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Investing tips for college kids
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November 30, 2001: 11:10 a.m. ET
Here are five steps for college kids who want to jump into the stock market.
By Megan Kissin
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NEW YORK (CNNmoney) - While his friends were punching away at video games, college student Rick Shriner played for real bucks.
Shriner, 21, jumped into stock investing two years ago for the fun of it. Like his father, a psychiatrist, he looked at the market as a game. It was also something that brought them closer, gave them something to talk about.
Now, Shriner heads the investing club at University of Florida, advising more than 50 students on topics like price-earnings ratios, preferred stock and dividend yields.
"Investing is the ultimate expression of financial independence," says Shriner, a senior. "Investing is an art, not a science."
The young investor
There aren't any statistics about college investors, but Wall Street pros say the numbers are rising. Tom Gryzmala, a certified financial planner in Alexandria, Va., estimates about 5 percent of his 200 accounts are people age 25 and under.
The obvious advantage to starting early is it allows your money to grow over time, thanks to the power of compound interest.
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Rick Shriner | |
"The sooner you start, the more your money is going to grow and the less you have to save," says Mari Adam, a certified financial planner in Boca Raton, Fla. " A dollar saved now equals ten dollars saved down the road."
Still, diving into Wall Street's shark tank can be scary for the average college student.
Here are five steps to get started:
Think long-term. The universal advice, regardless of what you're buying, is to plan on keeping your money in for the long haul. Don't get scared by short-term market fluctuations.
You should understand that you shouldn't touch any money you invest in the market for three to five years. Ideally, you should keep it invested for decades.
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The sooner you start the more your money is going to grow and the less you have to save. A dollar saved now equals ten dollars saved down the road.
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Mari Adam
CFP, Boca Raton, Fl. |
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Shriner says college students need to be patient, and not get frustrated when things don't go their way.
"It's so easy to get upset for buying and selling at the 'wrong times'," Shriner says.
Do your homework. While college students spend most of their time on homework, investing in the market will give them more of it.
"Be a student of the market before becoming a participant," Shriner says.
Start by learning how the stock market works, says Judi Martindale, a certified financial planner from San Luis Obispo, Calif. Read as much as you can about Wall Street, and track its progress.
"First you have to do the boring stuff," Martindale says.
Look at your current situation - your assets, debt and cash reserves - and your employment status to see if you have enough to set aside in the market.
At Shriner's investing club, which meets weekly, members talk about what's going on in the market. For beginners - about 60 percent of the club - Shriner goes over basic investing concepts. He teaches them about how IRAs work and the basics about bonds.
The club has subcommittees that study industry sectors, and it publishes a newsletter. Members talk about how the market is doing, and share investing strategies.
You don't need to invest a lot. Most young investors think they need thousands of dollars to get into the market. But the truth is a college student can get started with much less.
Many mutual funds require a minimum investment of $1,000, but a lot of funds will allow you to set up automatic investing plans for as little as $25.
At Datek Online, the minimum required age to open an online investing account is 18, with a minimum deposit of $500.
If you can swing it, try to set aside $50 a month towards your portfolio, Adam said. If that's too much, pick a number and stick to it.
Martindale said college students with less than $1,000 might want to keep the cash in a savings account before they start investing.
Shriner started by investing $500 in 1999 in utilities like Calpine (CPN: down $0.82 to $21.56, Research, Estimates) and El Paso Corp (EPG: down $0.16 to $44.50, Research, Estimates) . His portfolio is up about 15 to 20 percent since then, he said.
"I invest in strong value companies, companies I believe in," Shriner says.
Don't bet all of your money on one stock. Another rule of investing is that you should spread your risk by building a diversified portfolio.
Most financial planners recommend mutual funds instead of stocks, because they allow you to diversify with a much smaller amount of money.
Funds are also great for new investors because you have a professional money manager doing the work for you, planners say.
One good bet that will give you broad market exposure is Vanguard Total Stock Market Index (but keep in mind the minimum initial investment is $3,000).
Another approach is to buy shares in a few companies so you can track their progress and educate yourself about investing, said Charnell Blair, a certified financial planner in Suffolk, Va.
Blair recommends investing in two to three stable, dividend-paying companies that are medium- or large-sized.
Consider a retirement plan. Retirement might seem like an impossibility when you're in college, but the years will catch up with you. The earlier you start, the less you'll need to save.
Compound interest is so important that if you save $2,000 a year starting at 20 until you're 30, you'll still have more money than a person who saved the same amount between ages 30 and 60, said Frank Armstrong, a certified financial planner and president of Managed Account Services in Miami.
One great option for young people who have earned income is a Roth IRA, says Adam. You can't deduct the contributions as with a traditional IRA but the withdrawals are tax-free.
"If you have any earned income it's a good idea to start a Roth IRA because the sooner you start the more it's going to grow and the less you have to save later on," advises Adam.
Portrait of a young investor
For Shriner, the stock market represents financial freedom. "No boss, no hours, no rules."
The club's model portfolio, heavily weighted in tech stocks like EMC (EMC: down $0.31 to $16.79, Research, Estimates) and Silicon Storage (SSTI: down $0.63 to $12.33, Research, Estimates). Club members contributed anywhere from $20 to as much as $500 to the account.
During the height of the bull market in 1999, the tech-heavy portfolio grew to $3,000, up 700 percent. The club sold it in 2000, still registering a gain of 400 percent. The reason was more organizational than because the market was down - they didn't have anyone to oversee the account.
Shriner admits the move to sell was contrary to the themes his club teaches to buy low and sell high. But it was a good lesson about the basics of investing - research, long-term goals, and diversification.
"Investing is for the long term," Shriner says. "You shouldn't jump just because the market moves." 
* Disclaimer
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