How To Start Investing As A Student

Before we set on the financial adventure of how to start investing as a student, we will talk about why you should think of investing, what are the types of investment for students, answer questions on how to start, various ways to invest the money as a student and formula for budget set up to start your investment as a student. Investing is 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 investment as a student.

What exactly is investing?

Investing as a student means creating financial security even before building a career. In more exact terms, 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. While some investments can be less risky compared to others, there’s still a chance of them decreasing in value.

5 Types of Investments as a Student

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

1. Mutual Funds

Simply put, a mutual fund 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.

2. Stocks

Stocks are small slices of a company. When you’re buying a stock, you’re 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 in thinking long-term.

3. Bonds

Bonds are loans from an investor to a borrower, a company or government. The investor will get interested once the borrower has used the money to fund its operation. Over time, the market value of a bond can change, but they are usually low-risk investments. Bonds are essentially an IOU.

4. 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.

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5. 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 period, the investment and the interest are returned. This agreement between a customer and a bank or credit union is usually a low-risk investment.

Easy Ways to Invest as a Student

1. 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. 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.

2. Individual Retirement Account (IRA)

An IRA is a retirement savings account with many tax benefits. This is a long-term savings account; thus, the money should be kept until 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 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.

3. Sign Up for Robo-Advisors

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

4. Micro-Investing App

The investments required for micro-investment apps are small, and the fees are minimal. The apps make the user experience easy and 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. These are good short-term investments for students but shouldn’t be the only source of income. Some apps for micro-investing are Acorns and Robinhood.

5. Invest in Cryptocurrencies

One of the major benefits of investing in the crypto market is that it comes with higher returns in less time, you may liquidify your digital cash anytime, re-invest or buy assets using them, and you have complete ownership of your investments and assets. Though crypto is one of the fastest-growing options for investments for students, you must be careful before investing with limited money as the market is volatile.

6. Coverdell Education Savings Account

Investment as a student becomes less stressful with some support from the federations. Coverdell Education Savings Account or ESA is a trust set up by the Government of the USA to assist students and families in managing their expenses. Students above 18 can invest in the trust account for further education and other expenses the ESA covers. The age limit may be waived based on special circumstances. A family can contribute a maximum of $2,000 annually for a single beneficiary.

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7. 529 Plan

Also referred to as the Qualified Tuition Program or Section 529 plan, this is one of the best ways of investing for a student with high ambitions. This plan aims to cover the apprenticeship programs as well as K-12 education. You may also utilise this planned investment for the students to pay off your student education loans and may also redirect it to the Roth IRA.

8. S&P 500 Index Fund

The Standard and Poor’s 500 index fund is considered the safest investment for students. An index fund is a cumulative account with 100s of stocks. As a novice investor, the S&P 500 is the safest way of stock investing as a student. Investing as a student in stocks becomes easier and less risky as you buy out the market and get a return. It reduces the volatility risk as you save hard to grow money as a student. Best part? This method is suggested for students by the investment mogul Warren Buffet.

9. Crowd Funding Websites

One of the lesser-known answers on how to start investing as a student is crowdfunding websites that have become great investments for students. Investment in real estate is a tough call, but these websites allow investing starting at $1,000 and resolve your query of how to start investing.

10. Peer-to-Peer Lending

This investment method for students is also a great way to start investing as a student. This way is similar to investing in crowdfunding websites. However, the stark difference is that this process of investment for the students involves personal loans that are not secured instead of real estate investment loans for students who are looking for the answer to how to grow money as a student.

How can you start investing as a student?

If you’re finally ready to start, you need first to sit back and envision what your bank account reflects in the near future. Done? Time to buckle up for the adrenaline rush you are going to encounter in this journey. It involves time investment in research and understanding of the market and various industries to become an investor even before earning or working part-time. 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 investment. After the minimum balance is added, the total budget can be decided, and the frequency of investments, too.

3. Choose your investments

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

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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, the investment funds will already be set up, and you must 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 time, so patience and reviewing your profile are important. With so many new apps and investment opportunities at your fingertips, checking the investments daily may be tempting, but it is the wrong way to go about it. Making noticeable profits takes time, which may discourage student investors from constantly checking their portfolios. The ideal check time should be quarterly.

Top 3 Ways to Set Up a Budget to Invest as a Student

After reading through the blog, you are clear on the reasons, types, and ways of investing as a student and solidifying your financial future. However, one question which pops up at the end is the best method to plan the investment for students. In this section, we are briefly answering it for you:

1. Look at your Debt

Before starting to invest as a student, you must check the debt your account holds or if you have some money borrowed, which is a liability now. With this method, you will know how much money you must invest.

2. Fix your Monthly Expenses:

When considering starting early and investing as a seasoned investor, you must have a financial plan and discipline. The first step is always to make a budget for yourself and your expenses, including your student accommodation as an international student. When you have it ready, we move to the next step

3. Don’t forget the Miscellaneous Expenses

Miscellaneous Expenditure includes anything and everything under the sun, i.e., unwarranted health issues, buying extra academic books, and household requirements, among many others.

4. Segregation funds

As a young individual who wants to start investing as a student, you must have a financial vision alongside the knowledge of investment and bifurcate various out-of-the-line expenses, including travel, dates, and others. Here is the list you may follow:

  1. Shopping
  2. Travel Expenses
  3. Eating Out
  4. Medical Emergency
  5. Ticket Budget for holidays
  6. Night Outs
  7. Birthday Gifts or other
  8. Hobby-related expenses

As a student investor, you must.

So here are the ways to start investing as a student. It may seem daunting and confusing, but now, many ways, like apps and robo-advisors, make the process easy and seamless. Big amounts of money aren’t needed to start investing, so it should be easy to start investing as an ambitious student now. You can also watch our webstory on Tips to Invest as a student to know more.