Simple Steps to Start Investing in College (US Version)

Ahhh investing… the word gives you the chills.  You might imagine ‘investing’ as old men with cigars discussing numbers or even bankers attacking each other as they try to put their money into some weird machine. I always thought it was a boring adult thing that I would never have to deal with, until I finished school and explored the world. Turns out investing is not too boring and it’s actually pretty simple. And guess what? You, the college student, can do it too.

After reading Matthew’s informative book From Millennial to Millionaire, I thought it would be a good idea to interview him on how us younglings can get started with investing in college. Through the interview and some additional research, I’ve compiled some steps the American college student can go through to get started with investing.

pinterest start investing in college

1. The Why

We all know it’s great to save, and one of the big things everyone tells us we need to save for is RETIREMENT. Yes, it’s a long way away, but the sooner you start saving for retirement the better. HOWEVER. If you’re going to save for retirement by putting a certain amount of money into a savings account each year with 1% interest per year, you might as well throw some out the window as well.

Why? One word: inflation. Over time, money loses value. 10 years ago, you could get some washing up liquid, a box of Dunkin Donuts and pet food for $5. Now you probably could only get the pet food and Dunkin Donuts. If the average inflation rate is 3.22% and your bank gives you a 1% interest rate on your money, you are effectively, throwing money out of the window.

So you want your interest rate to be higher than 3.22% to actually be earning money. And you do that with investing. On average, the stock market gives a return of 7%. So you put in your money in year 1, and by year 20 the delights of compound interest will work and you will have: more money. That’s why you should invest.

donut keyring start investing in college
and in 20 more years, this is all you’ll be able to afford

2. The How

Now you know why you should start investing. Your next step is to understand how to start investing. This means financial education. This means doing research, understanding what are stocks, bonds, brokerage firms, interest rates, etc. Check out my Resources page for some Personal Finance courses to get started. Read some books and magazines, ask people for advice.

I even have a mini ebook on how to get started with your financial education for free, click here to get it.

Matthew underscores the importance of establishing a solid foundation of financial values. This means really making an effort to understand where your money is going, how you are earning it and why. Join a finance club in your university, play some stock market games. Get a part time job to start paying off those student loans the minute your graduate.

If you’re thinking ‘ugh I can’t be bothered, I’m already studying 10 hours a day for college, I have no time for more education’, think again. What are your priorities? Do you really want to rely on Mum and Dad for the next 10 years? Are you willing to be in a difficult money situation for so long? Do you enjoy being broke? I know I don’t. And if that means studying a little less for college and a little more for finance, then so be it. I know which one will help you more in the real life.

And the best part: Coming from an actual college student (me), you will start to enjoy it. It’s a snowball effect, the more you learn about finance, the more you’re interested. Don’t believe me? Try it out yourself 😉

broke and rich start investing in college
without financial education vs with financial education

3. Open a brokerage account

You’re a bit more familiar with how the stockmarket works now, and you feel confident you can get started. In Matthew’s book he discusses investing once you have a job and have access to a 401k. However, as a college student, that’s not going to happen. But you can still invest!

First you have to choose a brokerage company, and then from there choose different types of accounts within the company (cash, margin, IRA, Roth IRA). Here’s a list of best discount brokerages to choose from. Then choose what type of account you want to invest in:

IRAs: Those are great if you’re already thinking about retirement. You won’t be able to access that money until you’re 59 1/2 to reap the tax benefits. So this really depends when you’re thinking of retiring, what you want it to look like, etc.

Cash and Margin accounts: If you know you’ll be taking out your money sooner, those are your best bet. Margin accounts are really if you are planning on borrowing money to invest.

Of course, make sure you do your research well before making any big decisions.

 

4. Start investing

The simplest and easiest option to start investing with say, your cash account, is index funds. Matthew recommends this even when you’ve graduated and have a 401k. Index funds are your everything. All you have to do is put your money in and watch it grow. They track the stock market, giving you a 7% return each year, and they have very low costs, so you’ll actually get to keep that 7%. Choose an index fund with the lowest cost and start putting in your money.

Make sure you calculate how much money you are willing to put in each month and for how long. Matthew recommends to always start small, and then slowly increase your amount to max out as much money into investing as you can.

 

5. Watch your money grow

Congratulations! You can now sit back and relax. Every month you’re watering your account and it’s going to start growing into a full on money tree. You can now tell people that you’re ‘investing’ and that you’re going to retire a millionaire. It’s simple and it’s easy, and once you graduate and learn a bit more about the process, you’ll be willing to experiment more and grow your tree even taller!

money tree start investing in college
love me a tree like this

 

I know this is not a very complete guide, since I am not an expert and am more interested in investing in the UK (more on that soon). This article is just to understand the basics of investing, and to show you that it really is THAT easy. Check out this detailed video series for a better understanding. The College Investor is a great resource for US students interested in investing, as well as Matthew’s book From Millennial to Millionaire And if you have any other questions, drop me an email or message and we’ll figure it out together!

I also want to thank Matthew for such a great and informative interview and for sponsoring this post. Check him out at his blog DIY Millionaire!