Investing advice is confusing.
It’s not very practical and it can be very vague. And too many times it ends up with you researching everything you just read.
The thing is, it’s not easy as a student to see what a portfolio should look like. Not many people share what exactly they’re investing in (FoxyMonkey has a great post on his own portfolio). It’s true; every person invests differently and it all depends on your risk appetite and what you’re interested in investing in as a student.
So here I’m going to take you through the individual steps to start investing as a student, and will encourage you to do research and shop around, as with all investing posts. However, we’ll also be following the steps of Katie, a normal (but still cool) student who wants to get started in the investing world.
(Remember that I am not a financial advisor and cannot be held accountable for any investments decisions) (Neither can Katie)
1. Make a plan
The number one reason people and students don’t start investing: ‘I don’t have money!’. Wrong! You do have money (yes, even students!). What you need is a plan.
Start by following the 15% rule: allocating 15% of your income to yourself (here’s a guide to get started). From that 15%, figure out how much you want to use for investing. This really depends on your priorities and where you want to put your money first.
You’ll be putting this money into index funds. Index funds are basically a basket of funds which track the market, and will have the same return as the market every year. This will be done through a Stocks and Shares ISA that gives you an allowance of £20,000 every year completely tax free. That means you won’t have to pay tax when you declare your investments.
As you put in some money every month, the amount will accumulate every time forming a nice nest egg. You can then use this little egg as an emergency fund, for a big expense or simply to save for the future – the decision is all yours. And if you suddenly you decide you need the money right now, you just sell your assets and the cash is there in 3-5 days. So chill.
Of course, remember that the market fluctuates over time you could lose money as well as gain some. However, in the long run, you’ll be gaining.
Our friend Katie is very excited to start investing as a student. She earns £500 a month. 15% of 500 is £75. She decides she’s willing to put £50 every month into an index fund to start building her emergency fund. Now she has a plan.
2. Sign up to a platform
You’ve got your money, now you choose which platform to put it in. How to choose? Look for the one with the cheapest costs and which appeals the best to you. Here’s a list:
Image from This is Money
This is the part that frustrates me. No one wants to recommend a specific investment platform, so they just say do your own research. Personally, I use Vanguard broker for index investing. Which one should you use?
I recommend picking 3 from the list and signing up to them (the lower the costs, the better). No money, just signing up. Try them out and see which one you like the best: easy to understand platform, good customer service and a good choice of index funds – those are things you’re looking for. Vanguard is popular because of the extremely low costs, but the problem with them is that you’ll only be able to buy Vanguard ETFs. If you’re ever thinking of buying individual shares, look for a different (but still cheap) broker.
Only you can say, which is why it’s good to try out several platforms. I also recommend going on Reddit threads and seeing how other people invest and what they recommend, you can really learn a lot.
Katie tries out a few. She visits their websites and even signs up to a few demo platforms (another good way to test a platform). Eventually she goes with Vanguard (what a coincidence). She signs up: sends them a photo of her passport and proof of address. Once she’s in, she opens up an ISA (the steps are detailed on the platform) and adds £50 – the first month. This means she has £50 in cash in the platform. She hasn’t invested any of it yet.
Once you’ve signed up to the platform of your choice, it’s time to choose what to invest in. Yes, we said index funds, but there are different types of index funds which track different markets. You could track the FTSE 100, Emerging markets, Global index funds and others such as small cap index funds (small companies). Check the info on each fund: it tells you their past performance, what fees they charge and how risky they are.
What I recommend: something global and cheap. You don’t want to invest only in one area, since it’s more likely to fluctuate (especially Britain with Brexit and all). Pick a few of the global ones and read through the info pdfs of each one. It will tell you the level of risk, the fees and what exactly it invests in. Pick 5 and try to narrow it down to 1 or 2. That’s where you’ll be putting your money!
Katie looks around Vanguard and decides she wants to go global (we have a clever one!). Vanguard offers Global index funds (called LifeStrategy 100% Equity) at 0.22% cost and with a risk of 5/7. She invests her £50 into the index fund. Yay! She then sets up a direct debit so that every month £50 go into Vanguard global index funds.
It’s exciting to see your money grow every month. You can now sit back and relax, your money is working for you as it earns interest and accumulates over time
But it’s good to keep practicing and keep being interested. You are now an investor: look at what’s going on in the news, check out how other people invest and where else you could do with your money. But of course, only if you want to. What’s great about passive investing is that it’s exactly that: passive. The fact that you’re investing as a student in the first place already a huge step.
After a few months of investing and seeing her nest egg grow, Katie decides she wants to take the next step and really learn more about investing. She signs up to The Economist (which is £12 for the first 12 issues btw!) to keep up to date with the world, she checks out how other people invest on Reddit forums and she looks around for other ways to make her money work for her: maybe a side-hustle, a different index fund, etc. She’s pretty excited; she knows that as long as she keeps her 15% rule going, her nest egg will grow and so will her knowledge.
It’s not easy to get started with investing as a student when it looks scary and risky, but once you understand what the steps are and how simple it can be, you realise how important it is to start investing now. Be like Katie: take the first step. Start researching, looking around and asking on forums. The amount of knowledge out there is astounding, you just need a little push to find it.