How to Start Investing (A Simple Guide for College Students)
Understanding Investing as a Student
Investing is one of those things everyone says is important, but very few people explain in a way that actually makes sense for college students. Students are also likely to assume that investing is not particularly relevant to them because of other financial priorities that need to be met, such as college fees, accommodation, and day-to-day living expenses.
The reality is that student investing is similar to having a competitive advantage. It does not require significant financial resources; it requires the development of productive habits early on, basic knowledge acquisition, and using TIME to your advantage. This guide breaks down investing into three basic concepts that need to be understood before starting.
KEY TAKEAWAYS
Start Early: Time is your biggest advantage as a student. Starting small now matters more than starting big later.
You Don't Need Much: Consistent, manageable amounts beat large, irregular investments. Come in with a clean strategy.
Keep It Simple: Diversified, low-cost investments are often the smartest place to begin for better long-term results.
1. When Should You Start Investing?
The best time to start investing is earlier than you think. Most students are reluctant to invest due to a lack of preparedness or a sense of inadequacy. Nevertheless, it is not necessary to be knowledgeable in all aspects of investing to start. The most important thing is to allow the capital to grow over time.
Time matters because of compounding. Money invested earlier has more years to grow, even if the amounts are small. Waiting until after college means missing out on several years of potential growth. There is no need to wait until a full-time job or a substantial amount of money. It is better to start early, even if it is imperfect, rather than waiting too long to start.
For students, the hardest part isn't choosing investments; it's simply starting.
Pro Tip: You don't need to "wait until you know more." You can learn while investing small amounts.
2. How Much Should You Invest?
One of the biggest misconceptions about investing is that you need a lot of money to begin. You don't. What matters more than the amount is consistency.
For most college students, a manageable amount to invest would be one that ranges from $25 to $50 on a monthly basis. The key idea is to avoid an amount that would require one to reduce other expenses, such as rent and meals.
The goal in the first few months of investments is not to maximize one's earnings, but to create a sense of consistency with one's investments. As one's earnings grow, so does the amount one would be able to invest.
Why it matters:
Building the habit of investing early makes it easier to stay consistent later, when the stakes are higher.
3. What Should You Invest In?
The stock market can be very intimidating as it offers limitless amounts of companies to invest in. However, it can be very counterproductive for beginners to try to invest in individual stocks.
Most beginners should start investing in:
Index funds or ETFs: Investments that hold hundreds or thousands of companies with low fees and built-in diversification
These investments hold many companies at once, which spreads out risk and reduces the chance of one bad investment hurting your entire portfolio. Index funds are meant to be held for a long period of time and accumulate a small and consistent growth over the years.
Focusing on index funds or ETFS early on will keep things simple and less risky, helping avoid emotional decisions and short-term mistakes. You don't need complex strategies when you're starting. A straightforward, diversified approach is the smartest one when you lack the knowledge.
Common Beginner Mistakes to Avoid
Trying to time the market
Investing money needed for rent or tuition
Overreacting to short-term market drops
Chasing hype or trends on social media
4. Where Do I Invest?
The next step is to determine a platform as well as a type of account to create. In most cases, a taxable brokerage account is the best option for a college student, as it is flexible and allows students to invest and withdraw funds without any penalties. This is a low-pressure option for students.
Robinhood is a popular choice, as it is easy to use, quick to set up, and allows students to invest small amounts of money by using fractions of a share. Setting up a taxable brokerage account on Robinhood allows students to focus on building a habit of investing by avoiding unnec
essary complications of taxes and retirement.
Other firms where you can open a taxable brokerage account include Fidelity, Vanguard, and E*TRADE.
For more information, check out NerdWallet's blog on breaking down the best broker firms for beginners
Even though it is easy to use, it can also lead to a problem of over-trading, which is not good for long-term planning. It is essential for students to use these platforms with a long-term perspective and not engage in any form of speculation.
By: Christopher Gamboa