The younger you start investing, the better. Your money has more time to grow, and you have more time to weather the inevitable downturns in the market.
College students have several options when it comes to investing. We’ll explore some of the investment accounts available and the steps to get started in the market. Then, we’ll look at those different investment options and how they might fit into your portfolio.
While the best time to start investing is now, investing is only one facet of your overall financial plan. Getting rid of costly debts and building short-term savings help toward achieving your financial goals.
Even if you’re fortunate enough not to have any debt or bills at this stage in your life, these are some golden rules of money management that everyone should know.
Before you start investing, consider the following steps to get your finances in order:
Have an overall picture of your finances before you start investing, even if your finances aren’t complex. This can mean tracking any income and expenses, and organizing and staying on top of any bills and debts. You don’t need a strict budget, but knowing what’s going on with your money allows you to maximize it when it comes time to invest.
While investing is unquestionably more thrilling, saving for unexpected expenses is crucial for long-term financial success. Experts suggest saving three to six months of expenses in case you lose your job or a large unexpected expense arises. As a college student, these scenarios may not yet apply to you — but saving for the unexpected will help prevent your investing momentum from being derailed.
Nearly half of college students have a credit card, and 40% of students have more than $1,000 in credit card debt, according to AIG Retirement Services and EVERFI’s 2021 survey of over 20,000 college students nationwide.
Credit card debt is one of the worst forms of debt, mainly because it’s typically very expensive. On accounts with balances that assessed interest, the average credit card interest rate in 2021 was 16.45%, according to the Federal Reserve.
Meanwhile, the stock market has historically provided around 10% annual returns without accounting for inflation. So, if you’re paying 16% APR on your debt but only earn 10% on your investments, you’re not coming out ahead. Eliminating high-interest debts before you start investing is a strong suggestion for you.
As a college student, you have access to all the same investment accounts available to everyone else. We’ve listed here those most ideal for college students looking to get started building their portfolios, in no particular order.
A taxable brokerage account lets you buy and sell securities like stocks, index funds and, in some cases, cryptocurrency. These accounts don’t have any tax incentives, but they’re generally more flexible and have fewer restrictions than tax-advantaged retirement accounts like individual retirement accounts (IRAs) and 401(k)s. Simply put, you can withdraw your money at any time.
Robo-advisors are investment accounts that use algorithms to provide financial advice and investment management. They have little-to-no human intervention and, as a result, are typically lower cost than their human counterparts.
But many robo-advisors limit their investment options to exchange-traded funds (ETFs), and the portfolio management isn’t personalized. Instead, it’s based on your responses to a handful of questions about your investment goals and risk tolerance.
Investing apps offer a straightforward way to access the stock market by letting you buy and sell securities right in the palm of your hand — via mobile app. These accounts are usually taxable, so selling a security for a profit will trigger a capital gains tax like in a regular brokerage account. While investing apps offer a painless way to invest, some charge a small monthly platform fee and investment options are often limited to only stocks and ETFs.
An IRA is a type of investment account that provides tax-advantages for retirement savings, and they can be opened at most brokerages. There are several types of IRAs, but the most common are traditional IRAs and Roth IRAs. Both allow you to invest in the same types of securities, but the tax implications differ between them.
Contributions made to a traditional IRA are typically tax-deductible, and you pay no taxes on the earnings in your account until you begin taking withdrawals in retirement. On the other hand, Roth IRA contributions made with after-tax funds aren’t tax-deductible, but earnings and withdrawals in retirement are tax-free.
Note that withdrawals from your IRA before retirement could be subject to penalties. You’re also limited to how much you can invest in an IRA each year. IRA contributions across all accounts are capped at $6,000 for 2022.
IRA investment options include:
As a college student, what you choose to invest in largely depends on your unique goals, risk tolerance and overall interest in investing.
The following list includes investments that are hands-on and some that allow you more passive investment. Some carry more risk but offer the potential for higher returns, while others are considered to be safe investments that trade the possibility of higher returns for the comfort of stability.
An index fund is designed to track the returns of a market index such as the S&P 500 or Russell 2000 Index and usually trades as a mutual fund or ETF. Billionaire investor Warren Buffet has long recommended index funds because of their low fees — and, let’s face it: Picking winning stocks is no easy feat.
Investors can take the guesswork out of stock picking and instead get broad exposure to a larger portion of the market by buying index funds. Buying and holding index funds is widely accepted as one of the best ways to grow your wealth. Even if you like the idea of picking individual stocks, consider investing at least a portion of your money in index funds.
Stocks are a type of security that gives investors a share of ownership in a company. And with the advent of fractional-share trading, you can even now own slices of stocks without needing the full share amount to buy in.
If you want the most hands-on approach to investing, there’s nothing more personally satisfying than investing in individual stocks that turn out to be winners. But there’s a downside too: Stock-picking requires more of your time and emotional energy. And it’s harder to achieve portfolio diversification, especially the less capital you have to invest.
A CD is a bank product that pays interest on a lump sum of money that remains untouched for a predetermined period, which can be anywhere from a few months to several years. In comparison, CDs typically pay interest rates higher than a traditional savings account because your money is tied up.
Withdrawing your money before your CD matures can result in a penalty. As a result, CDs with longer terms tend to pay a higher interest rate.
Compared to other investments, CDs are considered low risk. They’re insured by the Federal Deposit Insurance Corporation (FDIC), and you benefit from a fixed rate of return. CD rates are modest at best, but they provide security and a guaranteed rate of return.
A high-yield savings account is another type of FDIC-insured bank product, usually offered by online banks. Online banks tend to have lower operating costs compared to traditional, brick-and-mortar banks, and so they can pay higher rates to their customers.
The downside is that these rates aren’t fixed like CDs. They can go up when the Federal Reserve raises interest rates and drop when the Fed lowers interest rates.
Target-date funds are a class of mutual fund or ETF designed to provide a simple solution for retirement investment by focusing on your anticipated retirement age. The fund comprises a portfolio of investments that are periodically rebalanced as you get closer to your target date, helping you manage risk and optimize returns.
So while the assets in your target-date fund may be heavily weighted toward stocks when you’re younger, they may transition more to bonds and cash — less risky investments — as you near your expected retirement age. The fund manager rebalances your portfolio on your behalf, and all you have to do is continue to fund it.
Cryptocurrency is decentralized digital currency that, in most cases, runs on blockchain technology. For many, it’s treated as an alternative investment that is bought and sold just like the stock of a public company is traded. The first and most popular cryptocurrency is Bitcoin.
Cryptocurrencies are a relatively new asset and, as a result, are still very volatile. Cryptos are known for their quick and significant price fluctuations that can lead to both substantial gains and losses. For this, crypto investors must have high risk tolerance.
The long-term investment potential of cryptocurrencies isn’t yet known, but they’ve become more mainstream in recent years and are closer than ever to becoming a recognized asset class.
College students who want to add real estate investments to their portfolios without needing the upfront capital to invest in physical real estate might consider real estate investments trusts (REITs) and real estate investing apps.
REITs are companies that own, operate or finance income-producing real estate. These can include office buildings, shopping malls, apartments, hotels or other income-producing properties.
When you invest in a REIT, you can earn a share of the income the property makes. This comes in the form of a dividend, providing you with monthly or quarterly cash flow. Many REITs are publicly traded on a stock exchange, which makes them a convenient option for investors.
Investors can also buy into commercial real estate through real estate crowdfunding platforms. These platforms pair developers and other real estate professionals with individual investors, giving investors another way to gain exposure to real estate without the hassles of owning and managing properties.
One of the best investments you can make is in yourself, and you’re already doing this by deciding to continue your education.
While assets like stocks and crypto are exciting and can help you build a profitable portfolio, investing in yourself by learning how money works and constantly improving your professional skills may be the most profitable investment you can ever make.
Your portfolio is the entire collection of all your financial investments. It can include stocks, bonds, cash and alternative investments like real estate and cryptocurrency.
It takes time to build your portfolio, but follow these steps to get started:
Investing for college students is no different than investing for everyone else. Start with a clear picture of your finances, decide on the type of investment account you want to open and choose your investments. Paid non-client promotion. Finder does not invest money with providers on this page. If a brand is a referral partner, we're paid when you click or tap through to, open an account with or provide your contact information to the provider. Partnerships are not a recommendation for you to invest with any one company. Learn more about how we make money. Finder is not an advisor or brokerage service. Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments. All editorial opinions are our own.
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