Why Investing Is Important
If youre new to investing, it probably makes you feel one of two ways.
First, it can feel like a level of long-term financial planning thats too far off for you to be thinking about yet. Most people invest for retirement, right? Yes, but, there are more reasons to invest than that!
And, second, it can feel like a significant risk to put your hard-earned money towards something and not know exactly how much money if any youll be able to withdraw later. Nerve-wracking? Perhaps
But, is learning how to invest still worth it? Absolutely! Why?
Investing gives you the power to let your money earn more money for you. Yep, you read that right! When you invest, your money can make you money thanks to compound interest. In addition, when you invest you generally protect yourself from your money losing value over time due to inflation.
And, its for that reason that investing is said to be the #1 way to build sustainable wealth over time. It also makes it a lot easier for you to pay for major milestones in your life like buying your first home, having the wedding of your dreams, knocking every travel destination off your bucket list, eventually retiring with ease, and so much more.
Wanna know the best part for you? The earlier you start investing, the better! And luckily, these days, you dont even need that much money to get started. Seriously, the starting amount is likely lower than you think!
What Are The Types Of Investments
Stocks, bonds, annuities, commodities, real estateI bet we all scratched our heads the first time we tried to know more about these financial terms. If youre anything like me, you also probably got overwhelmed with all the technical jargon and got buried with a ton of information that didnt make sense.
This guide aims to shed light on the different types of investments available out there to help you achieve your financial goals. Learning about them will open ways and ideas for multiplying your money quickly.
Heres our quick rundown of the different types of investments:
1. Bank Products
Perhaps the most popular and common of all investments, bank products come in different options.
The money you deposited are federally insured to up to a certain limit and can be easily withdrawn. Some examples are savings accounts, certificates of deposit , money market, and federal insurance.
2. Bonds
Bonds are loans offered by an investor to governments and corporations. In exchange, the borrower must pay the interest on the borrowed money at a predetermined schedule and will need to return the principal on an agreed upon maturity date.
3. Stocks
Put simply, stocks pertain to units of ownership in a corporation. This means that if you own or invest in stocks of a company, you become one of its owners.
4. Investment funds
Investment funds come or are sourced from different investors. A mutual fund is one of the most common types of investment fund.
5. Annuity
6. College fund
Calculation Of Intrinsic Value
Student fund managers recommend purchasing stocks with an intrinsic value well above the market price, thus providing a sufficient margin of safety. Student managers recommend sale when the market price exceeds the current estimate of intrinsic value, either because of a change in prices or fundamentals.
Based on their analyses student managers make recommendations to the MSU Foundation to buy or sell a security. All decisions to recommend purchase or sale of a security is made by the faculty advisor with input from the students.
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Open A Brokerage Account
After choosing a broker to work with, investors decide which type of investment account to open.
Brokerage accounts are available in two main types:
- Cash account. This basic type of account uses cash on hand to purchase securities. Cash accounts are low risk and easy to set up for new investors.
- This type of account allows holders to borrow money from the broker to make investments. Brokers can use available cash and purchased securities as collateral for the loan. These accounts are riskier and come with interest rates, but they can yield higher returns since they allow for bigger investments.
Turn To A Free Or Low
If you want to jump into investing, it couldnt be much cheaper to get going. There are many impressive low-cost online brokers such as Fidelity Investments and Charles Schwab who offer free stock and ETF trades while also providing 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 great for college students looking to cut costs then you can turn to Robinhood. Robinhoods main selling point is that its free to trade on the platform, including options and crypto. Robinhood Gold also provides Morningstar research for a relatively cheap $5 per month. With a slick trade-anywhere mobile app, Robinhood makes an excellent choice for those looking to cut costs to the minimum.
Webull is another option for the particularly cost-conscious investor. Webull, like Robinhood, also features commission-free trading but has more customer support options and offers retirement accounts that Robinhood doesnt.
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And Debt Brings Up Another Important Point
The reader indicates both of his kids, being in graduate school, are accumulating loans are going to be quite large. When it comes to student loans, were talking about unsecured debt. That means while student loans may be the size of a mortgage, theres no property securing the debt that could be sold to make it go away.
Investments may be the next best alternative. Sure, by the time the readers kids get out of school, they wont have nearly as much money in their investments as they will have in student loan debt.
But as the years go by, and their student loan debts gradually declining due to amortization, their investments will increase in value. At some point in the future, their investment portfolios may rise to a level where the money can be used to pay off the student loans.
That creates a situation in which very large student loan debts that might take 20 years to pay off could be paid off in 10 years or less.
The Difference Between A Traditional And A Roth Ira
It’s always important to understand the difference between a traditional and a Roth IRA. We explained a bit at the top, but they each have their own nuances that makes it important to understand which might be best for you.
The traditional IRA uses pre-tax money. This means when you contribute, you get to take a tax deduction when you file your taxes.
A Roth IRA uses after-tax money, meaning that you’ve already paid taxes on this. As a result, when you pull the money out in retirement, it’s tax free.
It’s also important to note that Required Minimum Distributions are required on Traditional IRAs, but not Roth IRAs. The IRS is going to get their tax dollars some way!
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Coverdell Educational Savings Accounts
This type of college savings account is another option for those who want to take a more self-directed approach to their investments. The annual contribution limit is currently $2,000 per year, but it may still be a viable alternative if you want to purchase a specific investment that is not offered inside a 529 Plan.
Why You Should Start Investing While In College
If you’re a college student, you likely have a lot on your plate already. So why should you consider adding investing to the mix?
The short answer is: college might just be the perfect time for you to start investing. Here’s why:
- Investing is all about the long game. The purpose of investing in stocks and other assets is to provide you with sustainable, long-term returns . The earlier you start, the more time your investments will have to grow and deliver those returns.
- Its okay to start small. Contrary to what you might think, you dont have to have hundreds of thousands of dollars in your brokerage account to start making meaningful investments. Sure, investing $100 per month might not make you rich overnight, but it will help you learn how to navigate the financial markets, find investment opportunities that fit your goals and start building your future investment portfolio.
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Ready To Start Your Journey
- College can be an excellent time to begin exploring investment opportunities.
- Stocks, bonds, and mutual funds are three common ways to invest money.
- You can plan for retirement while in college by exploring an IRA.
- Consider your finances, comfortable risk level, and goals when deciding your investments.
When you think of finances and college, do images like boxed mac and cheese and snagging condiments from the student center come to mind? Although making money in college can be challenging, there are ways for college students to tackle investing.
Depending on the investment, you may only need a small amount of money to get started. Investing while in college can help you graduate with extra funds and can even jumpstart your retirement plans.
Give Your Investments Space
The stock market rises and falls.
Watching your investment balance daily and lamenting every little drop is no way to live!
And changing your investments in an effort to minimize losses typically ends up losing money in the long-term because of transaction fees.
To save your money , skip the daily check-ins. Don’t touch them.
Instead, just review your portfolio periodically throughout the year to make sure you’re happy with the big-picture performance of your investments. Once or twice a year, look to rebalance your portfolio if your allocations start getting out of whack.
The goal is to leave it alone because the money you invest you shouldn’t need for many years. If you mess with it, you’ll let emotion take control and you risk making rash decisions.
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Invest In Your Future
The best time to start learning about investing is now whether youre ready to open your first account, download a robo-adviser app, or research the fluctuations of the stock market. The sooner you begin investing, the sooner youll start saving for your post-college future. With the right investments in place, you can graduate knowing that youve already built the foundation and skills you need to continue growing your wealth and planning for financial success.
How Much Should You Invest
If you’re looking to start investing after college, a common question is “how much should I invest”. The answer for this question is both easy and hard.
The easy answer is simple: you should save until it hurts. This has been one of my key strategies and I like to call it front loading your life. The basics of it are you should do as much as possible early on, so that you can coast later in life. But if you save until it hurts, that “later” might be your 30s.
So what does “save until it hurts” mean? It means a few things:
- First, you should make saving and investing mandatory. The money you want to invest goes into the account before anything else. Your employer already does this with your 401k, so do it with an IRA too.
- Second, challenge yourself to save at least $100 more beyond what you’re currently doing – make it hurt.
- Third, work towards either budgeting to achieve that extra $100, or start side hustling and earning extra income to achieve that extra $100.
Here are some goals for you:
- Max Out Your IRA Contribution: $5,500 per year, or $458.33 per month
- Max Out Your 401k Contribution: $18,000 per year, or $1,500 per month
- Max Out Your HSA : $3,350 for single per year, or $6,750 per family per year
- If you side hustle to earn extra income, max our your SEP IRA or Solo 401k
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Invest A Little Each Month
If you go with a commission-free broker, youre going to be able to invest modest amounts each month and not have your capital eaten up by fees. So more money actually goes into your stocks or funds. You can put away even just $20 or $30 a month, and start to see the money in action in the stock market. A number of brokers now also offer investors the ability to buy fractions of a share too.
Its important to get started regardless of what the economy is doing. Even with a modest amount invested, youll likely be more motivated to follow the market. And importantly, you can begin thinking of yourself as an investor. Having money invested also encourages you to conduct research and analyze your holdings. So beginning with even just a little can be really beneficial.
Invest In Yourself Through Hrccu
For college students, investments made now can create a strong base for a healthy financial future.
At HRCCU, those looking to open an investment account or create a diverse portfolio can get quality assistance through the credit unions wide range of resources.
This includes affordable financial advice from HRCCUs partnership with GreenPath Financial Wellness. At GreenPath, students can even receive free expert guidance on managing their education loans.
With HRCCU, members can become successful investors. Contact us today to learn more about how we can help you invest towards tomorrow.
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Things Students Need To Do To Start Investing
The earlier you start investing, the better off you’re likely to bein fact, you can start researching right now from your dorm room or apartment. The first thing you’ll probably learn is that where you learn about investing and how much money you start with won’t necessarily drive your successinstead, your most powerful investment tool tends to be time.
Imagine two people, Kate and Ishaan. They both invest their money in a portfolio with a 6 percent annual returna reasonable rate over the long-term. If Kate invests $100 per month starting at age 25 and continues until retirement at 65, she will end up with nearly $200,000.
Meanwhile, imagine Ishaan waits to start investing until he is 35. Even if he makes the same $100 investment until he retires at 65, he will end up with less than $100,000 . In fact, if Ishaan wanted to catch up to Kate by the time they retire, he would have to invest almost $200 each month just because he waited to get started.
The big difference is that Kate’s early start helped her take advantage of compounding. That’s where you earn a return on your initial investment, and that return builds over time. So, the lesson is clear: if you’re a college student or recent grad, take advantage of the most powerful investment tool you’ve got.
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Evaluate Your Debt Before Investing
Not all debts are created equal. Before you invest a penny, take a close look at your debts.
If you have credit card debt, your next step is a no-brainer: Pay it off before investing money elsewhere. Try these tips to help you pay off your credit card debt fast.
Student loans are less cut and dry, and whether to keep them or pay them off depends on your interest rate. According to the U.S. Department of Education, the average interest rate for undergraduate student loans is 5.05% for graduate student loans and 6.6% for professional student loans.
Historically, stock markets have returned an average of 7% to 10% per year. But stocks also come with volatility and risk, while paying off your student loan debt offers a guaranteed return. Whether to invest your extra money or pay off your student loans faster comes down to your personal interest rates, risk tolerance, and financial goals.
A good rule of thumb is to keep your loans under an interest rate of around 6% any higher than that, and your priority should be paying off your debts. Better yet, if youre still a student, look for ways to reduce or avoid student loans altogether.
