Investing as a College Student

Investing as a college student is a surefire way to jumpstart your financial future and secure funds for your golden years.

Although saving and investing early is the first step, many young adults don’t know how to get started. How much should you invest?  How much should you save? William Michael Cunningham, president and chief executive officer of Creative Investments Research Inc., a minority-owned research and management firm, recommends visiting sites such as www.vanguard.com and using retirement calculators to analyze your financial decisions.

“Look at how much money you will have in 30 years in various scenarios,” Cunningham says. “The differences can be striking and it’s a good way to look at the long-term impact.”

According to a 2007 report by the Social Security Administration , only 30.8% of African Americans invest and save compared to 49.8% of whites.  The report also states that those with low income, the less-educated, those under age 30, and minorities, are all less likely to have long-term saving horizons with money earmarked for retire.

Fran Harris, founder of Collegepreneur, an entrepreneur and leadership magazine for college students, also encourages her readers to start early. “Our goal is to turn out a new generation that is going to be richer in many ways,” she says.. But Harris also says that student’s need to do their part and get away from the “I’m a broke college student” attitude.

“That’s a cop out,” she says.

Farrah Gray, a money coach for America Online, says although college students may be strapped for cash, there are simple and practical steps that they  can take toward investing for their future. After speaking to our experts, BlackEnterprise.com created this guide to get you geared up for financial empowerment.

Do your Research. Read publications –both online and in print — that will educate you on the many different business sectors and stock markets worldwide. Don’t just stick to business publications. Depending on what you’re investing in you’ll need to be knowledgeable about world events because they also affect stocks. Pay attention to minimum balance requirements, fees, service charges, and how much interest you can earn from different investment vehicles.

Types of Investments

Sheryl Ridley-Dorsey, CPA and founder of Black $treet (www.blackstreetinvestmentclub.org/), an investment club for youths

ages 10-16, recommends investing in stocks while you’re in college. “You don’t need thousands of dollars to invest into stocks, nor do you need to pay the high commission fees to brokers to buy the stocks of interest,” she says.  Dorsey points to Dividend Reinvestment Plans (DRIP). DRIPs  allows you to invest with as little as $10, on a monthly basis or as frequently as you can afford without brokerage commissions or high fees.

If you’re a really conservative investor look into savings bonds.  They are government protected and federally insured. You can purchase a savings bond starting at $50. Visit www.treasurydirect.gov for more information.

If you have more money to invest, consider a U.S. Treasury Bond. They are issued in $1,000 denominations and pay a fixed-rate of interest every six months. It is a long-term investment with a maturity date of 10 to 30 years.

Money market accounts are another great investing tool for those who have more money to put down. These accounts allow you to pool your money with the money of other investors. Visit www.bankrate.com and compare money market and savings account rates at the financial institutions in your area. Vanguard requires a $3,000 minimum and offers free check writing, no sales charges, and convenient access to your money. MMAs usually pay higher interest because they incur more risk and aren’t FDIC insured. Interest is usually compounded daily and paid out monthly.

Mutual funds allow you to be diversified and invest in a collection of companies that will fit that risk perimeter but will not put all your eggs in one basket. Log on to www.fidelity.com and let the fund evaluator calculator choose the fund that best fits your needs. You can compare more than 4,600 Fidelity and non-Fidelity mutual funds according to how much you can afford. Before choosing to invest in a mutual fund, consider the risks, charges, expenses, and re-evaluate your investing objective.

Clear up any debt. Make sure that you are debt-free. Investing is the last step after you have established all the other pieces of your foundation for financial freedom.

Choosing a brokerage firm. Sharebuilder, E*Trade and TD Ameritrade are good investment tools for the beginning investor with little cash. Sharebuilder offers no inactivity fees and has

no account minimums. New and less frequent investors can pay as little as $4 for each investment.  E*Trade also offers a high yield savings account and CDs. A six-month fixed rate CD currently yields 3.30%.

Once you get your savings built up check out Vanguard, Charles Schwab or Merrill Lynch. Charles Schwab requires a $1,000 minimum and offers no account service fees, all-in-one portfolio and lets you trade stocks, bonds, mutual funds, and other investments. You can also add on a checking account that has no ATM fees or minimum balance requirement, and is FDIC insured up to $100,000. They also offer free standard checks, free bill pay, and a Visa Platinum Check Card.

If you’re not ready to take on the inherent risk that comes with investing get some experience first. Play some online games such as CNBC Portfolio Challenge, Investopedia and visit the Motley Fool Website at www.fools.com

However you decide to invest, start as early as possible. “Remember, the road to millions of dollars for people like Bill Gates, Yahoo, and Google, got started while they were in college,” says Ridley-Dorsey.