The pandemic continues to financially and mentally impact students. A recent survey by the Strada Education Network reports that about 41% of students feel more uncertainty, instability, and self-doubt as their career plans have been derailed by the health crisis. In addition, issues concerning academic success, future employment, and being able to maintain their lifestyle are also clouding their minds. For this reason, college students today need to be smart about their finances if they want to secure their future success.
One way to steer your financial health in the right direction is by investing in various securities and financial instruments. However, with so many investment products out there, how do you know which one is best? Unfortunately, many young people today aren't usually taught how to build wealth by their parents, aside from getting a job.
If you want to get started on your investment journey, here are some tips to help you out.
Open A High-Yield Savings Account
Investing in securities such as stocks, index funds, and bonds involves a certain degree of risk. In case the market crashes, the prices of your investments may plummet and you may find it hard to recover from this loss. So if you’re a risk-averse college student who wants a safe way to invest your money and make it grow, open a high-yield savings account instead. Think of this as a savings account with much more benefits. With a high-yield savings account, you may receive interest rates that are about 20 to 25 times higher than what traditional savings accounts offer — allowing you to enjoy significantly higher yields down the line.
Use An Investing App
Thanks to today’s technology, you can now invest on the go using online broker apps like TD Ameritrade and Charles Schwab. These apps allow college students to dip their toes in stock investing, which is always a good starting point for beginner investors. After all, it is easy to understand and doesn't require high minimum deposits. The great thing about these tools is that they don’t just carry individual stocks. Anastasiya Cernei from Missouri State University writes that Charles Schwab can also be used for ETF trades. She notes how investing in multiple ETFs will put you at less risk of a severe loss. There are many types to choose from such as gold ETFs. These ETFs are an ideal way to participate in the gold market without the hassles of physical ownership. Plus, they make a great addition to any investment portfolio, since it allows for diversification and minimizes risk.
Alternatively, you can also practice day trading, which is as simple as going online during trading hours to buy or sell a particular security. These days, investors have a better array of investment choices than before, and these apps let you explore your options easily. It goes without saying, however, that you should first educate yourself on the ins and outs of these trading methods.
Start Contributing to An IRA
For college kids who are already earning money and sustaining themselves through part-time jobs, it may be a great idea to open an IRA. Simply put, an IRA is an account that’s designed to help an individual save up for retirement on a tax-deferred basis. While it may seem too early to think about retirement, an IRA can help you defer taxes on your profits and dividends. Moreover, it helps you save money on taxes by deducting your contributions from your taxable salary. On top of this, the compounded interest provided by an IRA allows you to max out your account, provided that you start opening and contributing to this tax-advantaged account early on.
If you’re a college kid who doesn’t want to worry about your finances down the road, be sure to take the advice we’ve written above and start your investment journey as early as now. For more insights on financial responsibility and advice on how to take control of your finances, check out our other posts on Potential Magazine.