Investing. It sounds like something older people do. Or that you need to have a finance degree to do. Right?
Investing is something you can never start too early because the earlier you start, the more time your money has to grow.
"It takes far less to save and invest when you're young instead of waiting until you're older and needing to catch up," said Winnie Sun, a financial advisor and founding partner of Sun Group Wealth Partners.
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Lucas Bianculli, a senior at Binghamton University double majoring in financial economics and environmental economics, started investing in the summer of 2020.
"Because of the stock market crash back when Covid started but after learning about the basics I realized how important [investing] was," Bianculli said. "Many people don't really realize how early you have to start investing in order to save up for something like retirement or if you want to buy a home in the future."
So, what does it actually mean to invest?
Investing is putting your money into different assets such as stocks, bonds, mutual funds, cryptocurrency, NFTs, etc. There are a lot of ways to invest! But the goal is always the same: to grow your money. So, you buy a stock at $10, the price goes up to $15, you now have $15 because you invested. By the time you're 30, that stock could be worth $25, $50 or more.
One of the main growth drivers when it comes to investing is something called compound interest. This means that interest accrues on both the initial deposit and the accumulated interest from previous periods. So, to use the above example, if you buy a stock for $10 and it goes up to $15, then that stock goes up another 10%. You're getting 10% not just on your original investment of $10 but on the extra $5 that you made initially.
"The funds that you invest will earn dividends and/or interest. If those are automatically reinvested, those, too, will earn dividends and interest," explained Katelyn Bombardiere, a certified financial planner and financial advisor at Commas. "This process then repeats itself over and over again."
A lot of people think you need a lot of money or need to spend a lot of time studying finance to invest. You don't!
If you don't know where to start, just start doing some research. Reading this article is already a great start! And don't be afraid to ask for help, Bianculli said.
"Just try it out, even if it's with $50," Bianculli said. "You don't need to buy a full stock straight up. It may seem intimidating at first, but try it out. Learn a little about it. There are a lot of resources out there, and try to learn a little bit of knowledge at a time."
Ready? Here we go!
1. Decide how much money you have to invest
If you don't already have a system in place for tracking your expenses, it's important to set up a budget. Figure out how much money you make (after taxes), and how much money you have left after paying for basic expenses such as rent, utilities, phone, cable, food, etc. Figure out how much you like to spend on things like going out, clothes or entertainment. Then, from what's left, set aside a portion for savings.
Sun recommends prioritizing your emergency fund, which should include around six months of living expenses. Once you have a cushion in place, you can take some of your savings and start investing it.
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One thing you have to decide is how much risk you are willing to take. There are some investments that could make you a lot of money, but you could also lose a lot of money.
"You may say, yes, I'm comfortable with risk. Let's go aggressive," Sun explained. "But, if that aggressive decision means your $1,000 portfolio could drop to $400, how do you feel about that?"
Now, to be clear in that scenario, you never actually lose that $600 unless you cash out. If you don't need that money (you should never be investing money you need for bills or other expenses), then you can let it ride and see if it bounces back.
But, if all of that makes you a little queasy, either 1) Don't invest a lot in a risky investment or 2) Stick with less-risky investments.
2. Where to start investing
The first step: What type of account are you going to put your money in?
A brokerage account is a taxable account that allows you to buy and sell stocks, ETFS, bonds, mutual funds and other types of investments without a fear of penalty. Many brokers today offer low minimum deposits to get started. Investors utilize brokerage accounts for day trading and long-term investing and to save for short-term financial goals.
When it comes to getting started, you don't have to do it alone because there are plenty of apps out there to help guide you in this journey, including Acorns, Betterment, Fidelity, SoFi, Robinhood and TD Ameritrade. Some allow you to make individual trades in stocks, bonds and mutual funds, and others have you choose your risk level. And then it automatically invests your money in mutual funds that match that. So, do some research. Choose one. If you feel like it isn't working for you or you're curious, try another one until you find what's right for you. There's no one right or wrong way to invest.
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3. Know your investment options
We've thrown around a lot of terms — stocks, bonds, mutual funds, etc. So, let's go over some definitions for common ways to invest.
Savings account. A savings account is the most basic financial investment, which allows you to store money securely while earning interest. The annual percentage yield, or the real rate of return earned on an investment, reaches 0.50% on some accounts. A savings account allows for you to differentiate your everyday spending money kept in a checking account, from money that is meant to be used at a later date. This type of account is federally insured up to $250,000, so you won't lose your money if the bank fails. You would typically do this at a bank. Could be the same bank you have your checking account with, but some people prefer to put their savings at a different bank. Choosing a different bank might make sense for you because you can shop around for the best rates. (i.e., that will make you more money.)
Certificates of deposit (CDs). This type of account is similar to a savings account but with a fixed time period and a higher fixed interest rate (more money). So, the catch is that it locks you in for a certain time period where you can't touch that money or else you will face a penalty (fee). So, it's a great way to make more money than a typical savings account, but you want to make sure it's money you won't need for anything so that you can drop it there until the time period — two years, three years, whatever — is up.
Money-market funds. Money-market funds generate income but are considered extremely-low risk, which means they also don't generate a high rate of return. But they are a safe option, letting your money grow little by little. So, financial advisors will often recommend keeping a certain amount of your portfolio in a money-market fund for security but not too much. If you know you have $500 to invest, maybe you park it there first, then start moving it into other investment options.
Stocks. When you buy a stock, you are essentially purchasing one piece of one company. The shareholder is entitled to own portions of the corporation's assets and profits depending on how much of the stock they own. Most stocks are bought and sold on exchanges such as the Nasdaq or the New York Stock Exchange. But you can purchase them through an app or a broker.
Bonds. In the simplest terms, a bond is a loan from an investor to a borrower such as a certain company. The company uses the money you "lent it" to fund its necessities. Meanwhile, the investor receives interest on the investment. Bonds are a key ingredient to having a balanced portfolio as it can help soften the blow if the stock markets plummet.
Mutual funds. Mutual funds bring together investments from many people and invest that money in stocks, bonds and other assets. The specific stocks, bonds and assets the money is invested in are known as the "portfolio." The criteria for what goes in the portfolio can be anything from a sector (such as technology or health care) to a risk level (growth vs. value) or a target date (such as 2030). Mutual funds are managed by a money manager who selects and changes the assets in the portfolio to try to maximize profits for their investors. Since there is an expert involved in managing the investments, there are fees involved.
Exchange Traded Fund. ETFs are similar to mutual funds in that they are a collection of assets, but they are designed to track a particular index, sector, commodity or other asset. So, you might have an ETF that tracks corporate bonds or real estate.
Bombardiere recommends students invest in low-cost well diversified ETFs as it allows them to have access to hundreds of stocks, without having to personally research each one of them.
Index Funds. An index fund is also a collection of assets, but they are pegged to a specific index such as the S&P 500 or Nasdaq. One of the perks of index funds is that they tend to be lower in cost because they don't have an expert taking the time to pick stocks or bonds for funds.
Han recommends students invest in index funds because "you put some money in it, can set up automatic recurring purchases and have dividends automatically reinvested on their own."
4. The key is to diversify
The key, experts say, is to diversify, which means have a variety of investments in different things. Don't put all of your eggs in one basket. That keeps balance, and if one investment is going down, another might be holding steady or going up.
For example, if your investments are all in tech and all of a sudden the tech sector starts sliding, so is your portfolio, Sun explained. "If you have some in tech, maybe some in health care and those more traditional companies that pay dividends," Sun said, "then your overall portfolio is a little bit better balanced."
So, try to make sure you have investments across a wide variety of sectors (such as technology, health care, retail, financial, etc.) as well as risk levels. Growth stocks, for example, can gain a lot but also lose a lot. Value stocks are more steady growth. You can also invest in currencies, commodities and riskier investments such as cryptocurrencies and NFTs. Those tend to be more volatile and complex, so you really want to do your homework — and make sure you are only investing what you can afford to lose.
It's OK to get advice from friends when investing, but you need to do your own research and you need to be diversified. If your friend says buy XYZ stock because it went up for them, don't just buy that and leave it at that. It could go down for you. So, if you're diversified, you have a cushion for that.
5. Do your homework. Understand the risks
Risk is an important factor to note when you're choosing what to invest in. Low-risk investments such as savings accounts or certificates of deposit see smaller gains and smaller losses. Other investments such as high-growth stocks or bitcoin can make you a lot of money quickly, but they can also lose you money just as quickly. It's not to say you shouldn't make risky investments — just know how much money you have to "gamble" with on these more volatile investments and keep some of your money on more steady investments.
"Money is tied with hopes and dreams and people just want the benefits but don't understand the risks," cautioned Rose Han, a former Wall Street Trader and financial educator. "If you don't understand what you invested in, why you invested in it, and how long you should be holding that investment for, then you might sell because the value went down a bit and you got scared but in the meantime you're in your investment balance might suffer."
It can be easy to get caught up in the moment, but it is vital that students not let their emotions cloud their decision making.
Tabias Edwards, a senior at the University of Missouri-Columbia studying communications with a minor in personal finance planning, started investing after high school in 2018. He bought a course on Instagram and was able to educate himself through that platform. Through Edward's investing journey, he said one of his big mistakes was not accepting he lost money and not having the knowledge of how the market works.
"Now I really understand the natural things of a market going through ups and downs. I don't really try to stress too much if I'm down too much in that position but rather just try to find the middle ground," adding that investing actually helped him understand emotional intelligence better.
"It only makes you stronger," Edwards said. "Whether you win or lose money, you'll be better from that."
And remember: You only really lose money if you panic and withdraw your money when your investment is down. So, if it's down, you might want to consider leaving it alone until it bounces back.
"Investing is a long-term game," Edwards said. "So, if you think of it more as short-term, you've already lost."
Bianculli is currently invested in total market index funds as well as some sustainable energy companies. He learned everything he knows by reading books and doing his own research. Throughout his journey, Bianculli recognized his biggest mistake was going along and trading whatever was trendy or most popular at the time.
"It's very easy to believe that options trading or penny stock trading is an easy way to make money when you see many people posting their huge monetary gains online," Bianculli said, adding that social media allows for misconceptions to be spread regarding the success rates of these risky strategies.
Before even starting to think about investing, Han recommends students get their finances in order, try to stay out of debt, learn how to budget their money and then, once they're ready to start, invest only money they can afford to lose.
6. What will you invest in?
So, the last thing you have to decide is: Where do you want to start investing?
Once you've picked an app or brokerage firm, figure out if you want to invest in funds or individual assets like stocks.
Bombardiere recommends investing in well diversified ETFs, and Han recommends putting your money into index funds. Both experts agree that these are two types of assets that let you invest money in them, set up recurring payments and check back whenever you'd like.
If you're going to try your hand at investing in individual stocks or other assets, do your research and start small. Maybe you want to invest in brands you know, such as Apple or McDonald's, or maybe you do some research and see what the pros are recommending. (Though, for the record, no one knows for sure what stocks or investments will go up.)
Janelle Finch, former CNBC intern, recommends finding a product you or your friends love and looking for trends. Start researching the companies behind those products and trends and then what analysts are saying about those companies as an investment. It's also important not to just spot a trend you might want to invest in but also "Keep paying attention so you know when the trends turn."
That's an important point: to know not just when the trend turns but also when analysts are saying this a great company but the stock doesn't have more room to grow right now, so hold off.
Don't blindly follow any one expert — consider them like your board of directors. You take their advice into consideration, do your own homework and make your decisions. Remember: Only you are the boss of your money. And with that responsibility comes great power! You could make a lot of money, but you could also lose a lot. So, be smart. Learn as you go. Remember: No one is perfect. And watch your money grow!
The number-one tip emphasized by all experts: Get educated.
"Once you have that knowledge you'll know what to do," Han said.
″College Money 101″ is a guide written by college students to help the class of 2022 learn about big money issues they will face in life — from student loans to budgeting and getting their first apartment — and make smart money decisions. And, even if you're still in school, you can start using this guide right now so you are financially savvy when you graduate and start your adult life on a great financial track. Denisse Quintanilla is a senior at Monmouth University studying Spanish and communications with a concentration in media studies and production. She is currently an intern at CNBC en Español, writing scripts for Informe CNBC, while also translating and producing videos to Spanish for Telemundo. The guide is edited by Cindy Perman.
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