By: Kara Perez
Updated: September 19, 2019
When I look back at my investing career thus far, I have only one regret: I didn’t start investing sooner.
I didn’t start investing until well after I graduated college, which is not uncommon. Few college or grad school students have the money or investing know-how to get into the stock market. But if you’re a student looking to get started with investing, you’re probably wondering which investments to buy.
We’ve broken down a few ideas for investing to that can help you get set up for financial security.
While retirement might be the furthest thing from your mind if you’re a 22-year-old college student, you can never start investing too early for your golden years.
Don’t know what a retirement plan is? No problem.
If you’re a college student who is also working part or full time, the first thing you want to do is see if your employer offers a retirement plan. This will usually be in the form of a 401(k) or 403(b). Each company can put different restrictions around who is eligible for their retirement plan and when they can start contributing. So sit down with your manager or your HR representative to find out what your options are.
If you don’t work as a W2 employee, you still have access to retirement accounts. They’re called IRAs, which stands for individual retirement accounts. Anyone over 18 who has income can open one for themselves.
A 403(b), 401(k) or an IRA is a great place to start investing because of the length of time between your first contribution and when you’ll begin to withdraw the money. If you start investing for retirement at age 20 and don’t take out money until you’re 60, that’s 40 whole years of contribution and market gains! Hopefully by the time you’re 60, the past 40 years will have grown your investments and you’ll have a nice nest egg for yourself.
As a student, you may not have a ton of spare cash to invest. An IRA, for example, has a limit of $6,000 maximum per year (as of 2019) . This may seem an impossible amount to fit into your student budget. Of course you don’t have to invest the full amount; ever little bit helps.
Luckily, there are many robo advisors to choose from. With one of these you can start investing for super low prices or even free.
A robo advisor is a type of financial advisor that works based off your financial information, goals and an algorithm. Instead of working with a human, robo advisors are web and app based tools that help you start investing and build an investment portfolio.
Since you’re not paying for a human financial advisor, robo advisors tend to be much cheaper and easier to start investing with. Many of them have no required investment minimum. So you can start with as little money as you’d like. You can contribute a different amount each month if you want, based on your budget that month.
What Kinds of Investments Should You Buy Through These Accounts?
Opening a retirement account isn’t actually investing. You still need to select a fund, bond or individual company to buy.
Making this decision is often an intimidating process. What companies will do well? Which funds have a high return? It feels especially fraught when you are a new investor without a lot of money.
What is right for you specifically is going to be a personal decision. However, one place you may want to start your investment research in is target date funds.
Target date funds
A target date fund is an investment fund that automatically changes the weight of your investment as you near retirement. The farther you are from retirement, the more aggressive the fund is, which usually means it’s heavily into stock. The closer you get to retirement age, the fund gets more conservative and bond heavy.
Simply pick the year you plan to retire as your target date. Then let the investment itself do the heavy lifting over the years. Check in on your investments periodically and make sure they’re on the right track for your plans.
Looking Outside the Stock Market
While we’ve focused here on stock market investing, you may also want to consider investing in real estate. While real estate has a much higher barrier to entry, between a down payment, closing costs, taxes and inspections, real estate can also produce much higher returns on a faster time scale than the stock market.
If you’re in an area that you plan to stay in for five years (like while you get your PhD!), real estate can provide both a place for you to live and an investment opportunity. Real estate markets are highly local, so don’t look at national trends to understand what’s going on in your town or city.
Look to your local market. Figure out what you can come up with for a down payment. Research first-time buyer programs you can participate in. And think at least five years into the future for your personal plans. Will you be around to fix a leaking roof? Do you have a property management company you can trust if you graduate early and leave?
Ultimately, beginning to invest early can be a great decision, if you find the right investment for your situation. Don’t feel rushed to get into any market just because you think you should. Get into the markets that feel right to you long term and make sense with your current budget.