Investment Beginnings for College Students
Understanding the various types of investments, ways to start investing, and the best path for you are choices that can help set you up for success.
By Jacob Stellick — April 5, 2023
With all this media coverage of investing, it can be challenging to discern what is valuable information and what can be ignored. When considering investing, you might think of hedge funds in their suits and briefcases. Your mind may also think of the other end of the spectrum with people putting their money into the markets on stocks like GameStop and AMC, treating the financial markets like a casino table. Understanding the various types of investments, ways to start investing, and the best path for you are choices that can help set you up for success.
Understanding Different Types of Investments
While it may seem complicated, you can categorize most investment types into a few groups: cash, bonds, mutual funds and ETFs, and stocks. While there are more types of investment out there, their risk to beginner investors outweighs their rewards.
Cash is the simplest of the investment types. It is also the safest. Funds in a savings account tell the investor exactly how much interest they will earn on their investment. The downside to a savings account is that the interest received is low. It is far lower than the inflation rate. Keeping money inside a savings account causes your funds over time to lose value as the dollar value decreases. Cash on hand also allows you to take advantage of situations in which the markets provide you with an opportunity.
Bonds are essentially debt. They represent a loan made by the investor to a borrower. This borrower could be a company like Disney or Microsoft or a city, state, or federal government. Bonds are issued with a fixed interest rate to the investor or "lender" in exchange for the borrower being able to use their funds for a specified amount of time. At the end of that agreed-upon time, the lender receives their funds back in full. Bonds are an incredibly safe way to invest and are an investment type that belongs in any diversified portfolio.
Mutual Funds are the next investment type you may hear about when learning about investments. This investment type works as a pool in which investors pool money to purchase stocks, bonds, and other security types. The fund is managed by professionals who allocate the capital into various investments. Mutual funds often have minimum investments, ranging between $500 and $5000. Often, mutual funds are designed to follow different sectors or indexes like the S&P500. This exposes investors to areas they wish to invest in while having the money professionally managed.
Ways to Start Investing
Investing may seem like a convoluted area, but there are some simple things that you can do to start your investment journey. Using a brokerage such as Charles-Schwab or Etrade allows you to invest will minimal funds and relatively inexpensively. Companies like these offer free stock and ETF trades while giving investors tools to research their investments and learn more about various investments and what they can do for you as an investor. Using these brokers that offer free trades on stocks and ETFs, you can invest small amounts over time and not have the small sums you invest chipped away by investment fees. Starting with small amounts every month, you can slowly build a portfolio and see your money grow in the markets without having to wait to invest thousands of dollars at once. No matter if the stock market is up or down, it is vital to start early. Compound growth in the markets can cause small amounts that you invest now to become much more significant sums later on down the road.
You can also invest in fractional shares of companies in today's day and age. If you cant afford a three hundred dollar share of stock, you can put thirty dollars into it and own one-tenth of a share. This method allows you to gain ownership and exposure to the investments you want without needing more money than you currently can. Micro-investing apps such as Acorns, Robinhood, and Stash provide similar ways for small investments to grow your account.
What is the Best Path for You
Once you grasp the basics of investing, you must decide how to proceed. There is no right or wrong answer when choosing how to begin your investment journey. While there are pros and cons to different strategies, your decisions are the steps in a learning process that will continue well beyond the bounds of your college campus.
How to invest your money is a personal choice based on your finances and your goals. While Reddit, Google, and YouTube may give you opinions on the best path toward financial independence or even riches, as you see on the news, they are not the only way to achieve your goals and aspirations. You'll often hear about more complex investment strategies that could lead to huge wins in the market. While these happen, their risk is extreme, posing dangers to your financial future.
Starting with safer investments may sound boring, but they can help establish a foundation to springboard you into financial independence far earlier than you believe. Bonds and high-yield savings accounts are safe investments that college students can have, which give lower returns, but in all of the hustle and bustle of college life, those investments that require minor care may be exactly what is needed.
Putting It All Together
No matter how far away it may seem, saving for retirement might sound like a premature move, but if the opportunity presents itself, why would you not make saving for retirement easier down the line? Investing is a complicated world with heaps of different types of investments, ways to start investing, and deciding how best to begin your journey. The internet and media are plastered with tips and tricks to get you rich, but investing time into understanding what you are getting into may be the best thing you can do for yourself and your future.
Jacob Stellick
A Chicago native, Jacob Stellick graduated from Wisconsin Lutheran College after studying finance and accounting. After graduating, he moved to Wauwatosa, Wisconsin. His free time is spent studying history, traveling, and continuing to follow his passion for photography.
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