency fund that can cover your daily expenses for three to six months.

❌ Not Doing Research Before Investing

If you want to invest in a particular company, simply choosing a famous one like Amazon or Apple might be a mistake. The cost of stocks in these companies is too high for most beginner investors. To pick the best stock, you need to do your research. There’s plenty of information available online, and you can always make things easier by getting help from a financial advisor or starting with a micro-investing app.

❌ Looking for Short-Term Gains

Nearly 56% of experienced investors say that looking for short-term gains is the biggest problem facing beginner investors. Purchasing and selling stocks within a short period can be tempting, but it can also be dangerous. Doing this can make you risk losing all your savings. Instead, create a safe investment strategy based on your goals, timeline, and risk tolerance.

❌ Making Emotional Decisions

Many new investors make choices based on excitement, and even greed, without paying attention to how undervalued or overvalued the stocks are. Investors also sell in a panic if the overall market drops, not appreciating how often the market goes up and down. When investing, it’s essential to control your emotions and be as rational as you can.

❌ Trying to Time the Market

Another common investment mistake is getting in and out of the market based on your predictions. It is impossible to identify the market’s best or worst days in advance. In most cases, attempting to time the market will only kill your returns.

❌ Not Diversifying Enough

Many new investors underestimate the power of diversifying their portfolios. Imagine you own 20 different stocks. If 10 of those are tech companies and 10 are energy companies, you’re not diversified. A sudden drop in the tech market could change the fortunes of half your portfolio. Instead, try to invest in various industries and countries, too.

❌ Paying Too Much in Commissions and Fees

Once you start investing, pay attention to how much money you spend on trading commissions. These are the fees your brokerage charges for each purchase or sale. If you spend too much money on these fees, they will rob you in the future. The general recommendation here is to aim to pay no more than about 2% of the value of your trade.

🔮 Top 10 Investment Tips for College Students

To help you get the most out of your investments, we collected the top 10 tips from financial experts and more experienced investors.

📱 Be critical of the investment apps you use.	Many investment apps have simple interfaces and cool design features that might distract you. These apps can stimulate you to put more of your money and have a tangible impact on your financial well-being.
🪙 Be careful with investing in ‘crypto’ and other digital assets.	If you consider investing in digital assets, remember the risks, such as a lack of investor protection and transparency.
📈 Analyze tendencies.	There are certain investor tendencies that are best to avoid, such as holding on to losing investments too long and selling winning investments too quickly.
🔐 Protect your online investment accounts.	You should always take measures to secure your financial information. Use strong passwords, activate two-step authentication, and turn on account activity alerts.
🙋 Ask questions.	Don’t be afraid to seek professional help with your investment portfolio. Everybody starts somewhere!
👩‍💻 Monitor your investment performance.	Remember to compare your returns to an index of similar investments and the commissions you’re paying to what other investment professionals charge.
🧠 Don’t forget to invest in yourself.	Don’t put all your energy and time into building a strong portfolio. First and foremost, take care of your studies, social life, and general well-being.
📚 Build your knowledge.	Investigate reputable resources to learn more about investment strategies and market trends.
📜 Start with a certificate of deposit.	It’s better to start investing in a safe option, such as a certificate of deposit, to grow your savings and reduce risks.
⚡ Remember the risks.	Be ready that the stock market fluctuates sometimes, and investments may not increase in value consistently or quickly.

🔎 Conclusion & Bonus Resources for Beginner Investors

Your college years can be an excellent time to begin exploring your investment opportunities. Surprisingly, investing doesn’t require you to have a ton of money, but it does demand you do your research though. Luckily, there are plenty of trustworthy sources from which to learn about different types of investments and platforms.

Remember that there’s no one right way to invest. How to invest your funds is a personal decision you make based on your financial situation and goals. Be sure to explore your options and your risk levels before investing your money.

Check out these resources to help you successfully navigate the world of investment.

🌐️ Investor.gov	Investor.gov is a helpful website that provides detailed information on investment terminology and concepts. They also publish market news and report on the latest investment trends.
🌐️ The SEC Website	The US Securities and Exchange Commission’s website helps beginner and more experienced investors gain insight into investing and learn valuable tips.
🌐️ NerdWallet	NerdWallet has a ton of information for new investors on the stock market, best investment strategies, and how to build a solid investment portfolio.
🌐️ Investopedia	Investopedia is a website that offers an A-Z explanation of investment terms, covering topics such as cryptocurrency, trading, and personal finance.
🌐 The Motley Fool	The Motley Fool is an online platform that provides an overview of investment products. It also has helpful tools, like an interest calculator and a savings goal calculator.
️🌐️ Chit Chat Money	Chit Chat Money is one of the best finance podcasts hosted by Brett Schafer and Ryan Henderson. Each episode digs into a basic investment topic in an appealing conversational manner.
🌐️ BlackRock	BlackRock’s website has an “Insights” section with investment strategies and market trends. It also has an Education Center with investment basics for beginners.
🌐 Kiplinger	Kiplinger is a valuable source for beginners since it covers topics in personal finance, ranging from explanations of taxes to recommendations on choosing stocks for purchase.

⚠️ Disclaimer

The information provided aims to help you learn investment basics and share some personal opinions. Before making any financial decisions, it is recommended to contact a professional financial advisor.

🔗 References

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