How To Start Investing As A Student

A student with a source of passive income and knowledge about financial investments is definitely an asset. Along with independence, investing will also give you a bank of knowledge. When you start investing early while you're studying, your knowledge and experience in this subject will improve over time. Investing recently is gaining much traction among young adults but can get complicated quickly. Investing is basically putting money aside and growing it at the same time. Risks come with every investment, but investing cautiously and sensibly is not a gamble. All this may seem very intimidating, but don't worry. This blog will simplify the process of investing as a student.

What exactly is investing?

Buying assets like stocks, bonds, art or property and expecting them to increase in value over time is called investing. The aim is basically to sell at a much higher price than what you bought it for to earn a profit. Bitcoin and NFTs can also be assets. There are many ways to invest, but the stock market is the most popular. When you buy and sell stocks, you are basically buying and selling a tiny part of a company. When the company’s value goes up, the value of the share goes up too. There are never any investments without risk. While some investments can be less risky compared to others, there's still a chance of them decreasing in value. 

Types of Investing

When there are so many different types of investments, choosing the kind you want to invest in may seem impossible and complicated. So, here are a few types of investments you can choose from: 

Mutual Funds

Mutual funds, in simple words, is a trust that collects investments from several investors with a common objective and invests the same in money market instruments, equities, bonds and other securities. Here the money is managed by a professional Fund Manager. The risk level here depends on the type of accounts you are investing in.

Stocks 

Stocks are basically small slices of a company. When you're buying a stock, you're basically buying a small part of a company, so when the company makes a profit, your stock will increase in value. There are risks here, but keep in mind to invest thinking long-term.

Bonds 

Bonds are basically a loan from an investor to a borrower which can be a company or government, and once the borrower has used the money to fund its operations, the investor will get interest on the investment. Over time the market value of a bond can change, but they are usually low-risk investments. Bonds are essentially an IOU.

Exchange-Traded Funds (ETFs) 

EFTs are a bunch of different stocks or bonds managed by financial experts like mutual funds. They can be bought and sold like stocks and have a risk factor similar to mutual funds. 

Certificates of Deposit (CDs) 

With CDs, an investor leaves a specific amount of money in the bank for a particular amount of time without moving it, and at the end of the time period, the investment, as well as the interest, is returned. This is an agreement between a customer and a bank or credit union and is usually a low-risk investment.

Why should you invest as a student?

Although students may not have a lot of money for investments, it's good to start early and build up your bank of knowledge. Investing earlier can also start you up earlier for better long-term returns. It also gives the students real-world experiences with money and how it works. For beginners, investing a large sum of money is unnecessary; even a sum as small as $5 can be invested. Now due to technology, apps and the plethora of knowledge available online, investing is easier than ever. When students are spending their money on investments and getting returns, they will be more cautious with where the money they earn is going. They will basically earn money by saving money. 

Easy ways to start investing as a student

Investing as a student now, there are a lot of different platforms and options to choose from, from traditional to new online options.

Online Brokerage Account

Online Brokerage Accounts function like banks where you can deposit money and use it for buying and selling stocks instead of just holding it. The thing to remember here is that when you use the money for a profitable transaction by selling a stock, taxes are charged on that. For stocks held for less than a year, there is a short-term capital gain rate, and for stocks held for longer than a year, there are long-term capital gains, so a portion of your gains should be set aside to pay these taxes. An online Brokerage account can be opened easily using - Fidelity or Vanguard

Individual Retirement Account (IRA)

An IRA is basically a retirement savings account with many different tax benefits. This is a long-term savings account, so the money is supposed to be kept till you’re 59 and a half years old. There are ways to withdraw the money before maturity, but that will be heavily taxed. There are multiple types of IRAs, so choosing one that suits you is necessary. Students often tend to go for the Roth IRAs. Opening an IRA through a broker, bank or investment company is easy, and the most popular IRA companies are Charles Schwab and Merrill Edge.

Sign Up for Robo-Advisors

Robo - Advisors are usually for people who prefer the minimum human interaction. This is for hands-off investors, and the Robo advisors are low-cost management portfolios. They generate perfectly optimised portfolios for the investor to automatically invest their money into by using algorithms and answers to a risk tolerance questionnaire. Some of the robo-advisor options are Betterment and Vanguard Digital Advisor.

Micro-Investing App

The investments required for micro-investment apps are small, and the fees are minimal. The apps are made to make the user experience easy and to take small amounts of money to invest. One of the settings in the app is to make the app round each purchase to the nearest dollar and invest that change. This helps the students invest without even thinking about it. These are good short-term investments for students but shouldn't be the only source of income. Larger amounts can also be invested on the app, but knowledge of the investments should be present. Some apps to use for micro-investing are Acorns and Robinhood.

How can you start investing as a student?

If you're finally ready to start investing as a student, here are a few steps to follow to get started: 

1. Open an account

Before opening an account, first make sure you know what the investments you're interested in are, the long term financial goals, minimum fees, taxes etc. then choose from the multiple options available. This is the first step in investing as a student. For beginners, Robo-advisors are the best option. 

2. Add money to your account,

Depending on the kind of investments chosen, there may be a minimum amount to add, and that should be added. This is the second step in investing as a student. After the minimum balance is added, the total budget can be decided, and the frequency of investments too.

3. Choose your investments

Now, after the money is added, deciding what types of investments to invest in as a student is important. After choosing between different types like stocks and mutual funds, the next step is to get advice on the risks you're willing to take from the financial advisors and the finding the investments that align with your goals. Smaller micro-investing apps are better for beginners and student investors.

4. Make the very first investment

Once you have decided on your stockbroker, the purchasing of stocks can start, and the end goal should be kept in mind. The shares may be unpredictable in the short term, but the assets will grow over time. If you have an account manager, then the investment funds will already be set up, and all you have to do is monitor the accounts.

5. Review and add to your profile periodically

The goal of these investments should be to stay in it for a long period of time, so being patient and reviewing your profile is important. As there are so many new apps and investment opportunities at your fingertips, checking the investments every day may be tempting, but it is the wrong way to go about it. As making noticeable profits takes time, it may be discouraging to student investors to constantly check on their portfolios. The ideal check time should be quarterly. 

So here are the ways to start investing as a student. It may seem daunting and confusing, but now there are many ways, like apps and robo-advisors, that make the process easy and seamless. Big amounts of money aren't needed to start investing either, so it should be easy to start investing as a student now.