3 Steps to Beginner Stock Investing as a College Student
Yes – I know I am echoing your parents, grandmother and every self-proclaimed financial guru who’s ever written a book. Starting early is the key to success. Before I started investing, I had no idea where to even start. I didn’t want to walk into a financial adviser’s office with $100 in my pocket. But I wanted to do something. I enjoy being hands on and and I wanted to learn the ins and outs of investing. This article is not meant to be long term, retirement advice – rather a real-life, educational opportunity. (Which if done right, could allow you to retire early).
Disclaimer: I am not an expert on investing. I am not certified to give financial advice. I just want to share what I have learned.
Here is what I did, broken down into 3 steps.
Step One – Find a Broker
In order to access the stock market, you will need a broker or brokerage firm. If you have the money, you have an endless list of resources to draw from. Being in college, I didn’t want to pay commission on trades and I certainly did not want to hire someone to trade for me.
I was talking to a friend of mine in the college commons during a Fall semester, and he recommended an app called Robinhood. In a nutshell, you download the app, verify your information and link a bank account. There are other free and low cost platforms available for use, such as Matador and Acorn (primarily used for saving change to invest). Matador is an up and coming company, wanting to take some of the market share that Robinhood dominates. It’s free to use . . . Acorns operates off 3 price points, $1-$3 per month. Each corresponds to a level of services they provide. Each purchase you make, they round up the change and invest it into the stock market. They pick the investments for you (which can be helpful) but it’s less hands on. But I’ve found to be reliable and convenient and allows me to have the control I want.
Robinhood allows you to make free trades on many, many stocks. It’s a simple to use user interface, with touch ID login. Setting up the account can take anywhere from 10-20 minutes depending on how much information you have on hand. Robinhood also has a subscription service called Robinhood Gold. It costs $10 per month, and you get perks such as after hours trading, 2x trading leverage (called margin trading), and instant access to funds, just to name a few. Personally, I have never used Gold. I like the free platform, but I’m sure the Gold subscription would provide a lot of benefits.
The one problem I have with Robinhood is lack of research tools and poor graphs. Robinhood has a simple, clean design. In order to achieve this, a lot of the graphs are basic and not very helpful. You will need outside research tools to make good buying decisions. Again, I would recommend the Yahoo Finance website and app for properly researching each stock decision.
Later, I will publish specific instructions on how to download and use Robinhood. But for know, just know it’s what I recommend using.
Step Two – Money to Invest
When Bitcoin’s price was going through the roof, I heard stories of college students using the funds from their student loans towards investing in bitcoin.
I’m here to tell you that this is S-T-U-P-I-D.
Using money that you promised would be used exclusively on education is a bad idea. Not to mention when you lose it all, it still is owed. Bottom line: don’t used student loans for investment money.
That being said, you don’t need much to start. I began with the money I received from selling some of my old textbooks back to the school. Christmas and birthdays can provide great seed money to grow your account. Even taking $10 out of each paycheck can help significantly.
Most brokerages will want to link to a bank account, so make sure to have that information ready. Your account and routing numbers can be found on your checks. If you don’t have checks, you can ask a bank teller to write down your full account number (routing numbers are available to the public online).
Step Three – Have a Plan
I have made investing mistakes in the past, and I will probably make some in the future. One of the most common mistakes is called FOMO (or Fear of Missing Out). When the price of a share goes up, it’s tempting to make a purchase because the buyer believes if a stock is currently up, it must keep going up. I can tell you from personal experience, by the time you buy, the stock will decrease in value. This causes panic, which in turn causes the buyer to sell. All the while losing money.
The easiest way to avoid losing money to FOMO is to have a plan and stick to it. You can still lose money, but it won’t stem from knee-jerk reactions. Calculated buying is the key to success. Doing research is a huge part of this. Websites like Google Finance and Yahoo Finance provide information on balance sheets, earnings, daily highs and lows, etc. Traditional landmarks of company strength are also included, like current ratio, equity ratio, etc. Pretty much any information that is available to the public can be found on these sites.
Diversifying is a cliche but helpful technique. Not only in different sectors of the economy, but at different price and volatility points. Stocks are categorized into three different groups: Small Cap, Mid Cap and Large Cap stocks. “Small Cap” stocks are the least expensive per share. These cheaper stocks can make significant daily gains (which some people attempt to profit off of, a technique called scalping). Thus, you can make 20% on your position in a day. Due to their instability, however, they can virtually be categorized as gambling rather than investing. Definitely include them in your portfolio, but do research and accept the risks associated.
Large cap stocks are very stable. They will not fluctuate much, and they are considered a safer investment. They are expensive per share, and this does not bode well for the college “fun” investor. But if you have the funds, companies like Alphabet (parent holding company for Google), Apple and Amazon are solid choices.
Mid cap stocks are the best of both worlds. They tend to be a hybrid of both small and large cap stocks, while mitigating some of the cons. Lists are available online of great mid cap stock picks. As with anything, always do your own independent research before buying.
In my opinion, having a mixture of small to mid cap stocks is ideal. This provides the opportunity, yet also hedges the risk with a little more security.
Hands on is the best way to learn investing. Even if you never invest all that much money, it can still give you a level of knowledge you would have never gotten otherwise. Starting with the little money I had, and doing proper research, I am up around 25% year to date on my Robinhood account. I have learned so many practical lessons that didn’t come out of a textbook.
Give it a try, but remember to do your research and don’t invest anything you aren’t willing to lose.