10 Best Ways to Invest as a College Student
Investing as a college student may feel overwhelming, but there are benefits to doing so. Read on to learn 10 of the best ways to invest as a college student.
It may feel difficult to start investing as a college student, but it doesn’t have to be. New investing apps and improvements in technology have made investing more accessible than ever before, even for college students. Here are the 10 best ways to invest as a college student.
Investing During College Can Pay Off Big
A concept called compounding returns rewards you for investing early in life. The more time you allow your money to stay invested, the more time it has to grow. That may not seem like a huge deal, but the concept adds up.
If you start investing in college, you start at least four years earlier than if you waited until you graduated. A person who begins investing $100 per month at age 18 and earns an 8% annual return ends with $731,235 when they turn 67. If you wait until you’re 22 to start investing $100 per month, that number drops by more than $200,000 to $527,453.
A Small Emergency Fund
A small emergency fund could be the perfect place to start investing as a college student. Putting $500 to $1,000 in a savings account builds a buffer to help cover unexpected emergencies that could otherwise put you into credit card debt. While that may not seem like much money, it can help replace a flat tire on your car or pay for that medication you need to recover from an unexpected illness.
You can even earn money by saving the money in a high-yield savings account. These accounts pay higher than the usual interest rates you’d receive at a national brick-and-mortar bank.
You may feel like you don’t have money to invest as a college student, but micro-investing apps can help you find money to do so. Some of these apps may automatically round up your purchases to the nearest dollar and invest the change. Others may allow you to start investing with as little as $5 by offering fractional share investments.
If you have earned income from a job or self-employment, you may want to consider investing in a Roth IRA. This is a retirement account that gives you tax benefits. In particular, it allows your earnings to grow tax-free, and you can withdraw the funds tax-free in retirement.
You don’t get a deduction today, but that shouldn’t be a concern, as you likely aren’t earning a high income or paying a lot of federal income taxes. The best part is your returns can compound over decades, resulting in a potentially massive balance in retirement.
Workplace Retirement Plan
If you’re working while in college, your workplace may offer a 401(k) or similar retirement plan. These plans often offer matching contributions. That is essentially free money you get for contributing to your retirement. You may have to stay with your employer for a certain number of years before you can keep the matching contributions when you leave your job, though.
Low-Cost Brokerage Firms
If you don’t have a job, investing in Roth IRAs or workplace retirement plans aren’t options. Thankfully, a low-cost brokerage firm can allow you to invest in a regular taxable investment account.
Low-cost brokerage firms usually do not charge commissions on stock trades, helping you save money. They also can offer other investments, such as index funds, with low fees. By focusing on low costs, you get to keep more of your money invested for you. Examples of low-cost brokerage firms include Robinhood, Vanguard and Fidelity.
New investors who don’t want to dig into the details may want to consider a robo-advisor. These advisory firms manage your portfolio using technology rather than human advisors. That lowers their costs and allows them to charge you a lower fee than a traditional advisor would.
Robo-advisors are willing to work with people with little to no assets too. That means you could get started investing with a robo-advisor with as little as a few dollars.
If your family is in a fortunate position or you’re attending college later in life, investing in real estate may be an option. You or your family could purchase a house and rent out the rooms to roommates.
You could act as the landlord and property manager yourself, making sure your house is well maintained. If the local market cooperates, you may be able to sell the house when you leave college or continue renting it out to students in the future.
Cryptocurrency is a newer asset class that comes with high risks. That said, it can result in great rewards if you invest in the right cryptocurrency at the perfect time. Before you invest in cryptocurrency, make sure you understand the risks involved. Find a secure way to store any cryptocurrency you decide to buy to avoid any malicious activity from draining your cryptocurrency balance.
A Side Hustle
A side hustle could be an excellent investment while you have some free time in college. Many side hustles turn into full-blown businesses that could even transform into a career. However, these side hustles often require money to get started. Whether you have to pay for a website design or buy inventory, investing in a side hustle could pay off generously.
The absolute best way to start investing as a college student is to take your education seriously. Your education could easily cost tens of thousands of dollars. Learn as much as you can while in school. Focus on learning applicable life skills that will help you succeed. Don’t forget to build your network too.
If you’ve reached your federal student loan limits and still need more money to pay for college, you may be able to save money with Juno. After you sign up for an account with Juno in less than a minute, Juno goes to work negotiating student loan rates with private student loan lenders on your behalf. Both undergraduate loans and graduate loans are offered. Then, you could use some of those savings to start building a healthy investing habit that will pay off for decades.
Lance Cothern is a personal finance expert and freelance writer who has written for many publications including U.S. News & World Report, Investopedia, Credit Karma and more. He graduated from James Madison University's College of Business in 2009 and earned his Certified Public Accountant license in 2010. In 2012, he founded what is now the personal finance website Money Manifesto.