Full Guide On How To Invest In Stocks As A College Student
Quite frankly, I’m one of the few that used to believe that students don’t invest for some myopic reasons best known to me.
However, the moment I got exposed to reality and came out of the false shell, it dawned on me that investing as a student is practically one of the best things a student can do to help not just himself but for others too.
That being said, this post will discuss a practical guide on how to invest in stocks as a college student. Stay with me.
Investing in stocks is a generous means of making wealth. You don’t need all the monies in the world to invest in stock trading.
Rather, you can begin by setting aside the few dollars you would normally spend on a burger and cheese for investing the monthly total in stocks. It’s a practically wonderful way to use your earnings in the service of your future.
What Is Stock All About?
A stock is a type of investment that stands for an ownership share in a company. Investors acquire stocks that they think will go up in value over time. Furthermore, Stocks are securities that designate an ownership share in a company. For companies, issuing stock is a way to raise money to grow and invest in their business. For investors, stocks are a way to grow their money and beat inflation over time.
Public companies trade their stock through a stock market exchange, like the Nasdaq or the New York Stock Exchange. That is to say, investors can then buy and sell these shares among themselves through stockbrokers. The stock exchanges track the supply and demand of each company’s stock, which directly influences the stock’s price.
Stock prices aren’t always stable, but investors who own stock hope that over time, the stock will increase in value. That’s why it’s important for investors to spread their money around, buying stock in many different companies rather than focusing on just one.
When you own stock in a company, you are called a shareholder because you share in the company’s profits.
What Does It Mean To Invest In Stock As A College Student?
Being a college student avails you one of the best opportunities to invest in stock with little money.
Most people think of investing as reserved for the wealthy, it absolutely doesn’t have to be that way. Students should think about how they can use investing to create and secure their financial future, even before they’re out earning a full-time salary.
A stock is an investment. When you acquire a company’s stock, you’re purchasing a small piece of that company, called a share.
Investors purchase stocks in companies they think will go up in value. If that happens, the company’s stock increases in value as well. The stock can then be sold for a profit.
Investors can then buy and sell these shares among themselves through stockbrokers. The stock exchanges track the supply and demand of each company’s stock, which directly affects the stock’s price.
Public companies sell their stock through a stock exchange market.
Why Should I Invest in STOCK As A College Student?
Investing in stock avails a college student a whole lot of benefits ranging from its ease of access and low capital intensive nature to its profitability.
College is a great time to start stock investment for the following reasons;
Get Started on the Cheap
Investing in stocks demands little capital to start it. You can begin by setting aside the few dollars and investing the monthly total in stocks. It’s a practically easy way to boost your earnings.
If you’re a new investor with only a few dollars to forbear, putting your money in an index fund is often a good way to begin. You can also subscribe to dividend reinvestment plans, or DRIPs, which are offered by hundreds of major companies and don’t require much money, effort, or experience.
Once you own at least one share or fractional share of stock in a company that offers a DRIP, you can sign up for the DRIP and skip paying broker commissions by buying additional shares straight from the company or its agent.
Furthermore, dividends earned by your stock will be reinvested in more shares or fractional shares, which practically earn dividends of their own. This means that over a period of years, your stock holdings and earnings have the ability to grow at an accelerating rate without your having to bring out more money for your investment.
Inflation will be far from you when you’re trying to save for a major outlay, like buying a house or financing a comfortable retirement. Consider that the historical inflation rate in the United States hovers at around 3 percent. Then think about how this could affect the purchasing power of money that’s sitting in a certificate of deposit (CD) or savings account. It would have to earn at least 3 percent just to keep up with inflation, and even high-yield savings accounts don’t offer much over 2 percent.
You can usually earn a higher rate of interest on CDs than savings accounts—and you might even be able to keep up with or slightly surpass the historical inflation rate. But your money is tied up for the term of the CD, which may range from 30 days to 10 years.
Diversify Your Investments
Broadening your investments by investing in stocks, along with your bonds (and other fixed-income securities), CDs, and savings or money market accounts can help protect you from the inherent volatility of the financial markets.
Oftentimes, when the stock market is down, the bond market is up and vice versa. This entails that you can better control buoyancy where you’re concerned about spreading your money around. In other words, diversify.
Grow Your Wealth
Investing in stocks will help you to grow your wealth. However, it is pertinent to understand that there’s no guarantee of how your stocks will perform. Consider that the stock market has averaged a 10 percent annual return on investments since 1926, as measured by the S&P 500.
The Market Is Dynamic
The stock market is dynamic in the sense that it changes. The outcome of today might not be the result of tomorrow.
Despite what you may have gleaned from late-night infomercials or unsolicited emails, there are no magic formulas for investing success.
So, the best of it all is you’ll get to take advantage of a growing economy. As the economy grows, so do corporate earnings.
This is basically because economic growth creates jobs, which in turn generates income, which creates sales. The bigger the paycheck, the greater the boost to consumer demand, which drives more revenues into companies’ cash registers. You should know what that means.
How Much Do I Need To Invest In Stock As A College Student?
Before you decide to invest in the stock, one of the key things to do is to research and find out the steps to take. This is like shopping for a car where you get to research the specifications and reputation. As a college student, you can invest in stock with any amount you have. However, if you want to reach $1,000,000 per annum, you can invest the following amounts;
- $2,100 or $175 per month
- $2,292 or $191 per month
- $2,520 or $210 per month
- $2,772 or $231 per month
How To Invest In Stock As A College Student
Having the zeal and intention to invest in stock is one thing, knowing how to invest in stock is another. Here are the following ways to investing stock as a student;
Buy low-risk CDs
Often savers don’t think of a bank product such as a certificate of deposit (CD) as an investment, but it is one.
CDs will pay you a preset rate of interest in exchange for you entrusting money to the bank for a specified timeframe. This can be a good place to park money that you don’t need until a specific time in the future.
For example, if you have money for next year’s tuition, you seemingly want that in a super-safe account that won’t fluctuate with the stock market, a CD is a perfect fit.
Turn to a free or low-cost broker
There are many impressive low-cost online brokers – such as Fidelity Investments and Charles Schwab – and they often give great research and educational tools to get you started on your way. Both Fidelity and Schwab, for example, scored top marks in these areas and are noted for their overall client service and investor-friendliness.
But if you want to go all free then you can turn to Robinhood. Robinhood’s foremost selling point is that it’s free to trade on the platform, including stocks, ETFs, and options.
In addition, the recently introduced Robinhood Gold also provides Morningstar research for a relatively cheap $5 per month. With a slick trade-anywhere mobile app, Robinhood makes a great choice for those looking to cut costs to the minimum.
Select a brokerage firm
For you to really make investments, you have to create a brokerage account. You have two options here: online and traditional firms. Online brokerage firms offer easy and digital investment systems. However, traditional firms may provide personal advice and services.
Decide on your investment approach
This is a very vital aspect to consider. You can invest in individual stocks if you have the time and desire to wholly research and evaluate stocks on an ongoing basis. If this is the case, we 100% encourage you to do so it is entirely possible for a smart and patient investor to beat the market over time.
Invest a little each month
If you go with a low-cost broker, you’re going to be able to invest moderate amounts each month and not have your capital slashed by fees. Invariably, more money actually goes into your stocks or funds. You can start with just $20 or $30 a month, and start to see the money in action in the stock market.
It’s necessary to get started regardless of what the economy is doing. Even with a decent amount invested, you’ll likely be more motivated to follow the market.
Most importantly, see yourself as an investor. Investing money motivates you to conduct research and analyze your holdings. So beginning with even just a little can be really beneficial.
Buy an S&P 500 index fund
One of the easiest ways for an investor to get kickoff is to buy an index fund, and many of the most popular index funds are based on the Standard & Poor’s 500 indexes of large American companies. An index fund owns shares of all the stocks in the index, hundreds in the case of the S&P 500. By handling so many stocks across a wide variety of industries, the fund is spread and typically offers less-volatile returns than owning individual stocks.
Another use of an index fund is that you don’t have to know a lot to get started. Buying an S&P 500 index fund is like buying the market, and you’ll get the market return.
This is a great way to learn how investing works.
Diversify your Funds
Investing all of your money in a single company can result in financial disaster. Consider putting your money in different industries and investment vehicles. This strategy is called “portfolio diversification.” It is always advisable never to put all of your eggs in one basket. A diversified portfolio is beneficial.
Sign up for a robo-adviser
If you’re not ready to pick individual stocks or even an index fund, then you can opt for a Robo-adviser. A Robo-adviser automatically generates a portfolio for you, buying a selection of funds based on your time horizon and how proactive you want to be with your investments.
New investors can kickoff with very little money, $20 can get you going. You can add money incrementally without any additional transaction costs.
For their services, Robo-advisers usually charge a percentage of your assets, often 0.25 percent yearly, though some reserve the fee for small accounts. Wealthfront and Betterment are two of the larger Robo-advisers that hit this price point.
Ideally, you won’t pay any additional fees to the adviser, though any funds that you own usually have fees based on how much you own. You’ll often get other gains from the adviser, too, including attractive deposit rates, and you typically won’t have to lock your money in.
Get an investing app
One way to clarify the investing process even further is through utilizing an investing app. One popular mobile app that may help here is called Stash. It allows you to buy some individual stocks or a selection of ETFs. Therefore, if you don’t know how to start investing but want to learn and do it yourself, Stash is there for you.
Another renowned investing app is Acorns, and it made Bankrate’s list of top investment apps because of how easy it is to use. With Acorns, you connect a debit or credit card, and then the app rounds purchase up to the next dollar and invest that difference into one of a few ETF portfolios. The cost is $1 a month for this core service. Acorns also grant other services for additional fees, such as an individual retirement account (IRA).
Open an IRA
It might sound like you’re moving too fast by thinking about an IRA while you’re in college. Nevertheless, 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 diminish your contributions from your taxable income, saving you money on taxes. Plus, the quicker you start investing in a tax-advantaged account, the longer you can use the power of compounding to max out your account
Best Stocks to Invest In As Students
As college students, you don’t need the whole money in the world to invest in the stock. However, here’s a list of good stocks you can invest in with the little you have.
Ever since Starbucks (NASDAQ: SBUX) first launched free WiFi in their cafes in 2011, you can go into a location at any time of day and see students typing away at their keyboards. If the location is near a university, you can expect it to be filled with students.
Even though there are frugal individuals who take advantage of the freebie by staying for hours on end while buying nothing but the original coffee they purchased upon entering the store. However, Starbucks wouldn’t continue to provide free WiFi if it didn’t get an absolute return from the cost of providing it.
Sure, most Starbucks are staffed with friendly people, but the name of the game is profits
Starbucks takes the WiFi usage data in combination with its Starbucks Rewards data to deliver the latest profitability for shareholders and the company.
Students fondly get together with friends to chat about their life and eat. Do you know that eating can fetch you a lot of money? That’s where Sysco (NYSE: SYY) comes in.
Sysco is the world’s leading foodservice distributor distributing food products to facilities all over the world. Sysco makes about 8% of its revenue from education and government.
Restaurants are by far the biggest revenue-generator accounting for 62% of sales.
Presently, Sysco is in the middle of several cost-saving initiatives intended to increase yields while sending more to the bottom line. Included in the efforts is the company’s rationalization of its Canadian operations to service its many regions more efficiently.
In the third quarter, Sysco increased revenues by 2.2% year over year to $14.7 billion generating a running income of $529.6 million, 9.8% higher than a year earlier, a sign of its cost-saving initiatives is gaining traction.
Yielding about 2%, as long as people keep eating, SYY stock will continue to provide good shareholder gains.
Graham Holdings (GHC)
It’s been almost six years since the Washington Post and some of its other assets were sold to Jeff Bezos, the CEO of Amazon (NASDAQ: AMZN). At the time, the remaining assets were renamed Graham Holdings (NYSE: GHC).
One of those remaining assets was Kaplan. Divided into four segments: Higher Education, Professional, Test Prep, and International, the company’s educational segment generated 54% of its overall revenue in Q1 2019 and a notable amount of its operating income.
Together with its television broadcasting assets, Graham Holdings flows with these two divisions.
Kaplan’s international unit is by far the most successful unit. In the first quarter, it made $24.3 million from its operations on $185.8 million in revenue. The company’s second most profitable segment is its professional unit with $11.3 million in operating profits from $41.2 million in revenue, an impressive operating margin of 27.4%, almost double its international business.
There is no doubt, that the international business is where most of the assets in the business lie. In the first quarter, Kaplan International had $1.3 billion in identifiable assets. That’s 25% of its overall assets.
Chegg (NYSE: CHGG) got its start in 2007 renting physical textbooks to college students across America. Now it has blown into a complete direct-to-student learning platform of services to help students succeed leading up to, during, and after college.
Today, Chegg seeks to grow its digital subscription business, referred to as Chegg Services, which produced 77% of its Q1 2019 revenue of $97.4 million, up from 73% a year earlier. The legacy rental and sale of printed textbooks are seen as Required Materials, and it accounted for the remaining 23% of its quarterly revenue.
In Q1 2019, Chegg Services’ revenues grew 34% year over year compared to 7% growth for Required Services.
However, I can guarantee the Chegg Services segment hands down has higher margins. In Q1 2019 in its entirety, Chegg lost $4.3 million, 65% higher than a year earlier. Don’t let that scare you off.
Chegg is becoming a necessary learning companion for millions of high school and college students as they spend increasingly time in the digital space. Therefore, the demand for this platform will only grow over time.
American Campus Communities (ACC)
Student housing is much like the foodservice industry. As long as kids are going to school away from home and need someplace to live, companies like American Campus Communities (NYSE: ACC) will continue to make lots of cash for shareholders.
Up 18.5% year to date, ACC has had an unequal performance in recent years compared to the rest of its peers in the residential REIT industry.
However, store rents will continue to grow 58 consecutive quarters with an occupancy rate of 97.5%, well above the average for the entire U.S. market for apartment buildings. The time is now.
What Are The Disadvantages of Investing In Stock As A College Student?
Just as investing in stock portrays numerous advantages and benefits, there are also setbacks involved. However, bear in mind that risk-taking is one of the tools to succeed. Nothing good comes easily. Here’s a list of setbacks involved;
It is Risky
In the stock business, there is a possibility of losing your entire investment. If a company does badly, investors will auction, sending the stock price plummeting. When you sell, you will lose your initial investment. If you can’t afford to lose your initial investment, then you need to consider buying bonds.
Also, you can get an income tax break if you lose money on your stock loss. You also have to pay capital gains taxes if you make money.
High Brokerage and Low Margin
As an investor, you have to pay a certain amount of brokerage fees to the brokers whenever shares are bought or sold. This doesn’t matter if the investor is making any profit or loss. This can seriously hinder profit gains. There are some brokers who charge higher brokerage fees than usual.
Also, if you aren’t aware of brokerage rate you might pick the wrong broker where you would require to pay higher brokerage charges.
Loss of time
If buying stocks on your own, you must study each company to determine how profitable you think it will be before you buy its stock. In addition, it’s necessary for you to learn how to read financial statements and annual reports and follow your company’s developments in the news. You also have to watch the stock market itself, as even the best company’s price will fall in a market correction, a market crash, or bear market.
In the midst of all these Do’s time might prove to be a hindering factor.
Emotional roller coaster
Stock prices rise and fall on a regular basis. This is as a result of the fact that individuals tend to buy high, out of greed, and sell low, out of fear.
In situations like this, the best thing to do is not to focus on price fluctuations of stocks, just be sure to check in on a regular basis.
The competition amongst companies and professionals is on a high side. Institutional investors and professional traders have more time and expertise to invest. They also have sophisticated trading tools, financial models, and computer systems at their disposal.
In a case of high professional competition what you have to do is find out how to gain an advantage as an individual investor.
Investing in stocks is a generous means of making wealth. You don’t need all the monies in the world to invest in stock trading. Rather, you can begin by setting aside the few dollars you would normally spend on a burger and cheese for investing the monthly total in stocks.
FAQs on How To Invest In Stocks As A College Student
What is stock investment all about?
A stock is a type of investment that stands for an ownership share in a company. Investors acquire stocks that they think will go up in value over time.
What are the best stocks to invest in as college students?
As a college student, you can invest in the following; Starbucks, Chegg, Graham Holdings,Sysco, Square and a whole lot more.
Can college students invest in stock?
Yes, Student can invest in stock market.
Why should I invest in stock as a college student?
Investing in stock avails a college student a whole lot of benefits ranging from it’s ease of access and low capital intensive nature to its profitability.
Full Guide On How To Invest In Stocks As A College Students