Have you been a student and discovered what investing could mean for your future? You are still relatively young, and starting to invest now has many advantages. But what is the best way to get started? What form of investing suits students well, and could you invest with your student finances?
Yes, this is a chance to take care of yourself in the future and not just save 10% of orders working in the paper writing service.
Advantages And Disadvantages Of Investing As A Student
- Setting up an account with a broker costs you nothing. This way, you can see how it works without costing you any money.
- Since you start young, your assets have more time to render. This can save a lot of money at the end of the journey.
- You probably don’t have much power yet so you can gain experience with a relatively small amount of energy. Mistakes cost you less money this way.
- You can join a student investment club and share experiences.
- You often don’t have as much money to spend as a student, so that the returns will be small at first.
- You may be tempted to invest with a student loan.
Why, As A Student Investor, You’re Already A Step Ahead Of The Pack
Let’s start at the beginning, and that’s because, as a student, you’re one step ahead of the rest.
When you start investing, several things affect your performance, and the most important factor is time. The earlier you start investing, the more time your money will have to increase in value, and the more money you will eventually have left. That’s why I am absolutely in favor of investing in your studies.
Therefore, investing during your studies gives you the advantage of starting earlier than the average investor.
You Must Have These Five Points In Order Before You Start Investing
Investing often has the image that it is for old gray retirees. Nothing could be further from the truth; in my opinion, investing is interesting for many people.
However, investing is not for everyone. After all, you can also lose a lot of money if you don’t have the right mindset or discipline. That’s why you should always have the bottom five points in order before you start investing.
1. Have An Emergency Backup
One of the most essential points is to have an emergency backup, also called an ’emergency fund.’ This is a pot of money you have for bad times.
You can use this when you lose your job or your car, a total loss, or when your washing machine breaks down. You want to avoid selling your investments to pay the bills at all costs. After all, your assets can and sometimes will take a loss. So to sell is to take a loss.
2. Opting For The Long Term
Investing is not something you do for a year to make some money that quickly. Investing is a long-term game. Keep in mind that you want to invest for at least ten years. You may not need the money you invest for the next ten years.
Are you planning to take a big trip or buy a house in the next few years? Keep this in mind and ensure you save for these expenses before investing. Only invest with money you can afford to lose over the next ten years.
3. Have Realistic Expectations
The next important point is to manage your expectations. What can you expect when you start investing? How much will you get back? Of course, we can’t predict the future, but we can look back in time. Past returns are no guarantee for the future, but they indicate what is possible.
If you invest well spread out, you will see that a return of around 7% per annum was possible in recent decades. This does not mean that you get a 7% return every year. There are very good and bad years, but on average, 7% has been possible in recent years. This does not alter the fact that things could worsen for 5 to 10 years. You must be aware of this while remaining calm. You need to have the right mindset for this.
4. Have The Right Mindset
The right mindset helps you not to panic and act on emotion. Trading out of emotion is the most significant return killer there is. Fear of missing out (FOMO) and FUD (Fear, Uncertainty, Doubt) will undoubtedly return when you start investing. So, think about what to do when a specific situation arises.
What do you do if the stock market loses 20% of its value monthly? Are you going to sell, stay or buy more? If you think about this in advance, you do not act emotionally but rationally in such a situation. Provided you have the right self-discipline, of course.
5. Know That You Have Self-Discipline
Discipline is key! I have seen many people who had an excellent plan. They would buy orderly monthly for the long term and not be guided by emotions.
Then you see the market drop 13% related to the coronavirus, and many people panic. Some sell their shares and then repurchase them at a higher price when prices rise.
Others would like to buy more but wait for the drop. “I’ll wait a little longer until it’s a little lower” I’ve seen it many times. Consequence? They are still on the sidelines with their money since they can’t time the absolute bottom either.
Make a simple plan and stick to it. It’s that simple, don’t go crazy. Just buy your ETFs every month or whatever your plan is. Self-discipline is key
How Can You Invest As A Student? Dividend Vs. Growth Vs. Index Funds
If you’ve already gotten into investing, you may know there are different ways to invest as a student. Some opt for broad index trackers or ETFs, while others invest in dividends or even take a little more risk and opt for growth stocks.
If you know nothing about investing, this may sound like Greek to you, but trust me, these types of terms will become familiar to you in no time. Below, I briefly give more information about the different forms of investing.
Investing In Broad ETFs
In my opinion, this is the simplest and safest way and an excellent way to start investing. ETF stands for exchange-traded fund, and you can think of it as a basket of stocks. Such a basket can contain, for example, the largest US stocks (S&P500). However, some ETFs are very widely distributed. In my opinion, this is a very safe and sound way to invest.
Therefore, an ETF is a product with which you can easily diversify. This way, you will never have the best return, but you will never have the worst return, either. This is because it simply follows the growth or decline of the average market.
Another way to invest is to invest in so-called dividend stocks. These are stocks of companies that pay relatively large dividends. Dividends are profit sharing.
For example, if you buy a share of company A for 100$, it may be the case that that company pays out 1% profit per shareholder every quarter. So, if you own a 100$ share, you will receive four times 1$ per year. We say that you receive a dividend of 4%.
The good thing is that good companies increase their dividend a little bit each year. So, for example, it could be that twenty years from now, company A will not pay 4$ per year but 10$ per year. You bought that stock today for $100, so it is getting a whopping 10% dividend.
The downside is that companies are not obliged to continue paying dividends. When the stock market goes bad, they may decide to lower the dividend or, in an extreme case, even stop paying dividends.
Another option is to invest in growth stocks. In my opinion, this is a way of investing that involves much more risk. You invest in companies that you expect to become very large eventually. Basically, you’re looking for companies that you expect to be the next Google or Facebook.
Tesla is a popular growth stock right now. Many people believe that Tesla will get much bigger and, therefore, will invest in the company. Of course, you can make a lot of money on this, but the risks are also huge. You’re left with a worthless stock when Tesla has a setback and can’t meet expectations.
Join A Student Investment Club
You can exchange knowledge and experiences with other students in an investment club. Did you know that many universities and colleges have investment clubs? The great thing about an investment club is that you share experience and knowledge with other students, which ultimately makes you better at investing.
Most clubs are open to all students, even if you don’t have experience yet. Check your educational institution’s website to see if they have an investment club, and simply sign up for a chat. Most clubs will welcome you with open arms.
You can have a considerable advantage over the rest when you start investing as a student. You are still young, and your money has more time to come back. You also invest in yourself by acquiring more knowledge. Ensure you have a good emergency fund, the right mindset, and self-discipline, and stay away from investing in your student finances.