Should College Students Invest in the Stock Market?

Should College Students Invest in the Stock Market?
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The world of investing seems like a foreign place to many. Television analysts and reporters rattle off statistics quickly and use terms that aren't everyday English. Once you understand the language and what goes on, you will find the stock market is a fascinating place to make money. And it's never too early to learn how.

Beginning Early

Starting a saving and investing plan accomplishes several goals. You can begin developing good investing habits while in college. Although you may think you don't have time while you are in school, you aren't likely to have more time after graduation. Learning to manage your money is an important life skill and you need to begin that part of your education early. Consider the power of compounded interest or dividends. If you start your investing program early, you can build it into a larger nest egg later in life.

Starting Small

If you are starting small, you have several options open to you. An exchange-traded fund looks like a mutual fund but trades like a stock. You might pick one that is diversified to minimize risk and add to it regularly. Check online brokers for low commissions. You can also buy stocks directly from companies in small amounts. Company plans called dividend-reinvestment plans will reinvest the dividends for you to take advantage of the compounding effect. If you are working, be sure to participate in a 401(k) retirement plan. You can take that with you from job to job and that, too, will grow. Don't forget an individual retirement account, which is also has tax advantages.

Seeing the Big Picture

Investments should be part of your overall financial plan. While you need to have a ready source of funds for an emergency, understand that investing involves some risk and that different investments carry different levels of it. You don't put volatile investments into a fund you might need for emergencies. But as a young investor, you can afford to take more risks than your parents because you have more time to recover if an investment goes bad. You can start your investing with a "paper" account and learn how the market works before committing real money.

Learning More

Learning the mechanics of investing is one of the most important things you can do for yourself. Wall Street misdeeds have been a turn-off for many, but learning how the stock market works is an essential life lesson. Look for seminars that brokerage firms offer for beginning investors. Read books by and about great investors. The market is different today from when investors like Warren Buffet started, but learning about the investment strategies that he and others have used will help you. Learn about risk -- when to take it and how to help reduce it.