#TBT: 5 Ways Students Can Become Great Investors
Let's get real - with all the endless distractions, homework, and massive expenses that college students face these days, the farthest thing from their minds is "how can I start investing?" Fear not, kids! Having a plan is critical before jumping into the market and there is plenty of time to work on those details. No matter what your major, investing will become vital to surviving in your retirement years than ever before. Are you ready? Let's begin...
1) Do a TON of reading. Okay, perhaps a "ton" is not necessary, but keeping up to date on what's going on in the world and in the market is paramount. Many newspapers and online newsletters offer student discounts, namely the Wall Street Journal, so it's a great idea to take advantage of this while you can. The WSJ offers plenty of great news articles and while you may not consider every article significant if it's not related to the stock market, think again. Some of the greatest investing calls in history were made because sharp minds made connections that others could not see. Learning to analyze the news and look for opportunities is very important. Investing books are far less imperative than learning to make connections between the world and the stock market first hand.
2) Make a Plan to Reduce High-Interest Debt First. This seems pretty obvious but it can lead to big trouble in your 20's if you don't have a plan and then end up with more debt than you can handle. Student loan debt usually has lower rates of interest, so it's mostly credit cards and other loans that require the most attention. I don't meant that these have to be completely paid off before you invest - quite the contrary - but having a plan that allows you to lower your debt and still be able to invest is most optimal. Plan to set aside about 10% of your monthly income to savings/investing.
3) Open a Brokerage Account and Create a "Base Portfolio" I've discussed this at length before, but many people still don't know what brokerage account is most appropriate for them. You can get some basic advice on that by clicking here, but it mostly comes down to 1) how much money to you have to initially invest? and 2) how often do you plan to trade stocks? The answer to these questions will help you decide which account would be most appropriate for you as an individual. Some banks may also offer special plans or discounts to college students, so be sure to check that out as well. Creating your base portfolio takes far more planning than the brokerage account itself, but as soon as you are able to trade, you should have a list of 10 stocks that you plan to invest in immediately so that you can put your money to work. Want advice on which stocks? Stay tuned.
4) Diversify (Over Time) Strong diversification happens over time so don't think that your portfolio will be perfect as it is with just the 10 aforementioned stocks. You may really like consumer stocks, but you won't reduce risk in your portfolio by putting all your eggs in one basket. This is where reading the newspaper daily helps to uncover opportunities that you may not have even known about. Over time, you may end up with a portfolio of 50 to 70 different companies and this would be considered very strong investing.
5) START TODAY! Don't keep putting this off! The sooner you get into the market, the sooner you will be on your way to long-term financial security. Who knows? Maybe you can retire by age 50 if you get cracking early enough. Get some friends together, and plan to do the same thing - get investing!