You may not believe it at first. But right now — this very moment — is one of the best times to start investing in the stock market, even if you’re still in college. Why? Because the earlier you start investing, the better chance you’ll have at acquiring some serious wealth in the long term!
But if you’re a complete beginner, the idea of investing can be quite intimidating. And, up until 2020, investing in your future probably seemed like it was only for the rich or those planning for retirement.
Luckily, it’s not! It can and should be something you start doing ASAP. And we want to help.
That’s why, in this post, we’re going to share everything you need to know to start investing as a beginner. Specifically, we’ll look at:
- Why investing in your future is important
- Why you don’t need a lot of money to get started
- The most important financial investment jargon you need to know
- 5 steps you can take to start investing
- 7 beginner investment mistakes to avoid
But before we dive into those topics, we first need to make a few things clear…
A Quick Disclaimer
We’re not financial advisors. And everything you read here is just to help you learn about the basics of how to invest and share some personal opinions.
To make smart financial decisions, it’s important you continue to conduct your own research. And, if necessary, seek the advice of a licensed financial advisor who can help you make decisions based on your current financial situation.
You also need to know that all investments involve some form of risk. And, unfortunately, there’s no guarantee you’ll be successful or avoid losing money when investing.
In short, when you’ve finished learning the basics here, keep on researching before you get started so you can make smart decisions!
Sound good? Perfect! Let’s get started by talking about why learning how to start investing is worth your time!
Why Investing Is Important
If you’re new to investing, it probably makes you feel one of two ways.
First, it can feel like a level of long-term financial planning that’s too far off for you to be thinking about yet. Most people invest for retirement, right? Yes, but, there are more reasons to invest than that!
And, second, it can feel like a significant risk to put your hard-earned money towards something and not know exactly how much money — if any — you’ll be able to withdraw later. Nerve-wracking? Perhaps…
But, is learning how to invest still worth it? Absolutely! Why?
Investing gives you the power to let your money earn more money for you. Yep, you read that right! When you invest, your money can make you money thanks to compound interest. In addition, when you invest you generally protect yourself from your money losing value over time due to inflation.
And, it’s for that reason that investing is said to be the #1 way to build sustainable wealth over time. It also makes it a lot easier for you to pay for major milestones in your life like buying your first home, having the wedding of your dreams, knocking every travel destination off your bucket list, eventually retiring with ease, and so much more.
Wanna know the best part for you? The earlier you start investing, the better! And luckily, these days, you don’t even need that much money to get started. Seriously, the starting amount is likely lower than you think!
Why You Don’t Need A Lot of Money to Start Investing
How much money do you think you need to start investing? $10,000? $1,000? $500? Sure, those amounts all work. But you can get started with a lot less — a whole lot less. How much exactly?
$5-10 a month. Seriously. That’s all you need to get started!
Sure, if you want to be the next Warren Buffet, you’ll need more. But you can get started with very little thanks to a few no-fee online brokers, robo-advisors, and micro-investing apps. We’ll explain what those are soon. The key thing to know now is that it’s never been easier to invest on a budget!
With that said, there are some financial goals you should be sure to achieve first. Financial experts recommend that you hold off on investing until you:
- Save up enough money to cover your living expenses for 3-6 months in case of an emergency in which you need to quickly access your money
- Pay off any debt that has high-interest rates (e.g. credit cards) because the interest can eat away at your money more than you’d make from your investments
But, again, once you have those things settled, you won’t need a ton of money to get started investing as a college student!
Financial Investment Jargon to Know Before You Begin Investing
As a beginner to investing, one of your biggest hurdles to making smart investment decisions is learning all the financial jargon. Sure, you may have heard about things like stocks and bonds. But do you know what they mean?
If you’re not confidently shaking your head yes right now, then read on. Here’s a beginner list of a few of the most important investment terms beginners should know.
Ways to Start Investing
Discount Online Broker
A discount online broker is a financial firm’s online platform that lets you invest money in stocks, mutual funds, exchange traded funds, index funds, and bonds. Within the platform, you’ll have all the tools to initiate and manage your investments. Some online brokers charge fees to open your account, but there are a few (that we share later in this post) that are free and great for beginners. With an online brokerage account, you may also have access to the broker’s robo-advisor.
Robo-Adviser
A robo-advisor is an increasingly popular investment management service that uses algorithms to help you make smart investment decisions. The algorithm works by choosing investments that align with your tolerance for risk, age, income, and financial goals. A robo-advisor will charge you a low percentage for management fees. And, in return, manage your investment portfolio for you.
Micro-Investing Apps
Micro-investing apps use the same type of algorithms as robo-advisors. But their goal is to help you get started investing with very little money. When you create an account with one of these apps, you can link your credit or debit card and have all of your purchases rounded up to the nearest dollar. That extra change is then stored in your account to be invested later.
For example, let’s say you buy a coffee for $3.48 on your credit card. Your micro-investing app will round the price up to $4 and send $0.52 to your investment account. When your account collects enough spare change from your transactions to reach an amount like $5, the app will automatically invest that money for you .
401(k)
If you have a job that offers a 401(k) retirement plan, take advantage! It’s one of the easiest ways to get started with investing and make sure you’re planning for the costs of retirement.
Once you set up your 401(k) account, a small percentage of your paycheck will automatically go into the account to be invested in one or more funds (e.g. mutual funds, index funds) of your choosing. Even better, most employers will match your contribution up to a certain percentage.
For example, let’s say your monthly salary is $2,800 and you decide to contribute 5% ($140) to your 401(k) per month. If your employer matches that contribution, they’ll also contribute an additional $140 for you to invest. Don’t miss out on this! And if your employer offers to match an even higher percentage, do your best to get the full amount available to you by increasing your contribution.
If you don’t work for an employer that offers this type of retirement investment plan, consider opening an individual retirement account (IRA). It offers similar benefits without being attached to your employer.
What Are Some of the Most Popular Assets to Invest In?
Stocks
By purchasing a stock, you get to buy a small percentage of a company. Ideally, that business will increase in value over time, making your small portion of it more valuable over time as well. Of course, though, that’s not guaranteed. The company could also decrease in value after your stock purchase — something that happens all the time.
And finding the right businesses to buy stock in isn’t particularly easy. Still, if you can get it right, investing in stocks is where you’ll make the most money. We share tips on how to do that later in this post as well!
Mutual Funds
As a beginner investor, mutual funds are typically a good place to start. That’s because, when you buy mutual funds, you contribute to a pool of investor funds that a professional fund manager uses to invest in multiple assets.
The professional fund managers also take care of all important investment decisions for you at no extra cost. In other words, with mutual funds, you get a balanced investment. And you get that without needing to do as much work or take as much risk as you would if you were purchasing individual stocks.
Index Funds
Index funds are fairly similar to mutual funds. The main difference between the two lies in the investment strategy. When you buy a mutual fund, you’re essentially investing in the company that manages the fund. You trust that they will use your money to invest it in a way that benefits you down the line.
On the other hand, when you purchase index funds, you’re investing in all of the stocks of a particular market index, such as the S&P 500. The risks and costs of investing in index funds are also relatively low, making them another good option for beginner investors like yourself.
Exchange-Traded Funds (ETFs)
Exchange-traded funds are another type of mutual fund that functions similarly to index funds. When you buy ETFs, you’re also investing in the stocks of a particular market index. But because ETFs are traded throughout the day, the price you pay per share can change depending on the market. As a beginner, ETFs are also a good option. But they’ll require you to do a bit more research than mutual funds and index funds.
Target-Date Funds
A target-date fund is another type of mutual fund that holds a mix of stocks and bonds. When you put your money into a target-date fund, you get to automatically invest with a specific end date in mind (e.g. retirement). As that date nears, your investments will gradually become more conservative to minimize potential risk. This is a great investment option for when you’re thinking of your long-term financial goals.
Bonds
When you buy a bond, you’re essentially loaning your money to a company or the government. In exchange, at a future date, you’ll get the money you loaned them back along with interest income. You won’t earn too much from buying bonds compared to, say, stocks or index funds. But they’re considered low-risk investments, making them important to have to balance your investment portfolio and minimize risk.
Certificates of Deposit (CDs)
Certificates of Deposit are almost identical to bonds, except with these you loan your money to a bank or credit union. And, in return, you get back the full amount plus interest after a set amount of time (6 months – 10 years). CDs are also considered low-risk investments that are good to have to keep your investment portfolio balanced.
How to Start Investing as a Student or Beginner
Alright, now that you have a basic understanding of some important investment jargon, it’s time to actually get started. Follow the steps we’re about to share to start investing as early as today!
Step 1: Decide Whether to Use a Discount Online Broker, Robo-Adviser, or Micro-Investing App
For a sustainable approach to investing, you’ve got to choose the method that will work best for you. As a beginner, the easiest route will be for you to start by opening an account with a discount online broker, robo-advisor, or a micro-investing app.
We’ve already shared what each of those is in the previous section of this guide. But here’s a handy pros and cons chart for each option to help you decide which one makes the most sense for you.
And here are a few of the top companies beginner investors tend to open accounts with for each of those options:
Micro-Investing Apps
Discount Online Brokers
Robo-Advisors
Step 2: Add Funds to Your Investment Account
This step may seem obvious to you. But it’s worth mentioning just in case, especially if you go with an online broker. Since some accounts have no minimum, your balance will be $0 when you start.
That means you’ll need to transfer money from your bank account into the investment account. We’d recommend setting up automatic investing so an amount of your choosing gets pulled directly from your bank account every month.
Step 3: Choose What to Invest In
You know your options: stocks, mutual funds, index funds, ETFs, and bonds. Most robo-advisors and micro-investing apps will offer suggestions on what makes the most sense for your unique profile. But, if you’re taking a more hands-on approach, you’ll need to research what type of investment makes the most sense for you.
If you’re unsure, your best bet is to start with mutual funds. By nature, mutual funds are great for beginner investors because they allow you to invest in a balanced portfolio of stocks and bonds. And if you want to be safer, remember you can always choose to work with a professional financial advisor.
Step 4: Set Up a Calendar Reminder to Review Your Accounts
Once you have automatic investments going, you don’t need to monitor your accounts daily or even weekly. Your money will keep moving and growing on its own!
But you don’t want to be entirely hands-off either. You need to know how well your investment strategy is working and periodically monitor if there’s room for improvement . So, just set up a reminder now on your calendar to check in on your accounts every so often. Once a month or every other month is just fine when you’re starting out.
Step 5: Have Patience
Remember, investing is a long-term strategy to build wealth. If you expect to be making money from investing right away, you’re sure to be disappointed and make rookie mistakes. So, give it time — lots of time!
As the first American Nobel laureate in economics, Paul Samuelson, once said: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
7 Beginner Investment Mistakes to Avoid
As a beginner in anything, you’re bound to make some mistakes. This is normal. But here are a few things to look out for so that you make as few beginner investment mistakes as possible!
Waiting Too Long to Get Started
It’s never too late to start investing. But the sooner you start, the more time you’ll give your investments to grow. In other words, you increase your potential for earning a lot more if you start now rather than later.
Just take a look at the difference 10 years can make in the chart below. 
The investment portfolio of the person who started investing at 25 is more than 2x the portfolio value of the person who started at 35! And it’s more than 5x the portfolio value of the person who started at 45!
The key takeaway: take your time to research what you want to invest in and then get started ASAP.
Investing Money You Need in the Short Term
Remember: there is no guarantee that you’ll make money right away with investing. You’ve got to stick it out of the long-haul if you want to see any significant value. In fact, in the short term, you could even lose money if the market drops. So, don’t invest any money that you’ll need anytime soon.
For money that you might need soon, you’re better off putting it into a high-interest savings account. In that type of savings account, you’ll still be able to collect some interest – albeit a small amount – while still having the assurance that it will be there when you need it.
Not Doing Research Before Purchasing Stocks
You’ve probably heard at least some news about the stock prices for companies like Amazon, Apple, and Tesla. But does that mean these and other companies you know and like are the companies you should invest in when buying stocks? Not exactly — especially since the cost of stocks in those companies might be out of your price range as a beginner investor.
So, how do you pick the best stock? Well, the short answer is this: research! Of course, it’s not that simple. For a more in-depth explanation, check out this video from the Motley Fool, a popular private financial and investing advice company, that shows you how to learn the value of a stock before you invest:
And remember, you can always make things easier on yourself by getting help from a professional financial advisor or choosing to start with a robo-advisor or micro-investing app.
Failing to Diversify Your Investment Portfolio
Don’t make the mistake of only investing in just one company. Why? Because you know what happens if that company suddenly tanks? You lose everything. Not ideal!
Instead, what you want to do is make sure you’re diversifying your investment portfolio. You can do this gradually over time. But the idea is that you spread out your investments among different assets (stocks, mutual funds, ETFs, bonds, etc.) as well as different economic sectors and geographical regions.
By diversifying, you reduce risk and ensure that if one investment turns sour, you still have others to keep your overall investment portfolio stable.
Withdrawing Your Investments When The Market Drops
By now, you hopefully know that your investments will take time to grow. You should also know that there will be moments when the market drops and it will look like you’re about to lose money. Don’t forget those two points. Because one of the biggest mistakes for new investors is pulling out all their money when things look bad.
Why should you avoid this? Because the market will most likely rebound. And guess what? It will drop again in the future and then rebound again. That’s the way it works. So, keep calm and just let your money sit there, even when things look bad for a while.
Waiting to Invest Until You’ve Paid Off Student Loans
Earlier in this post, we said you should wait until you’ve paid off high-interest debt before you begin investing. So, why are we now saying it could be a mistake to wait until you’ve paid off your student loans?
Well, because not all student loan debt is high-interest debt, particularly federal student loans which tend to have low interest rates. Yes, you’ll still want to continue to make regular payments.
But instead of aggressively paying them off as quickly as possible, it could be a better financial decision to put a bit of that cash in an investment account. Because there your money has a chance to grow exponentially, over time, thanks to compound interest.
Of course, if you want to prioritize paying off your student loans first, that’s not a bad idea either. Just know it’s not an absolute requirement to begin investing.
Forgetting to Simultaneously Invest In Yourself
As a beginner investor, you may find yourself wanting to put all of your time and energy into building a strong portfolio. But as Warren Buffet, one of the world’s most successful investors, once said: “Ultimately, there’s one investment that supersedes all others: Invest in yourself.”
What are some ways you can invest in yourself? Well, for one, your education! By learning new things, in and out of school, you gain the power to enrich your life in a multitude of ways. Plus, it can give you more earning power and the opportunity to enhance your financial literacy.
It’s also a good idea to invest overall in your health, general well-being, and happiness. Because without any of those things, how would you even enjoy any of the money you make from investing?
Final Thoughts
There’s a lot to learn if you want to become a pro-investor. Luckily, you don’t have to know everything to get started! You can get started right now, even if you’re a college student with relatively little money to spare! We hope the information we’ve shared here helps you do just that.
And if you’re looking for more student-focused financial tips, we’ve also got you covered. Check out the rest of our blog where we go in-depth on how to do things like pick the best student loans, graduate debt free, and win a range of amazing scholarships!