I am not a professional or expert in finance or investing. I am simply a guy with an opinion.
First, let me clarify what sort of “investing” I am talking about. When I say a student should begin investing, I mean investing for the long run to reach pre-set financial goals. Mostly I am referring to opening a brokerage account (at somewhere like E*Trade, Fidelity, TD Ameritrade, ShareBuilder, etc.) and investing in stocks, bonds, ETFs, and/or mutual funds, again, for the long run. There are other ways to invest and hopefully through this process you will be exposed to those types as well (such as investing in real estate). One of my objectives here is to simply expose students to investing and reveal its importance. This is NOT something you simply jump into, which is why I am including in this article a basic explanation of how to start investing. With educated and informed decisions, however, students are in a prime position to set themselves up for a financially free future.
Q: I’m still in college, should I start investing? Why?
A: If you are a college student whose parents are footing most of your tuition/college expense bill, you should start investing and you should start today. College is very expensive, and paying for it can be difficult for many people. However, many students are in a situation where scholarships pay a portion of their tuition, financial aid in the form of grants or loans or both pay another portion, and parents pay the rest. If you are fortunate enough to not HAVE to pay much towards school at the time you are in it, then you are doing yourself a disservice by not investing.
There will be no other time in your life when bills are non-existent and your only expenses consist of coffee, eating fast food and going out on the weekends. This is precisely why you should begin investing. A good investment will give you a larger return the more money you put into it. Because you have no bills, you can put a much larger percentage of what you earn into your investments because you aren’t doing things like (your parents) paying for a child’s college tuition, making car payments, home payments, paying utilities, taking care of a family, etc.
If you are serious about having financial freedom, you need to take your finances seriously while in college. Investing and making your money “work” for you is one of the best things you can do with your money.
Q: I don’t know anything about investing, how can I start?
A: Investing your money is not a light endeavor. It takes a lot of discipline, intelligent choices, and patience. It does NOT require, however, that you be a genius. The average person can succeed very well investing if he/she takes the time to learn about it.
1st: Do not be intimidated. Many of the students I am directing this article at know nothing about investing and tend to think of it very distantly as something “people on Wall Street” do. This is not true and you can succeed as well as they can, or more. Gain control of this thought first.
2nd: Research the basics. Learning to invest is all about self-education. You first need to learn what the very basics are. Investopedia, an online investing/finance website, offers excellent tutorials for people who know NOTHING about investing. They have a section for beginners called, “building blocks.” I suggest working through this entire section over and over again until you feel confident in your grasp of it. After that, move on to their “investing basics” article collection. Read every article you can. While in this beginning stage, whenever you run into a term you don’t understand, just check out their site dictionary. It includes any and every term associated with investing, and it’s there to support you in your beginning investing education. Check back regularly for their “word of the day,” which you can even have sent to your inbox.
3rd: Conduct more in-depth research. Once you feel like you have the basics down, it’s time to get more in depth in investing theory and mechanics. For this, I will suggest an extensive reading list, which I suggest reading in order as listed. These books will lay the solid foundation you need to begin lifelong investing. Each of these books can be read again and again before and even throughout investing.
Basic Economics ‘” Thomas Sowell
To begin investing, you must understand how the economy works. Understanding how the economy works will not only make you a more informed citizen but it will help you make sound decisions regarding your choice of specific companies to invest in with regard to varying economic atmospheres. Start with this book.
One Up On Wall Street ‘” Peter Lynch
“Peter Lynch managed the Fidelity Magellan Fund from 1977 to 1990, during which time the fund’s assets grew from $20 million to $14 billion. More importantly, Lynch reportedly beat the S&P 500 Index benchmark in 11 of those 13 years, achieving an annual average return of 29%.” – – Investopedia.com
In this book, Peter Lynch shows you how what you already know can make you a successful investor.
The Intelligent Investor ‘” Benjamin Graham
A great book by one of the fathers of “value investing.” Warrant Buffet, commonly referred to as the greatest investor of all time, referred to this book as, “the best investing book ever written”
Common Stocks and Uncommon Profits ‘” Philip Fischer
This book was the first investment book to ever make the New York Times’ Best Seller List. Philip Fischer was another amazing investor whose work combined with those listed above provide an extremely strong and well rounded investing education.
Now, at this point you should desire to read something of even more technical nature:
The Interpretation of Financial Statements ‘” Benjamin Graham
This book will introduce you to reading and understanding a company’s financial statements which you will be doing plenty of when choosing security to invest in.
Security Analysis ‘” Benjamin Graham
Finally, Ben Graham’s Security Analysis will build on simply interpreting financial statements by teaching you how to conduct a full blown analysis of a prospective investment.
4th: Now you need to practice what you have learned. The resource I mentioned before, Investopedia.com, offers a market “simulator.” At no cost to you, you can participate in mock investing. You are given fake “money” to invest in all the real companies at all the real prices of the actual stock market. You should take this “game” seriously, and practice all of the different investing techniques you have learned about to see what works for you and what doesn’t, and discover any of your own investing weaknesses. I recommend playing this simulator for at least a year or more ‘” really as long as it takes for you to see that you can make satisfactory investment choices.
Note that while you are educating yourself on investing, you should take up a part-time job (if you don’t already have one) and begin setting aside a certain percentage of each paycheck towards investing. This does two things: first, by the time you finish educating yourself and completing the simulator game, you will have enough money to open a brokerage account and make your first investments. Second, it will get you in the habit of taking a percentage of each check for investing, so once you do start investing, you will perpetuate your investments check by check, adding more in value to your portfolio in consistent increments.
5th (and most important): Take your time with this. Educate yourself thoroughly before you begin investing. You should feel totally confident in your abilities by the time you actually start devoting your hard earned money into securities. It is completely fine if you don’t actually start investing while in college, so long as you began to educate yourself. The point is that investing, in one form or another, is extremely important to leading a financially sound life. You generally aren’t taught how to invest in school, college or otherwise. It is up to you to grab the reins and take control of your finances.
The books I listed above can be purchased at any major bookstore or checked out for free at any decent library. I kept referencing Investopedia — here is the link:
A few other websites that offer similar “investing 101” type resources similar to Investopedia include:
Motley Fool: http://www.fool.com/how-to-invest/index.aspx?source=ifltnvpnv0000001
Beginners Invest: http://beginnersinvest.about.com/
U.S. Securities and Exchange Commission: http://www.sec.gov/investor/pubs/begininvest.htm
Aaron Carl (Blog): http://www.aaroncarl.com/
Review any of them and preferably all of them as much as you want and as often as you want. Again, take your time. You are already doing well by acting on this while still in school. All of these references should set you off on as great a start as any for a beginning investor! Persevere through the learning process, and it will pay for itself many times over. Good luck and happy investing!