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Ways to Start Investing as a College Student

April 22, 2019 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Ways to Start Investing as a College Student

While you’re investing in your future by earning a college degree, why not also invest to earn a little extra dough? It’s never too early to start investing your money. In fact, the earlier you start, the faster you may be able to meet long-term goals such as a graduate degree, buying a house, or even retirement.

The Case for Investing Early

There are a number of reasons to start investing early. Chief among them is potential return. The average annual return offered by the S&P 500 —a market-capitalization-weighted index of the 500 largest companies in the US—is about 10% from its inception in 1928 through 2017.

Compare that to the return (in the form of interest payments) offered by savings or checking accounts. The best average for these accounts is about 0.09%. This rate doesn’t even keep up with the rate of inflation, which was hovering around
2%
in 2018.

That means that while money in a savings account is accruing interest, it’s actually losing value at the same time. Investing may help you outpace inflation and give you an extra boost towards your long term goals.

How to Invest as a College Student

As you begin thinking about investing, you might consider where the money will come from and what your goals are.

You’ll likely want to have some cash to pay for regular expenses like textbooks, food, and rent. Make sure that you have enough money coming in to cover those necessary expenses, then consider setting aside some extra money for investing.

Next, think about your financial goals, which will determine what kind of investment vehicles you’ll want to use. Goals within five to 10 years—such as putting a down payment on a house—demand relatively easy access to your money. So, you’ll likely want to use a brokerage account.

If you plan to save for future schooling, such as a graduate degree, you may want to consider a tax-advantaged 529 savings plan . And for long-term goals, namely retirement, there are tax-advantaged retirement accounts like 401(k)s and IRAs.

Opening a Brokerage Account

A brokerage account allows you to deposit funds with a brokerage firm and make investments through them. Your bank may already have brokerage options, or you may consider other outside firms.

You can buy and sell stocks, bonds, mutual funds, and other assets through your brokerage firm. Be aware that selling assets can trigger short-term or long-term capital gains taxes. Short-term taxes are charged at your regular income tax rate, and long-term rates are either 0%, 15%, or 20% depending on your tax bracket .

Investing through a 529 Plan

A 529 plan is a tax-advantaged plan designed to help people save for higher education. You can contribute up to $15,000 a year in tax-deductible contributions , and money invested in the plan grows tax-free, meaning your money is able to grow faster. Withdrawals are tax-free as well, as long as they’re used to cover qualified expenses such as tuition, fees, and books.

Retirement Savings

The government wants you to save for retirement. So it offers a number of options to help kick start your retirement savings, such as 401(k)s and traditional and Roth IRAs.

There is a catch, however: You must have earned income to invest in these accounts. So if you have a job that pays you wages, you can start savings using these vehicles. Here’s a look at the most common types of accounts you’re likely to encounter:

401(k): An employer will typically offer these accounts, though there are some versions, such as Solo 401(k)s, you can open yourself. They allow you to contribute up to $19,000 a year, or up to $25,000 a year if you’re over the age of 50.

The money you put in the account is tax deductible and it grows tax-free while it’s invested. That said, generally, you can’t withdraw money from the account until you reach age 59 ½, or you’ll be subject to a 10% early withdrawal penalty. When you retire, the money you withdraw is subject to income tax, and when you reach 70½ there are required minimum distributions.

Traditional IRA: You may be more likely to encounter IRA accounts as a college student than 401(k)s. These accounts take money pre-tax and allow you to contribute up to $6,000 each year (as of 2019). As with 401(k)s, you can’t make withdrawals until you turn 59 ½ or face a penalty. When you retire, withdrawals are subject to income tax.

Roth IRA: These accounts differ from traditional IRAs mainly in that you make contributions with money you’ve earned (and have already paid taxes on). There are income limits , but you can contribute up to $6,000 (or $7,000 if you’re age 50 or older), which then, hopefully, grows tax-free.

But the money you withdraw when you retire is not subject to tax. These can be a good choice for people who think they’ll owe more taxes in retirement than they do currently (ahem, such as low-earning college students).

Staying Diversified

Once you’ve decided where you’re going to invest, there are a couple of general rules of thumb to consider. First among these is staying diversified by investing in many types of assets and asset classes.

The basic idea of portfolio diversification is that the fewer investments you expose yourself to, the more risk you take on should they perform poorly. Imagine you invest in only one stock and that company folds—if that happens, you’ve lost your entire investment. However, if you invested in 100 different stocks, one company failing would affect you far less. Diversification, however, does not eliminate all risks, including the risk of loss.

One way to stay diversified is by investing in mutual funds or exchange traded funds, which bundle groups of stocks together, essentially doing the work of diversification for you.

Avoiding Emotional Investing

The market experiences natural ups and downs. As these fluctuations occur, it’s important to try to avoid letting your emotions impact your investing.

When the market makes a big dip, you may feel the urge to sell investments. However, by doing so you’re actually locking in your losses. Examine what is motivating you to sell, as it’s usually a good idea to let reason prevail so you don’t miss out on any future upturn that may take place.

Conversely, when the market is doing well, you may find yourself tempted to get in on the action and end up buying investments that are too expensive. This type of buying and selling is known as timing the market. You may want to avoid checking the market multiple times a day to help keep your emotions in check and avoid the temptation to time the market.

It might help to think of investing as a long-term proposition. The longer you allow your investments to stay in the market, the more opportunity they have to ride out downturns—and the more opportunity you have to take advantage of an upswing.

Investing with SoFi Invest®

As a college student, you may think you don’t have enough disposable income for investing. Some accounts, like SoFi Invest, have low entry barriers, making them accessible to college students.

At SoFi, you can start investing with as little as $100. Plus there are absolutely no SoFi management fees. And with a SoFi Invest account, you’ll have access to financial advisors who can help you craft your investment strategy.

To learn more about how to get started, check out SoFi Invest.


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The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile.
Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Advisory services and automated investing are offered through SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage products and services offered through. SoFi Securities LLC, member FINRA / SIPC .
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