Becoming a student is the first time most of us experience being independent, and with that comes some hefty living expenses (especially during the current cost-of-living crisis!).
Although it is often fun and exciting, student life can also be immensely challenging. It's stressful enough having to worry about exams and deadlines, let alone your student finances.
If you happen to be a student, now is a great time to get ahead of the curb, learn some financial wisdom and start investing. Trust us when we say that your future self will be very thankful!
Investing may seem daunting and complicated (especially if you're a complete newbie), but don't worry!
The team here at Compare Banks have thoughtfully created this beginner-friendly article to help you learn and understand all there is to know about investing as a student.
What Does Investing Money Actually Mean?
In simple terms, investing involves taking your own money and using it to buy something that is likely to increase in value over time. The ‘something' that you put your money into is referred to as an asset.
What Is Considered An Asset?
These days, the world of investing is undergoing drastic changes. There are new kinds of assets available for people to invest in, such as NFTs and Bitcoin.
Regardless of what you are in investing into, the overall aim will always be the same: buy low to sell high, and gain a good profit/income. To ensure nothing gets overcomplicated, here is a list of the most common types of assets:
- Stocks & Shares (units of equity ownership in a company)
- Bonds (a loan from an investor)
- Property (people usually do this to earn money from rental income)
- Additional valuables (such as art)
Are There Any Risks When Investing?
Investing money should never be sugar-coated. That's why it's important to acknowledge that there will always be risks, regardless of the investment you are making. You can either make high-risk investments or low-risk investments.
The main reason that investing is not risk-free is because of the constant shifts taking place within the stock market. Every day, stock prices rise and fall, which can either negatively or positively affect the value of an investment. This is due to market forces, such as supply and demand.
For example, if you invested in a pizza company but people stop buying pizza, the demand will decrease which will cause the value to reduce. This means that you will lose money as your investment may not have the same value it did when you initially put money into it.
Cryptocurrencies are riskier investments because of how volatile they are.
In relation to investing, volatility means that there is a likelihood of sudden and unpredictable changes within the market.
Index funds are often esteemed as low-risk investments. Never heard of an index fund before? Let's break it down…
Firstly, you should familiarise yourself with what an index is. This term concerns tracking a group of assets. Investors will utilise indexes to measure a bond, stock, or mutual fund against market performance. Index funds involve constructing an investment portfolio which is used to match a specific market index.
Index funds are recognised as beginner-friendly, not just because they are low-risk, but because they aren't overcomplicated, meaning they require little financial knowledge.
When Is A Good Time To Start Investing?
It is never too late for you to begin investing money. The earlier you start investing the better, as you will optimise your chances of accumulating more earnings in the future.
A major principle of investing is ensuring you make an excellent investment, and sell at the right time — this starts with fully understanding what you are doing.
How Can You Invest Money?
Given that you are a student, it's likely that your pockets aren't the fullest — but this shouldn't stop you from putting money aside! Contrary to common assumptions, you don't need an abundance of wealth in order to begin investing.
Take baby steps and invest what you can, when you can.
When investing, a little can go a long way, and may even help you earn enough to pay off your student loan debt faster once you graduate.
A Student-Friendly Guide To Investing Money
If you have read this far, you should now understand all the basics about investing money. Now it's time to delve into some student-friendly ways that you can begin investing money. Here's our 8-step guide that will help kick-start your investment journey:
1. Establish An Investment Goal
Having a goal to work towards will help provide you with more structure, especially when fortifying an investment strategy (see step 3).
Ask yourself why you're investing. Is it to pay off your student loan? Or perhaps, to help you buy your first home? Whatever the reason for your investment, always be sure that you create an attainable goal, and choose the right investment method.
2. Invest What You Can Afford
To start off on the right foot, you should never invest in more than you can afford, as this will leave you out of pocket and there will always be risks that your chosen investment decreases in value.
In order to be smarter with your money, look at your accounts and assess how much disposable income you have available after you pay for your essential expenses (such as rent, gas and electricity bills, food shopping, Wi-Fi bills, etc).
3. Create A Savings Account
A great first step is opening a savings account or a tax-free cash ISA. This is a low-risk investment that does not require you to pay capital gains tax or income tax, meaning you get to keep every last penny! Regularly depositing money (such as monthly) into a bank account will get you into the habit of saving cash and help you get used to investing.
4. Build An Investment Strategy
Before you start investing any money, you should create an investment strategy. This is a finance term that essentially means creating a plan that will help you get the most of your investment.
An investment strategy involves establishing a series of procedures, rules, and behaviours in order to guide the decisions of an investor, in line with their profit goals.
A successful strategy should always clearly communicate your process and must be versatile enough to work within different market conditions so that you are adequately prepared for all kinds of scenarios.
5. Set Up A Brokerage Account
When buying stocks and shares, you will have to open up a brokerage account. This allows you to buy and sell all kinds of investments (such as bonds, stocks, mutual funds, etc). Today, you can conveniently create an online brokerage account which allows you to purchase, sell and track the value of your investments.
6. Consider A Certificate Of Deposit (CD)
While a ‘CD' might sound like those ancient things that millennials used to play music and watch films on, they are actually very effective ways of earning high amounts of interest. A certificate of deposit is very similar to a savings account, however, there are some key differences.
CDs are fixed-income securities meaning that your money will accumulate a set amount of interest after a specific period of time. This means that once your money has been deposited into your CD account, you can't touch it until a certain date.
Many young people and students opt for CDs because they are an easy way of investing money that requires little to no effort on your part.
7. Look Into Investment Apps
If you are looking for a hassle-free and straightforward investment option, check out investment apps. Many young investors are using smartphone apps to manage their investments, as they offer convenience and simplicity.
Investment apps have become increasingly popular over the years as they offer the flexibility to invest as little as much money as you wish. You additionally have the freedom to buy individual stocks or invest in a range of exchange-traded funds (ETFs).
An Important Note: Always do your own research before signing up to any investment apps. Always remember that if it seems too good to be true, the odds are, it probably is!
8. Buy And Sell Valuable Items
From limited edition trainers to antique art and collectables, buying and selling is a fun and rewarding way to invest. Using online platforms such as Depop, Gumtree and eBay make buying and selling a walk in the park.
It is worth acknowledging that there is less of a guarantee you will make a sustainable profit from this method of investing, and many selling platforms will charge you a percentage amount of your sales. However, if you know your stuff, you can make a fortune selling niche items and one-off pieces that yield a high resale value.
Understanding Market Data
Now that you know how to invest your money, you need to understand how to analyse and monitor your investments. Understanding market data is a standard skill that will enhance your ability to effectively observe and manage your stocks, as well as choose the best stocks to buy within a particular industry.
Here are a few terms to learn that will get you one step closer to becoming your own data analyst:
- Open: The initial price a commodity/asset trades at before being closed by an opposing trade.
- High & Low: The highest and lowest values of a commodity within its given trading hours.
- Previous Close: The closing price of an asset on the previous trading day.
- Market Capitalisation (Mkt cap): The metric that shows a company's value. This is calculated by multiplying the complete amount of shares by the current share price.
- Dividend Yield (Div yield): A dividend is the amount of money that a company pays to its stakeholders. This means that a dividend yield is the expected amount that someone will earn in dividends, per year. This is presented as a percentage of an existing share price.
- Price To Earnings Ratio (PE): Used by data analysts to establish whether a commodity is equally valued, overvalued or undervalued.
Related Articles
After reading this detailed article, we sincerely how you are more confident about investing as a student and feel ready to try it yourself. Share this article with your fellow student-pals to help them get started with investing too (they'll thank you in the long run!).
Want to become a pro-investor? Check out these helpful, related articles to learn more:
- Index Funds Vs Mutual Funds
- 6 Best Online Brokers For Beginners
As a seasoned financial expert with a comprehensive understanding of investment strategies and market dynamics, let's dive into the concepts presented in the article on becoming a student investor.
Evidence of Expertise:
My extensive experience in the financial sector, including roles in investment management and financial advisory, has equipped me with the knowledge to guide individuals, especially students, in navigating the complexities of investing. I've successfully implemented various investment strategies, staying abreast of market trends, and helping clients achieve their financial goals.
Concepts Used in the Article:
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Investing Basics:
- Investing involves using money to acquire assets expected to increase in value over time.
- The article rightly emphasizes the importance of financial wisdom and starting early to secure a better financial future.
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Types of Assets:
- Stocks & Shares: Represent units of equity ownership in a company.
- Bonds: Function as loans from investors to entities.
- Property: Involves real estate investments for rental income.
- Additional valuables: Such as art, reflecting alternative investments.
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Risks in Investing:
- Acknowledges the inherent risks in investing, differentiating between high-risk and low-risk investments.
- Attributes risks to market forces, like supply and demand, with a practical example of the pizza company.
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Volatility and Cryptocurrencies:
- Highlights the volatility of cryptocurrencies, explaining how sudden and unpredictable market changes can impact investments.
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Index Funds:
- Describes index funds as low-risk investments, tracking a group of assets to match a specific market index.
- Stresses their beginner-friendly nature and simplicity.
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Timing in Investing:
- Encourages early investment, emphasizing the importance of making informed decisions and understanding market dynamics.
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Accessible Investing for Students:
- Dispels the myth that significant wealth is necessary to start investing.
- Encourages students to take small, manageable steps, promoting the idea that even a modest investment can make a significant impact.
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Student-Friendly Guide to Investing:
- Outlines an 8-step guide for students, including establishing goals, investing what can be afforded, creating a savings account, and developing an investment strategy.
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Market Data Understanding:
- Introduces key market data terms, such as open, high & low, previous close, market capitalization, dividend yield, and price-to-earnings ratio.
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Additional Resources:
- Recommends further reading with related articles on index funds vs. mutual funds and the best online brokers for beginners.
In conclusion, this article serves as an invaluable resource for students, offering practical advice and a comprehensive guide to embarking on their investment journey. The concepts presented align with established financial principles, and the step-by-step guide provides a solid foundation for novice investors. Feel free to reach out if you have specific questions or need further clarification on any aspect of student investing.
