These seven advice for college students can help young investors make more prudent financial selections for their futures.
1. Save Money Now
To begin investing, students don't require thousands or even hundreds of dollars. For starters, setting aside just $10 or $20 per week may be sufficient. Students who automate their accounts can better manage their finances and save money for dependable investments. Students may decide that skipping the weekly food delivery or daily coffee run is worthwhile if they know that the modest amount of money they save now will add up to significant savings in the road.
2. Research Brokerages
Brokers make investments on behalf of investors, assisting them in making knowledgeable choices and monitoring the value of their holdings. For this reason, it's crucial for students to choose brokers that best suit their financial requirements. Fidelity, Ally, and TD Ameritrade are a few low-cost brokerages that are excellent for newcomers. Investment applications like Robinhood are a good choice for college students because they allow users to start trading without paying any fees.
3. Open a Brokerage Account
After choosing a broker to work with, investors decide which type of investment account to open.
Brokerage accounts are available in two main types:
Cash account. This basic type of account uses cash on hand to purchase securities. Cash accounts are low risk and easy to set up for new investors.
Margin account. This type of account allows holders to borrow money from the broker to make investments. Brokers can use available cash and purchased securities as collateral for the loan. These accounts are riskier and come with interest rates, but they can yield higher returns since they allow for bigger investments.
4. Decide on Managed vs. Self-Directed Investing
Students can choose from two different approaches to investing: managed or self-directed. Managed investing is supervised by an account manager who can help create and balance a portfolio, make decisions on investors’ behalf, and keep track of investments.
Self-directed investing, on the other hand, gives investors more autonomy, but it comes with greater risk, since investors are making all investment decisions on their own, including which stocks to invest in, and when to buy and sell shares.
5. Understand Risks
It’s important for new investors to understand the risks that come along with this process. The stock market fluctuates, for example, and investments may not always increase in value quickly or consistently. But young investors should still maintain their portfolios as stocks rise and fall. This way, they can gain experience tracking and managing their investments, while getting a firsthand look at how the market recovers even after major declines.
6. Use a Robo-Adviser
Robo-advisers are helpful tools that automatically create portfolios, make investments, and analyze returns. This is beneficial for college students who want to get started investing small amounts of money and still remain focused on their educational and career goals. Popular and affordable robo-advisers include Wealthfront, Betterment, and SoFi.
7. Don’t Stop Investing
One of the biggest mistakes new investors can make is stopping too early. Investing can be a bit scary, and it does come with risk, but if they continue developing their knowledge and building healthy investing habits, students can reap the rewards for years to come.
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