I started researching investing at age 15 and began building an investment portfolio the year I entered college. During my college years, I learned how to manage my investments without compromising my studies. Drawing from this experience, I offer five tips to help student investors make the most of their college years and their investments.
Key Takeaways
- Be aware of your motivation to invest before you begin.
- Knowing about investor psychology will prevent you from making poor investment decisions.
- Consider your schedule before coming up with an investment strategy.
- Use the skills you develop at school and apply them to your investment strategy.
- Connect with individuals who are interested in investing.
1. Ask Yourself Why You Want to Be an Investor
Before delving into how to invest, it is important to consider why you want to invest. Contrary to what popular culture might have us believe, achieving long-term investment success requires patience, hard work, time, and psychological discipline. You are only in college for a few short years, and it takes serious effort to perform well academically. Ask yourself whether spending your limited time and energy on investing is the right decision for you. Weigh it against other major commitments you could pursue, such as completing a second major, learning a foreign language, working for a professor, completing internships, or being involved in athletic and community groups. Although it is possible to do many of these things in addition to your investment and college studies, there are limits to the commitments you can realistically maintain.
Different investors have different motivations. I know of one investor whose goal is to finance the education of 1,000 children. Others are motivated by simpler goals such as the desire to build financial wealth for themselves and their family. My own long-term objective is to develop a philanthropic fund to support critical services in my home city of Vancouver. No matter what your objectives are, having a strong sense of why you want to be an investor will contribute to your long-term resilience and success.
During times of financial crisis, it is tempting to sell your investments at unusually low prices to avoid further losses. Similarly, in times of consistently elevated returns, it can be hard to resist buying overpriced securities whose prices continue to rise. Giving serious consideration to why you want to invest will encourage you to remain diligently committed to your investment strategy during good times and bad.
2. Beware of Investor Psychology
As investors, our mental habits can be our greatest ally or our greatest enemy. As mentioned above, many investors fall victim to the temptation of buying high and selling low—a recipe for financial disaster. This temptation is often compounded by social pressures. As investors, it is inevitable that we will experience self-doubt and fear that we are missing out on other investors’ returns. However, this inclination must be resisted to avoid the temptation of seeking short-term gains.
College can be a particularly challenging environment in this regard. During my college’s orientation day for new students, the president of the student union gave a speech in which he urged students to approach their college years with a healthy dose of FOMO—fear of missing out. Even then, it occurred to me that this was terrible advice for investors.
One of the best ways to prevent yourself from making poor investment decisions is by educating yourself about the nature of investor psychology. Two of my favorite books on this subject are “Animal Spirits,” written by Nobel-prize winning economists George A. Akerlof and Robert J. Shiller, and Jason Zweig’s “Your Money and Your Brain.” Studying these books will help cement your understanding of the profound role that psychology plays both in your own decision-making process and in the financial markets as a whole. Understanding the psychological side of investing will help you avoid irrational investment decisions.
While it isn’t illegal to invest money from a student loan, you may be responsible to repay subsidized interest if the federal government finds out.
3. Adopt a Realistic Strategy Given Your Schedule
Conducting a thorough investment analysis takes a significant amount of focus and time. As a student, it is unlikely that you will have the time to go in-depth in your research. It makes sense then, to adopt a strategy that you can realistically implement in your limited free time.
Perhaps the simplest strategy consists of regularly investing in a portfolio of diversified investment funds such as index funds, exchange-traded funds (ETFs), or mutual funds. This approach may be advantageous for investors who are less interested in performing an in-depth analysis of individual investments and who would prefer to delegate the more laborious aspects of investing to a third party. On the other hand, investors who wish to have their funds actively managed will have to pay for the service in the form of higher management fees.
Full-time students who want to manage their own portfolios will need a time-efficient investment strategy. I chose to build my portfolio primarily based on businesses priced below their liquidation value. I chose this strategy because it is more amenable to quantitative analysis and monitoring. For example, I created a standard investment checklist to screen investment candidates. The checklist determined the exact prices at which I would buy and sell the business’s shares. I then set automatic alerts using services such as IFTTT to notify me when the shares reached their specified price thresholds. Through this strategy, I was able to gain real-world investment experience without compromising my studies.
For students who want the experience of hands-on investing but do not have the funds, a third option is to invest using online simulators such as Investopedia’s Stock Simulator. Simulators are a great way for investors to test out new ideas without the risk of exposing real capital.
4. Invest in Your Knowledge
If you lack the time or resources to invest during your college years, it is worth remembering that the best investment you can make is to develop your own knowledge. This principle holds true equally for those students who do have the time and resources to invest.
Depending on your choice of major, you may find that your college studies contribute directly to your investment education. Others may need creative ways to find overlap between their education as investors and their college curriculum. My own chosen major—honors history, focusing on the history of science—has no direct relationship to investing. Nonetheless, I found that many of the skills I developed, such as primary research, writing, and critical thinking, have clear applications in investment research and analysis.
Regardless of your chosen field of study, if you approach your investment education in a proactive manner, many industry professionals will be open to answering your questions and supporting you in your development as an investor. I strongly encourage all student investors to attend networking events and reach out to industry professionals.
Another way to build your investing knowledge is to learn from the world’s greatest investors. I chose to base my knowledge on the value investment methodology developed by Warren Buffett’s mentor, Benjamin Graham. I recommend Benjamin Graham’s “The Intelligent Investor.” Another classic is “Security Analysis,” which Graham co-wrote with David Dodd in 1934. To get a sense of how value investing has evolved since Graham’s time, I highly recommend studying the letters written by Warren Buffett to the shareholders of his holding company, Berkshire Hathaway (BRK-A, BRK-B). The letters explain how Buffett implemented and expanded upon Graham’s principles of value investing. These letters are particularly helpful because Buffett acknowledges and reflects upon his mistakes. Taken together, Buffett’s letters to shareholders and the classical texts of Graham and Dodd provide a well-rounded introduction to the theoretical foundations and practical applications of value investing.
5. Keep Good Company
One of the greatest advantages of being a student is the opportunity to connect with a diverse range of people on campus. In my experience, a network of peers with whom to discuss investing has been instrumental in developing a more nuanced investment decision-making process. The key is to find individuals who are both interested in discussing investing and willing to engage in constructive debate.
Of course, this is easier said than done. I had to be open about my passion for investing to build this network. It took me until my third year of college to overcome my inhibitions and start an investing website where I share my thoughts on investing. I was amazed to find that many people who I had never assumed would be interested in investing approached me with questions and feedback about my work. For the first time, I started building a network of peers through which to discuss investment ideas.
The long-term value of such communities cannot be overstated. At the same time, it is important to keep in mind that people tend to emphasize their own investment successes while hiding or downplaying their mistakes. Therefore, it is wise to approach investment discussions with a healthy degree of skepticism.
What Percentage of College Students Invest in Stocks?
According to a Gallup poll conducted in 2023, 41% of Americans ages 18 to 29 said they had at least some money invested in the stock market—a smaller percentage than any of the older age groups surveyed. The poll also found that those who attend college invest at higher rates than those who do not, with 78% of college graduates saying they invested in the stock market, compared to 41% of those with a high school education or less.
How Much Should an 18-Year-Old Have Saved?
People in the 18-to-25 age range should aim to have 0.1 times their salary saved for retirement, according to Bank of America’s Financial Wellness Tracker. But given the rising cost of higher education and the cost of living generally, it can be tough for young people to meet those goals. About a third (32%) of Gen Z respondents said they currently have less than $1,000 saved in total, according to a 2024 Forbes Advisor survey.
How Should a College Student Start Investing?
It’s never too early to start investing. Begin by making a budget to determine how much money you’d like to invest after covering your expenses. Think about your risk tolerance and how much money you’d be comfortable losing. If you’re more risk-averse, you could start by opening a certificate of deposit or investing in bonds. If you’re comfortable with more risk, you could start investing in stocks. Investing even a small amount of money on a regular basis, like $10 a month, can be a good way to get started.
The Bottom Line
Learning to invest during college is a challenge. Students who approach this challenge with a clear sense of purpose, a realistic investment strategy and a commitment to learning from the best can use their college years to lay a strong foundation for their investing future. Who knows? One day, students may be studying your investment philosophy.
