How to start investing as a college student

Why Start Investing In College?

Let’s first talk about why you should start investing in college. The big reason is TIME.

Time in the market beats timing the market

What this means is that the best way to grow your money is simply time. The earlier you start investing, the more time your money has to grow. 

Sadly, too many college students are impatient – and it’s not sexy to see your $1,000 investing grow to just $1,080 by the end of the year. While seeing your money grow $80 is great – it’s not life changing, and that can be discouraging.

But where you really see the gains is in the future. By starting to invest at 18 versus 30, you have a 12 year lead over that same individual. Check this out: how much you need to invest per year to make it to $1,000,000 by 62 years old. 

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Common Types of Investments for College Students

College students can start investing by exploring manageable and low-risk investment accounts. Consider these popular options for young and beginning investors.

Index Funds

Index funds are based on the Standard & Poor’s 500 index of major U.S. companies, also known as the S&P 500. This option allows students to invest in a ready-made portfolio of low-risk stocks. They don’t have to choose individual stocks themselves and can instead get an easy introduction to how the market works.

IRA Accounts

If students have a job, they can consider setting up an individual retirement account (IRA), which is a type of retirement savings account where investments grow tax-free. Students can set up an IRA through their bank or brokerage.

IRA accounts are divided into two main types:

  • Traditional IRA. These accounts include tax benefits for contributions (with some deduction restrictions). That means students don’t have to pay taxes on the money they put in, and they can accumulate money more quickly. The downside is that they can’t withdraw the money until they’re 59.5 years old, and will have to pay taxes on those funds once they do withdraw them.
  • Roth IRA. These accounts don’t include a tax benefit for contributions, but the taxation is usually minimal, and contributors can make tax-free withdrawals from these accounts at any time.

Certificates of Deposit

Certificates of deposit (CDs) are safe, low-risk products sold by banks and credit unions. Like savings accounts, CDs can be used to store money in a safe place. Unlike savings accounts, CDs grow at a fixed interest rate, as long as the deposit is left in the account for a predetermined period of time. That’s why, even though CDs aren’t stocks or bonds, they can be an important form of investment for college students.

Why Should a College Student Invest Why Not Wait Until After Graduation?

Though we normally think of investing as an activity that can and usually should wait until after graduation, I was able to think of several compelling reasons for starting in college:

  • Experience: The student will graduate from college, already having investment experience.
  • Nest egg: The student will graduate from college, and already have at least a small investment nest egg – the future time value of that investment can be enormous.
  • Maturity: The student will cross an important “adult” threshold – investing – earlier in life than most.
  • Education: Real-world lessons will be learned in the process of investing that could never be learned by reading books, visiting websites, or even watching “how to” videos.
  • Initiative: Just getting started is often the single biggest hurdle for a new investor, and if you begin while still in school you’ll have already cleared it.
  • Potential: If you can save and invest while still in school, and on a very limited income, think what you can do after graduating when you’ll have a full-time income?

The student who gains experience investing in college – even at a very low level – will have a big advantage over those who haven’t.

And if investing continues after college, the student will ultimately have an even bigger advantage over their peers, who might wait several years after graduation to begin.

Best Advice for Investing College Students

Simply put: Invest, and NEVER stop! 

As much as anything else, investing is a habit. We all know there are good habits and bad habits, and investing is one of the goodest of the good. The earlier the investing habit is developed, the better. That means the college years are actually an excellent time to begin creating the habit.

In fact, from a financial standpoint, investing may be the best habit to develop, next to staying out of debt. But even then, only maybe!

And debt brings up another important point

The reader indicates both of his kids, being in graduate school, are accumulating “loans (that) are going to be quite large”. When it comes to student loans, we’re talking about unsecured debt. That means while student loans may be the size of a mortgage, there’s no property securing the debt that could be sold to make it go away.

Investments may be the next best alternative. Sure, by the time the reader’s kids get out of school, they won’t have nearly as much money in their investments as they will have in student loan debt.

But as the years go by, and their student loan debts gradually declining due to amortization, their investments will increase in value. At some point in the future, their investment portfolios may rise to a level where the money can be used to pay off the student loans.

That creates a situation in which very large student loan debts – that might take 20 years to pay off – could be paid off in 10 years or less.

A Few Pitfalls to Avoid as a Young Investor

When I first graduated college, I fell in love with the idea of retiring young. I wanted to retire by 30. (Spoiler alert: It didn’t happen.)

My problem wasn’t the goal of early retirement; I still want to retire young. My problem was overconfidence and trying to invest “cleverly” to beat what I thought everyone else was doing. Instead, I should have followed these tips:

  • Forget Being Clever. Focus on the fundamentals first: a high savings rate, diverse index funds, and perhaps a real estate investment by house hacking or crowdfunding.
  • Don’t Buy Stocks or Funds on Margin. As you gain experience with stock investing, you can explore leverage, but for now, leave margin buying to the pros.
  • Do Buy Your Index Funds in an IRA or Roth IRA. As a student with a presumably low income, Roth IRAs likely have more upside potential for you.
  • Most of All, Avoid Debt. Credit card debt is particularly dangerous, but also be careful not to overleverage yourself if you buy real estate. That was my downfall; I borrowed too much money, too fast and too young, and my portfolio of rental properties collapsed in the 2008 housing crisis.

Micro-Investing Apps

You may feel like you don’t have money to invest as a college student, but micro-investing apps can help you find money to do so. Some of these apps may automatically round up your purchases to the nearest dollar and invest the change. Others may allow you to start investing with as little as $5 by offering fractional share investments.

7. Open an IRA

It might sound like you’re jumping the gun by thinking about an IRA while you’re in college. But an IRA can actually be a great opportunity to build your future savings if you’re earning money with a job, as many students are. An IRA allows you to defer taxes on any profits or dividends, and deduct your contributions from your taxable income, saving you money on taxes. Plus, the earlier you start investing in a tax-advantaged account, the longer you can use the power of compounding to max out your account.

A Roth IRA can be another great way to get started investing for retirement. Contributions to Roth IRAs are made with after-tax dollars, so there won’t be any tax savings immediately, but your withdrawals during retirement will be tax-free. By making contributions when you’re in college (and likely paying a low income tax rate), you’ll avoid a larger tax bill down the road when your income will likely be taxed more. As with a traditional IRA, your investments will be allowed to compound tax-free in a Roth IRA.

Those advantages can be an easy win for a little effort.

How to Invest as a College Student: 5 Easy Steps

Ready to start investing? Navigating financial decisions can be intimidating. Here are five easy steps to help you invest in your future.

Step 1: Open an Account

The first step to investing is opening an account. Before you open one, though, look into the different investment options. Figure out what makes the most sense for your current situation and long-term financial goals. Make sure to also consider minimum investment requirements, tax rules, and fees for each option.

If you’re not sure where to begin, go with a robo-advisor. It can walk a beginning investor through choosing an optimal asset allocation.

Step 2: Add Funds to Your Account

Once you settle on one or more investment accounts, you’ll need to add funds. Depending on which account you choose, you may have a minimum amount you have to add. Start with your budget to determine how much you should add.

After meeting the minimum investment (if there is one), you’ll need to decide how much money you’ll add to your account and how often to do so. You could always start small and add a minimal amount — even $5 — to a robo-advisor account or a micro-investing app in hopes of graduating with a larger investment.

Step 3: Decide What to Invest In

Now that you know how much money you have to invest, you need to decide how you want to invest that money. Do you want to put money into stocks or do you prefer bonds or mutual funds?

If you have a managed account, your financial advisor can help you navigate the level of risk you’re willing to take and how that aligns with your investment goals. As a college student, you may want to begin small with micro-investing apps, which can be lower risk.

Step 4: Make Your First Investment

Now comes the fun part: making your first investment. If you’re working with an account manager, you may have already set up your investment funds and can sit back and monitor your accounts.

Jumping into the stock market can seem intimidating, but it’s actually quite simple. Once you’ve selected your stockbroker, you can begin purchasing your shares online. When buying stocks, keep the endgame in mind. Although your shares may roller-coaster in worth in the short term, most likely your assets will grow over time.

Step 5: Periodically Review and Add to Your Portfolio

No matter how you invest your money, most of the time you should expect to be in it for the long haul. Be patient and periodically review your portfolio.

With so many investment opportunities at your fingertips, checking your app daily may be tempting. But doing so isn’t always helpful. Many financial advisors suggest daily monitoring may discourage you from continuing your investments. Because gains can take time, many recommend checking in quarterly.

As you better understand your portfolio and gain confidence — or as your financial situation changes — you can add to your portfolio by increasing your investment amount or adding on other investment options.

4. The key is to diversify

The key, experts say, is to diversify, which means have a variety of investments in different things. Don't put all of your eggs in one basket. That keeps balance, and if one investment is going down, another might be holding steady or going up.

For example, if your investments are all in tech and all of a sudden the tech sector starts sliding, so is your portfolio, Sun explained. "If you have some in tech, maybe some in health care and those more traditional companies that pay dividends," Sun said, "then your overall portfolio is a little bit better balanced."

So, try to make sure you have investments across a wide variety of sectors (such as technology, health care, retail, financial, etc.) as well as risk levels. Growth stocks, for example, can gain a lot but also lose a lot. Value stocks are more steady growth. You can also invest in currencies, commodities and riskier investments such as cryptocurrencies and NFTs. Those tend to be more volatile and complex, so you really want to do your homework — and make sure you are only investing what you can afford to lose.

It's OK to get advice from friends when investing, but you need to do your own research and you need to be diversified. If your friend says buy XYZ stock because it went up for them, don't just buy that and leave it at that. It could go down for you. So, if you're diversified, you have a cushion for that.

4 things students need to do to start investing

The earlier you start investing, the better off you’re likely to be—in fact, you can start researching right now from your dorm room or apartment. The first thing you’ll probably learn is that where you learn about investing and how much money you start with won’t necessarily drive your success—instead, your most powerful investment tool tends to be time.

Imagine two people, Kate and Ishaan. They both invest their money in a portfolio with a 6 percent annual return—a reasonable rate over the long-term. If Kate invests $100 per month starting at age 25 and continues until retirement at 65, she will end up with nearly $200,000.

Meanwhile, imagine Ishaan waits to start investing until he is 35. Even if he makes the same $100 investment until he retires at 65, he will end up with less than $100,000 (nearly cutting his retirement savings in half). In fact, if Ishaan wanted to catch up to Kate by the time they retire, he would have to invest almost $200 each month —just because he waited to get started.

The big difference is that Kate’s early start helped her take advantage of compounding. That’s where you earn a return on your initial investment, and that return builds over time. So, the lesson is clear: if you’re a college student or recent grad, take advantage of the most powerful investment tool you’ve got.

The above example is for illustrative purposes only and not indicative of any investment. Compounding refers to the process of earning return on principal, the original amount you put into an investment, plus the return that was earned earlier.

Why College Is a Great Time to Start Investing

Although we may view college students as being broke, college can actually be a great time to start investing. Dabbling in investments during college gives you experience with real-world money lessons. Also, investing sooner can possibly set you up for larger payouts in the future.

Surprisingly, investing does not require you to have a ton of money upfront. Many brokerages do not require a minimum investment amount. In fact, you can invest with as little as $5. Investing minimal amounts at the beginning of your college career could leave you graduating with a small amount of money.

Investing Money You Need in the Short Term 

Remember: there is no guarantee that you’ll make money right away with investing. You’ve got to stick it out of the long-haul if you want to see any significant value. In fact, in the short term, you could even lose money if the market drops. So, don’t invest any money that you’ll need anytime soon. 

For money that you might need soon, you’re better off putting it into a high-interest savings account. In that type of savings account, you’ll still be able to collect some interest – albeit a small amount – while still having the assurance that it will be there when you need it. 

Workplace Retirement Plan

If you’re working while in college, your workplace may offer a 401(k) or similar retirement plan. These plans often offer matching contributions. That is essentially free money you get for contributing to your retirement. You may have to stay with your employer for a certain number of years before you can keep the matching contributions when you leave your job, though.

Step 5: Have Patience  

Remember, investing is a long-term strategy to build wealth. If you expect to be making money from investing right away, you’re sure to be disappointed and make rookie mistakes. So, give it time — lots of time! 

As the first American Nobel laureate in economics, Paul Samuelson, once said: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

As a beginner in anything, you’re bound to make some mistakes. This is normal. But here are a few things to look out for so that you make as few beginner investment mistakes as possible! 

5. Sign up for a robo-advisor

If you’re not ready to pick individual stocks or even an index fund, then you can opt for a robo-advisor. A robo-advisor automatically creates a portfolio for you, buying a selection of funds based on your time horizon and how aggressive you want to be with your investments. Beginning investors can get started with very little money – even $20 can get you going – and you can add money incrementally without any additional transaction costs.

For their services, robo-advisors usually charge a percentage of your assets, often 0.25 percent annually, though some waive the fee for small accounts. Wealthfront and Betterment are two of the larger robo-advisors that hit this price point.

Typically, you won’t pay any additional fees to the advisor, though any funds you’re invested in usually have fees based on how much you own. You’ll often get other benefits from the advisor, too, including attractive interest rates on cash accounts and you typically won’t have to lock your money in.

Learn More About Managing Your Finances as a Student at

When you’re paying for college tuition, books, dorms and food, the last thing you want to do with any spare money is hide it away in a brokerage account. But if you can exercise even a small amount of self-control, you’ll create positive investment habits and start building a solid foundation for financial independence.

Another way to gain financial independence is to focus on paying off student loan debt. CollegeFinance.com can help you make the most of your college investment with resources on paying down student loans and making other informed choices regarding college financing.

Should College Students Invest through a Traditional IRA?

A benefit of traditional IRAs is that contribution

A benefit of traditional IRAs is that contributions are tax-deductible. However, most college students don’t have very high tax rates.

It’s almost always wiser for college students to invest in a Roth IRA rather than a traditional IRA.

It’s possible to contribute to both a traditional and a Roth IRA. Still, the maximum yearly contribution you can make applies to both IRAs combined. Rather than put some in each account, college students should max out their Roth IRA with the best investments, if possible.

While the Roth IRA contributions aren’t tax-deductible, they are only taxed at your current tax rate (typically low in college). You can take tax-free withdrawals later and don’t pay taxes on investment income either.

If you have money you could contribute to a traditional IRA, usually it would be best to invest it in a Roth IRA instead. Remember, you can’t contribute more than you earned that year.

How college students can put their money to work

You’ve done some research and found your “why.” Here are a few ways to get started.

Start with a high-yield savings account or CD

Investing isn’t just about trading stocks and bonds—you’ll also need a hefty cash reserve to see you through tight situations. You should stash cash you need in the short-term (under five years) in a safe environment, such as a high-yield savings account, a certificate of deposit (CD) or Q.ai’s Cash Reserve.

Unlike investment accounts, Q.ai’s Cash Reserve is backed by FDIC insurance. And while your money won’t grow as quickly as it would in an investment Kit, it has the potential to grow with reduced risk over time and will be there when you need it. (Learn more about the Cash Reserve here.)

Dabble in your taxable brokerage account

Regular brokerage accounts don’t provide the same tax benefits as retirement accounts. But they may offer more flexibility, as you can invest in more types of securities without contribution limits.

Plus, if you’re still interested in trading stocks as a college student (as opposed to just investing for your future), putting a few bucks into a regular account lets you do just that. Just don’t trade away money you can’t afford to lose.

Start investing for retirement

When you’re in college, retirement seems like a long way away. But retiring requires a lot of savings. (Experts generally say you’ll need at least one to two million socked away for a comfortable retirement.) The earlier you start investing, the more you’ll contribute over the years—and the longer your money can grow.

Open an IRA

An IRA, or individual retirement account, offers special tax advantages over regular brokerage accounts. These can be a great opportunity to build your savings and curate good habits. You can pick between two options:

  1. With a traditional IRA, you don’t pay taxes on your contributions or gains. But in retirement, you pay taxes on all qualified withdrawals.
  2. With a Roth IRA, you pay taxes before you contribute. Come retirement, you can make qualified withdrawals completely tax-free.

However, IRAs have downsides—namely, lower income phase-outs and contribution limits than 401(k)s.

Consider fund investing

Putting your money into low-cost index funds and ETFs is one of the easiest ways to start investing and diversify in a hurry. Passively traded funds may also come with lower trading costs and less volatility than trading individual stocks.

But index funds aren’t designed to grow your wealth fast. For that, you’ll have to look for actively traded funds or dive into growth-based investing. Just be prepared to accept higher levels of risk (and often bigger fees) as a trade-off.

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