The COVID-19 era has a lot of people trying new things.
One of those things is investing. The word “investing” can have multiple meanings for some people, and this article will be going over the multitude of ways you can invest, such as the stock market, in yourself, and in sites like Indiegogo and Kickstarter.
First, there is investing in the stock market, which, arguably, is the riskiest of the options. There are a plethora of influences that could make a normal college student say, “I want to try this”, like the movie “The Wolf of Wall Street”, or the ads for apps like Robinhood and Stash.
The first question to ask, however, is that of whether or not college students should be investing in the stock market in the first place. Skyline College economics professor and financial planner Kevin Nelson answered that question with a yes, but with the caveat that they would need to understand the risks of doing so beforehand.
“Because trading is electronic and algorithms, it’s simply having a bigger understanding of how much risk you’re going to take,” he said.
Investopedia lays out those risks in an article about the mechanics of electronic trading.
“Electronic trading is integral to the financial markets,” the article reads. “Everything from technological glitches to outright fraud can impair the smooth and efficient functioning of those markets, costing brokerage firms money and calling into question the credibility of the financial system.”
In an example of one of the glitches, they talk about a May 6, 2010 event where a glitch caused the Dow Jones Industrial Average, a list of 30 large publicly owned companies trading on the NYSE, or New York Stock Exchange, to fall almost 1,000 points.
Despite all the glitches, investing is being heavily encouraged these days. If you’ve turned on TV anytime within the past year, you know there are mobile apps like Stash, Robinhood, and Acorns. Nelson said that the entrepreneurs who were behind those apps saw a new market and introduced it to younger people in “a favorable light”.
“As a business, they are trying to get younger people to invest because they’re not connected into it,” he said.
He added, in regards to how these apps make saving easy, that young people seem to want everything automated.
An alternate side of investing is investing in yourself. Chad Thompson, director of Sparkpoint for Skyline College, had a different perspective than Nelson on whether or not college students should be investing.
“In my opinion, the most important thing a college student should be doing is saving for emergencies and saving for what their next step may be,” he said. “For many, it’s transferring.”
Arguably, this could be a great example of investing in yourself, because college can get expensive. Affordablecolleges.com reported that in 2016 and 2017, to transfer to a four-year university was $3,520, and Room and Board from that same year to an in-state college is $10,440.
Another side to investing is something you see the ads on social media for it all the time. I am talking about IndieGoGo and Kickstarter, two sites where you can invest money, and get perks in return such as betas of products. Nelson’s opinion on these is that unless you put your money into multiple companies, it’s like “putting money in Vegas”.
“It’s fun and it’s exciting,” he said. “But the probability is that you’re not going to get (your money) back.”
Finally, going back to the stock market, what are the smart investments to make? First, a CNBC article talks about the rise of the aforementioned Robinhood app, as well as how other college students are getting their investing advice.
“Turning to the Internet is one obvious answer,” the article reads. “Online communities like r/RobinHood and r/RobinHoodPennyStocks on Reddit have gained around 70,000 and 20,000 members respectively since March. A quick search reveals posts from newbies, including those who specifically label themselves as college students, looking for advice and sharing their gains.”
“We’re going to assume that you have some money that if you lose it it’s not going to be the end of the world,” Nelson said. “On a learning curve, I would buy more than one area, so diversify yourself so that you’re holding three to five companies, and that’s your learning tool.”
He also spoke about specific industries, like the tech sector, biotech, and green energy. He said to think ahead to 10 years from the present, and ask yourself, “What’s coming next?”
Thompson also gave his own advice unrelated to stocks. He spoke about a program, the GROW program, that Sparkpoint does with the San Mateo Credit Union.
“We have a special saving program for students where the credit union matches how the amount that student saves so that they can save more quickly, so that’s kind of a small investment,” he said.
He said that Sparkpoint would connect them with the student, who would then work with a financial coach, and they set up a savings plan.
Thompson also mentioned some other great options, such as CD’s, or Credit Default Swaps, which, according to Investopedia, are “financial derivatives or contracts that allow an investor to ‘swap’ or offset his or her credit risk with that of another investor.” He also mentioned retirement, adding that it’s never too early to invest in that.
Speaking of retirement, Erin Sinclair, a financial advisor at Edward Jones in San Mateo, a financial investment firm, provided some articles on that subject. One of their articles, “Can you Invest for Retirement?” gives some great advice on investing for retirement.
“Put in as much as your budget allows and consider increasing your contributions when you receive a raise at work,” the article reads.
That first part of the advice applies to any investment: Put as much money as your budget allows.
This is just a basic guide on how to invest your money as a college student. Remember, there are still a lot of risks, so do your research, because it could be boom or bust.