Common Types of Investments for College Students

 Examining manageable and low-risk investment accounts is a good way for college students to get into investing. Take a look at these common choices for new and young investors.

Common Types of Investments for College Students

Index Funds

The S&P 500, commonly known as the Standard & Poor's 500 index of leading American corporations, serves as the foundation for index funds. With this choice, students can put money into a pre-built portfolio of low-risk equities. They can obtain a simple introduction to how the market functions instead of having to pick particular stocks themselves.

IRA Accounts

Students who are employed may want to think about opening an individual retirement account (IRA), a type of retirement savings account in which investments grow tax-free. A student's bank or brokerage can help them create an IRA.

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.

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