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investing

Student Life

6 Things New Grads Need To Know About Investing

July 14, 2021

It’s a thrilling feeling when you’ve got the job and the steady paychecks start rolling in after graduation. If you’re lucky, those paychecks cover more than just your essential expenses. With some extra cash in your bank account, you might be considering investing some of it. 

Before you rush off to buy some Dogecoin or AMC stock, here are a few things you could keep in mind.

Don’t wait for an emergency to think about an emergency fund.

Life happens, and it pays to be prepared for the unexpected. Before you invest, make sure you’ve built up some savings for just-in-case scenarios such as your car needing repairs or losing your job. There’s no magic number with how much to have in your emergency fund — it will depend on your specific situation and comfort level, but having money to cover three months of your expenses is a good starting point. A no-fee, high-yield savings account can be a good place to park your emergency fund.

Weigh paying off your student loans faster versus investing.

If you’re like most Americans, you probably left college with loans to pay off. You should definitely budget for your monthly student loan payments. But if you have extra money, you might wonder if you’d be better off putting that money toward your student loans or investing it. To help make that decision, look at the interest rates on your loans and compare them with what you think you’d make investing. Let’s say you think your investments could net you a 6% return and your interest rates on your loans are all less than 5%. Here, investing could be a better option for you, netting you more money in the long run.

Boring is OK.

If you only read Reddit and Twitter, it’s easy to get the impression that everyone is buying crypto and shorting stocks. And although you could see huge gains with a strategy like this, it’s risky — especially when passive funds, like an S&P 500 index fund, have consistently outperformed actively managed funds more than 80% of the time. Last year the S&P 500 index finished with gains of 16.3% and the Nasdaq composite, which features many tech stocks, saw gains above 40%. Past performance isn’t a guarantee of future performance, but a passive (and some might say “boring”), long-term investing strategy can pay off.

Never pass up a company match.

If you’re lucky enough to work for a company that offers a 401(k) match, be sure to take advantage of it before you pursue other investing opportunities. A 401(k) contribution match is essentially free money and who doesn’t want that? Here’s how it works. Let’s say you make $50,000 a year and elect to put 2% of your salary into your 401(k) — that’s $1,000 you’re investing. If your company offers a contribution match of up to 2%, they will add another $1,000 to your 401(k). That’s the easiest grand you’ll make all year.

It’s OK to start small.

You don’t need a lot of money to start investing. Many online brokers and investment apps make it easy to start small. Stash, Robinhood, and Acorns are three apps you can check out if you’re just starting. All three let you open an account with no minimum requirements and offer fractional share investing. Fractional shares are simply portions of a stock and allow you to buy into companies that might be out of reach if you had to buy an entire stock at the full price. For example, let’s say a stock is trading at $100, but you only have $5 to invest this month. You can use your $5 to buy fractional shares of that $100 stock so you’ll own 5% of one share of the stock.

Beware of fees.

With investing, there are quite a few fees you should know, including:

  • Expense ratio: A percentage of your investment in mutual funds, index funds, and exchange-traded funds charged annually.
  • Management or advisory fee: A fee paid to your financial advisor or a robo-advisor that’s typically structured as a percentage of your assets they manage.
  • Trade commission: A fee that’s charged when you buy or sell stocks. Fortunately, many investment platforms have dropped trading commissions over the past few years after Robinhood came on the scene offering commission-free trades. 

It’s important to understand and compare fees because they can affect your portfolio’s performance. Generally, you’ll find the highest fees with more hands-on investing options like using a financial advisor or buying mutual funds. 

Final thoughts

Whatever you decide with investing, you’ve got time on your side. Through the magic of compound interest, even a small investment today can compound and add up to something much more substantial in the years to come.

BIO: FinanceBuzz’sVP of Content, Tracy Odell, also held the same position at Student Loan Hero and has expertise in this subject, as well as all things related to college finances.

Adulting Other

Easy Ways to Start Investing

May 14, 2021

As a college student, you have some unique challenges. There’s a lot on your plate between attending classes and homework, but also studying and balancing a social life, too. You should also devote time to your own wellness.

In this post though, we are not talking about physical or social wellness. Instead let’s focus on a more neglected wellness aspect – financial wellness.

Here are five easy ways to achieve that glow in your investments while being sensitive to a college student’s lifestyle.

Open an Interest Generating Savings Account or CD

Got some cash? Here are two easy, super safe ways to earn some interest:

  • High yield savings account from a bank that pays you a variable interest rate.
  • CD (certificate of deposit) guarantees you an interest rate if you leave your money in for a certain amount of time.

Both offer some return for your money, so they do count as investments. Be prepared to let this money sit in these accounts for a while. After a few years, you will start to see some real return, more than you would see if you let it sit in a standard bank. Work for your money, then let your money work for you!

Modern Brokerage Account

Back in the day, brokerage firms were stodgy and cumbersome to deal with. You had to physically call a broker or use a desktop computer. Not to mention the fees that came along with it.

That’s changed. The internet is not just for cat websites or eating challenges. In today’s investment landscape, there’s a plethora of free online brokers with slick interfaces that work on phones, tablets, or desktops.

Names like Robin Hood, Webull, or M1 Finance come to mind. These apps have truly introduced a large group of “retail” investors to the markets.

Index Funds

Now armed with a modern broker app, you can start diving into the more “traditional” investments like stocks and funds – the kind of stuff you hear about on CNBC (but never paid attentioned to).

For a busy student, simple is best. And the simplest is to buy an index fund, a fund that holds ALL the stocks in a given market. This is less volatile since you are well diversified and exposed to many stocks. Over the long term, America’s stock market only goes up.

Basically, if you are not interested in individual stocks or sectors of the market, just investing in the whole market is the way to go. It’s generally a safer way to get your start in investing. But again, this won’t make you a lot of money quickly, unlike how you may be able to make a quicker profit through riskier, more volatile trades.

Retirement Account

“Retirement accounts” once made my eyes roll. I know the last thing on your mind is 40 years from now.

But hear me out. Basically, IRA’s and Roth IRA’s are just accounts or vehicles that your investments live in. You contribute to these accounts, then decide what funds or stocks to buy from there.

With a Roth, you contribute money you’ve already paid taxes on, and when you withdraw, it’s tax free! With an IRA, you contribute pre-tax dollars, then pay taxes on it when you withdraw.

For a busy college student, there are two things to set up. First is an automatic monthly or quarterly withdrawal from your checking or savings into one of these. Second is to reinvest dividends from that fund back into the fund. Something to look forward to in the future is to look for employers who match employee 401K contributions. That’s something you’ll definitely want to take advantage of — it’s basically free money.

That way, time and compound interest helps grow your account, hassle-free. Even contributions of a couple hundred dollars a month, over 30 years, end up massive!

In Closing

When I started “adulting,” my knowledge of financial products was minimal. I freely admit I did not know the difference between a checking and savings account, much less investing.

Now with modern apps, investing is easier and more accessible. Get started with a few of the top tips above!