How to Invest While Being a Full-Time College Student

Investing when you're in college certainly isn't easy. You're not making much money, you're probably accruing student loan debt, and you're just too busy to be bothered with investing!

But investing while you're still in college comes with some benefits that are too great to ignore, like:

  • Building solid financial habits,
  • Getting a headstart on building wealth, and
  • Giving your investments as much time as possible to grow

So let's cover some investment hacks that make it easier to invest as a college student.

Check out this (quick-n-easy!) College Student's Guide to Investing.

3 Easy Steps to Building a Killer Investment Portfolio as a College Student

Building a killer investment portfolio doesn't have to be difficult.

You really only need 3 investments to be a successful investor while in college.

Which 3 investments? I'm so glad you asked…

1. Invest in protecting yourself

Many people have a hard time managing money because unexpected expenses are constantly derailing financial plans. You think you're good, then your transmission goes out. Or your books for the semester cost twice as much as last semester. Or you have a medical emergency that's gonna cost ya.

So before you invest in anything else, invest in protecting yourself against these emergencies.

An emergency fund is financial priority #1. If you have a fully-funded emergency savings account, you'll be able to cover emergency costs as they come up, without derailing your other investments. Or worse, having to put this emergency expense on a high-interest credit card!

As a general rule, you should have at least enough money in your emergency fund to cover a full month's worth of expenses (rent, car payment, food, utilities, etc). That way, even if you lose your job, you'll know you can make ends meet for a full month while you find a new job.

As you get older, you'll probably want to increase this amount to 3-6 months' worth of expenses. This is because it takes longer to find a replacement job if you're higher on the career ladder. But for now, when an entry-level job will suffice, a month should cover you.

So start saving as much as you can each month in a high-yield savings account (you need this cash available at a moment's notice, so a liquid savings account is the safest place for this money). Once you have enough to cover a month of expenses, you can stop saving to that account and move on to the real investments!

2. Invest in your retirement

You may be wondering why we're discussing retirement when you haven't even officially started your career. Fair question!

The secret to investing is giving your investments time to grow. Thanks to compound interest, you don't just make money on your money; you make money on the money your money is making.

But that takes time. The more time you can give your investment to grow, the higher and faster they'll end up growing. So if you want to retire rich or retire early, your best bet is to start planning for retirement while you're still in college.

Employer-sponsored accounts, like the classic 401(k), are often the best option (assuming your employer offers retirement benefits). But they certainly aren't the only option. If you don't have access to an employer-sponsored account, consider a Roth IRA.

Once you open your retirement account, you'll be able to select the investments you'll keep in that account. My personal fave investment for retirement accounts is index funds (the worst kept secret on Wall Street!). Index funds are low-cost and low-maintenance. They're also automatically diversified. A share of an index fund is like a little sampler basket of dozens (or even hundreds!) of different stocks and/or bonds. So instead of putting all your eggs in one basket by choosing stock from a single company, you're spreading your risk among lots of different companies without doing any extra work!

Now, how much should you invest for retirement?

Well, that largely depends on your unique lifestyle and your personal needs. But generally speaking, Americans aren't saving nearly enough for retirement. A good rule-of-thumb is to aim for 10-12% of your income.

If that sounds like too much, start smaller. Try 3-5% for now. Then add a percent or 2 each year until you're saving the 10-12%.

And as a college student, you may not make that much money. Or you need it for other things. That's totally fine – just try to save a little bit and your future self will thank you.

If you'd like some free guidance you can check out Fidelity Spire. A free investing app that helps you set and meet your goals. 

3. Invest in your dreams

A solid investment portfolio should also include an account (or 2 or 3!) with the sole purpose of making your dreams come true.

Whether you want to start a business, travel the world, buy a home, put your own kids through college, or launch a non-profit organization, you need to include these dreams in your investment plan.

The amount you need to save depends on:

  1. the total amount you need and
  2. when you need it.

Here's a simple formula: Total amount needed / # of pay periods until your target date = the amount you need to save from each paycheck

Now, where to invest that money?

The sooner you need the money, the more liquid the investment type should be because you need immediate access to the money. And the longer you have, the riskier your investments can be because you have time for the market to recover from any dip.

Here's a general guide to investment types by timeframe:

These guidelines allow you to keep your money as safe as possible while still growing as much as possible until you're ready to turn those investments into your dream reality!

5 Keys to Success as a College Student Investor

Now that you know the simple 3 steps needed to create a killer investment portfolio as a college student, let's quickly discuss 5 tips to help you make the most of your college-year investments.

1. Start TODAY

The sooner you start investing, the more compound interest you can earn. This is what turns Ellie's lifetime investment of $12,000 into $141,304!

Even if you can only afford to invest 5% of your current income, do it! You can always increase the percentage later. The important thing is to build the habit and get some money growing in those accounts.

Find a way to invest while you're young and broke, and you will be handsomely rewarded.

2. Automate for guaranteed success

Willpower is overrated. When constantly choosing between buying something today that will provide instant satisfaction and investing for the long term, it's tough to make the right choice every time.

If you really want to fool-proof your plan, take that choice out of your hands.

Automated contributions not only prevent you from making short-sighted decisions with your money, but they also protect you against simply forgetting to invest.

Employer-sponsored retirement accounts usually take your retirement account contributions out of your paycheck and send it directly to your retirement account. Perfect!

For other investment accounts, simply set up auto-transfers with your bank. They will automatically move your contributions to your designated accounts every payday so you never even have to think about it!

3. Invest windfalls and raises

To really boost your investment balances, invest windfalls and raises as they come your way.

Got a tax refund? Invest it!

Did grandma send you birthday money? Invest it!

Got a 3% raise? That money can all go to your investments every month since you're already used to living without it!

4. Give your investments space

The stock market rises and falls.

Watching your investment balance daily and lamenting every little drop is no way to live!

And changing your investments in an effort to minimize losses typically ends up losing money in the long-term because of transaction fees.

To save your money (and your sanity!), skip the daily check-ins. Don't touch them.

Instead, just review your portfolio periodically throughout the year to make sure you're happy with the big-picture performance of your investments. Once or twice a year, look to rebalance your portfolio if your allocations start getting out of whack.

The goal is to leave it alone because the money you invest you shouldn't need for many years. If you mess with it, you'll let emotion take control and you risk making rash decisions.

5. Keep it simple

There are so many options out there.

Don't be overwhelmed by investment analysis paralysis. Go with something simple – like a three-fund portfolio.

Sure, you may never know the ins-and-outs of every investment type. Who cares?! No one does. Don't let that prevent you from becoming an investor.

You don't have to understand the wide world of investments to be a successful investor. Keep it simple with your emergency savings, retirement account, and dream fund, and you'll come out ahead. The best thing to do for your investments is to save money, early and often.

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About Michelle Clardie

Michelle Clardie is the founder of Savings and Sangria, a financial blog dedicated to #HappyMoneyManagement.

With 20 years of investment experience and an MBA in Management and Strategy from Western Governor's University, she's teaching young(ish) women how to make saving and investing more fun.

Hint: a glass of sangria helps ;)

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