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How to Start Investing for College Students

Hindsight is 20/20. If there was one thing I could go back and tell myself in college, it would be to start saving money and investing. It’s not like you have a lot of money in college, but it’s a time in one’s life where implementing the proper personal finance strategies can yield huge rewards later in life.

Most people focus on how college students waste their money. Obviously a late night McDonalds binge fest after a night of ordering rounds of shots at the bars isn’t great for your wallet. So, my goal with this article isn’t to tell you what you shouldn’t be doing and, rather, focus on what you should be doing and a game plan for how to approach investing

Getting Set Up

This guide assumes you are new to investing. So, the first thing you will need to do is open a brokerage account. In essence, a brokerage account is like a bank account which you can fund and then buy and sell stocks from.

You should have a brokerage account regardless of whether or not you plan on buying any stocks soon. You never know when the market will present a great investment opportunity and you want to buy some stocks. You don’t want to start scrambling to open a brokerage account (which takes a few days to a week) right when the market crashes and there are a bunch of cheap stocks to buy.

Instead, open an account, fund it and wait until you are ready to start investing. Even if it’s not for a month, year or decade, at least you have the satisfaction of knowing everything is in place whenever you are ready to go.

So what’s the best brokerage firm? Personally, I recommend OptionsHouse. I use them myself and you may notice I create all my videos using them. This is because they have great research tools and only charge $4.95 per trade, which is one of the lowest in the industry. Pus, they are running a promotion for 150 free trades when you sign up. You can get the deal using this link.

Start Tracking Your Finances

Now that you have a brokerage firm, you need to start tracking all of your finances. Sure, checking your bank account before making a purchase is an exciting and suspense filled way to live your life, but it also isn’t advisable.

Knowing how much money you have and how you are spending it is what I like to call fiscal awareness. The simple act of tracking your money allows you to be aware of your budget, know when you have extra funds to move into your brokerage account and make better decisions with your expenses.

A simple way to start tracking your finances is by using excel. Not an excel expert? No need to be. It’s fairly simple really. See my dividend portfolio here. It doesn’t use too many of excel’s functions and is fairly simple to build.  You can also learn more of excels advance functions on YouTube or take a Udemy class to teach you more about excel.

Develop an Investment Strategy

After you are set up to track your investments, you can start preparing to make your first purchase. At this point, you’ll want to shift your focus towards developing an investment strategy and figuring out exactly how you want to invest your money.

When developing an initial investment strategy, there are two things I recommend all new investors to focus on. They are time and risk.

Time: Do you plan on checking your account balance every day, week, month or year? How often you are actively following your investments and trading will directly influence what type of strategy you can implement.

Risk: Some investments are naturally higher risk than others. Higher risk investments are more speculative and come with a higher chance of losing money. However, they also tend to have higher reward and gains. Determining your willingness to potentially lose money with your investment will determine the individual strategies you can take on.

Here are some investment strategy types and their associated time and risk levels.

  • 401k/IRA: Low risk, low time
  • ETF/Index: low risk, low time
  • Dividend Growth Investing: low to medium risk, low to medium time
  • Swing Trading: medium to high risk, medium time
  • Day Trading: high risk, high time
  • Penny Trading: very high risk, very high time (not advised)

Personally, I am following a dividend growth investing strategy here on my blog. It allows me to take on low to medium risk without having to invest too much time. Kind of the best of both worlds in my mind.

Note: At the end of the day, a well built portfolio will implement a few different strategies and investment vehicles.

Buying Your First Stock

Once you’ve identified your investment strategy, it’s time to buy your first stock!

Depending on your brokerage firm, the exact process will vary. But, here’s a video of how to buy a stock using OptionsHouse.

Diversifying Your Investment

The next step is more of a long term strategy to keep in mind. Putting all your money in one or a few stocks is a terrible idea. If the investment fails, you’ve lost all your savings. It’s kind of like putting all your chips on black in roulette.

Instead, new investors should focus on making smaller, fixed investments on a regular basis. By doing this, you can start diversifying your investments across multiple companies, sectors and industries. This will reduce your overall risk and help you weather the storm if any individual stock falls.

Always Keep Learning

Investing is not something you learn over night or something you perfect after a certain amount of time. The world keeps moving, industries keep changing and businesses come and go. You should always be learning and trying to find the next big investment opportunity.

That’s why you should always be learning and improving your strategy. You’ll start noticing that you make less mistakes and, hopefully, it translates into larger gains.

It may not seem like it’s worth the time right now. But, investing your time into learning now will help you successfully manage your portfolio as you get older and the amount of money you are investing grows.

Beyond reading everything you can find online. I highly recommend starting out with Debunkery by Ken Fisher. He helps new investors avoid some of the common pitfalls and misconceptions associated with investing.

Final Thoughts

Well, there’s the game plan. Now the ball is in your court. How you choose to proceed is up to you. Personally, I would kill for the opportunity to go back and start investing when I was younger. Who knows what my portfolio would be worth now.

So, don’t sacrifice your opportunity. Time is the only thing in life you will never get back. Get out there and start consuming as much information as you can and begins setting yourself up for financial freedom!

Thanks, Sam

Anything I missed? Anything else you want to know about?

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