How To Invest Your Money While In College

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Investing while in college can help kickstart your journey to your future financial goals

Investing is more popular among teenagers, college students and young adults today, than it has ever been.

In fact, online investing platform Fidelity is offering a youth account aimed at aspiring underage investors. Robinhood is touring college campuses in the U.S. and even offering cash bonuses to students who sign up for the platform.

With the ongoing student debt crisis in the U.S. and the global insurgence of the FIRE movement, it's easy to see why so many students view investing as a path to financial independence.

If you're one of these students, or if you're simply curious about investing at a young age, you've come to the right place!

In this blog, we'll cover everything you need to know about investing for college students, including the best ways to start investing and the best tips to follow.

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How Old Do You Have To Be To Invest In Stocks?

Unfortunately for many young investors, you must be at least 18 years old to be able to legally buy and sell stocks and invest in other financial instruments.

Fortunately, there is a way to bypass that regulation — by opening a custodial account.

A custodial account is a bank or investment account that a custodian — a parent, guardian or legal representative — can open and manage for their dependent, such as their underage child.

Simply put, if you're a minor, you can ask your parent or guardian to set up a custodial account for you.

That account and its contents will legally belong to you and you can assume full control of it as soon as you turn 18 or 21 years old, depending on your local legislation.

There are two main types of custodial accounts: Uniform Transfer to Minors Act (UTMA) accounts and Uniform Gifts to Minors Act (UGMA) accounts. While both types essentially work the same way, they have a few key differences:

UGMA accounts can only hold traditional monetary and investment assets, such as cash, bonds, stocks and so on.

UTMA accounts can hold all of the same assets as UGMA accounts, but also allow you, as a minor, to own other physical assets, such as real estate or art.

With a UGMA account, you can assume full control as soon as you turn 18 or 21, depending on the state you're located in.

With an UGMA account, your custodian can choose the exact age when you will take full ownership of your account, ranging from 18 to 25 years old.

In addition to the Fidelity Youth Account we mentioned above, almost all major investment platforms offer custodial accounts, including:

Charles Schwab

Acorns

Vanguard

Investing in the stock market from a young age can help you outpace the interest of your student loan, as well as inflation in the long run

Why You Should Start Investing While In College

If you're a college student, you likely have a lot on your plate already. So why should you consider adding investing to the mix?

The short answer is: college might just be the perfect time for you to start investing. Here's why:

Investing is all about the long game. The purpose of investing in stocks and other assets is to provide you with sustainable, long-term returns (not be confused with trading). The earlier you start, the more time your investments will have to grow and deliver those returns.

It's okay to start small. Contrary to what you might think, you don't have to have hundreds of thousands of dollars in your brokerage account to start making meaningful investments. Sure, investing $100 per month might not make you rich overnight, but it will help you learn how to navigate the financial markets, find investment opportunities that fit your goals and start building your future investment portfolio.

Investing can help you manage your student loans. Investing in and gradually growing a stock portfolio that will bring you a stable return can make your student loans more manageable or even help you pay them off early. Consider this: the average student loan interest rate in the U.S. is 5.8%, while the average annual return of the S&P 500 stocks has been around 10% ever since the S&P index came to exist — almost twice as high. In other words, if you were to invest in a portfolio of S&P 500 companies with the sole purpose of financing your student loans, you could theoretically pay them off almost twice as fast.

How To Invest As A College Student

Since we've covered the "why" of investing for college students, let's talk about the "how."

The classic pop culture idea of how to invest in stocks is calling your stockbroker on the phone, asking them to buy a specific amount of a certain stock and cutting them a check to cover the purchase and the broker's fee.

Fortunately, this old-fashioned method is no longer your only option — you can easily open a brokerage account of your own.

Now, when we say "brokerage account," we don't necessarily mean a bank account. There are several online tools and platforms you can use to start investing.

Here are three investing methods you should consider as a beginner investor.

#1: Micro-investing apps

Micro-investing apps are the platforms that can be largely credited with introducing investing to younger audiences. They are typically mobile-first platforms that allow manual or automated stock trading and investing.

The biggest advantages of micro-investing apps are their user-friendliness, accessibility and low cost, but they don't offer quite as many opportunities as other tools.

Robinhood, Webull and eToro are all examples of micro-investing apps.

#2: Discount online brokers

Opening an account with a discount online broker could be a great alternative to traditional brokerage services if you don't have that much capital just yet.

These are online platforms that allow you to open an account and start buying or selling stocks and/or other financial products. Their biggest advantage is that they often charge zero commission and don't have minimum investment requirements.

On the flipside, you won't find any direction or guidance there and will have to make all the investment decisions on your own — so you'll need to do tons of homework before executing any transactions.

Examples of discount online brokers include TD Ameritrade, Interactive Brokers and E*TRADE.

#3: Robo-advisors

Robo-advisors take the functionality of micro-investing apps and discount online brokers and enrich it with AI-driven, automated financial advisory. They are digital investing platforms that do all the research and portfolio building for you.

Robo-advisors are the most hassle-free investment tool and include a great variety of assets, but don't offer as much flexibility since they essentially do all the investing for you.

SoFI, Betterment and Vanguard Digital Advisor are some of the best-known robo-advisor platforms.

Micro-investing platforms are among the most affordable and accessible ways to invest as a college student

3 Investment Tips For College Students

As we've just explored, investing for college students is not all that difficult. Making sustainable, profitable investments, however, takes a bit more effort than simply opening an account on your platform of choice.

Here are a few tips that will help you succeed with your investments.

#1: Thoroughly Research Your Investment Opportunities

There is a famous saying in the world of finance, often attributed to Warren Buffet: only invest in companies you understand.

But even if you're an avid fan or a loyal customer of a renowned company, that doesn't necessarily make that company's stock a smart investment.

There are many other factors at play that you should consider before investing in a stock or any other financial instrument. Always perform thorough research on the asset to have a better understanding of its current and past performance, growth potential, strengths and weaknesses.

#2: Start With Safer Investments

If you were just learning how to swim, you probably wouldn't dive headfirst into the deep end, right?

Investing for college students is the same: even though a riskier investment may be more profitable, you should wait until you can afford to lose money before you invest in them.

That's why it's a good idea to start your investment journey with safer assets, such as:

Fixed income securities

Large capitalization stocks

Money market assets

Low-risk index exchange-traded-funds (ETFs)

#3: Invest Consistently & Proactively

Whatever your investing goals may be, the only way to ensure that you meet those goals is to invest consistently and proactively. That's precisely why it's okay to start small with your investments.

If you invest proactively using whatever funds you have available, grow your portfolio gradually and stay calm during times of market volatility, you will end up with a sustainable, profitable portfolio.

Takeaways On Investing For College Students

Investing might be very trendy right now, especially among students and young adults, but that doesn't mean that you should jump on this trend blindly.

For college students, investing can be a great way to start saving up for an early retirement or pay off student loans faster.

While aspiring underage investors might need to ask their parents or guardians to open a UGMA/UTMA account for them, adult student investors should consider a micro-investing app, a discount online brokers or a robo-advisor.

Whichever investment tool you choose, be sure to thoroughly research the stocks or assets you want to invest in, avoid risky investments in the beginning and stick to your investment strategy.

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