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Here's a guide to investing for college students.

It’s never too early to start investing. In fact, the earlier you begin, the bigger your potential for long-term financial growth. If you’re a college student and are wondering whether you can afford to invest, don’t worry. You don’t need a full-time salary to do so. Below we explore your options for investing while in college. And if you want hands-on guidance, consider enlisting the help of a trusted financial advisor.

Should You Invest In College?

If you’re thinking of investing or you’ve already started, you have an advantage most investors don’t have — time. Weekly courses and exams might make it difficult to establish a solid source of income, but you also likely have plenty of free time that those working full-time jobs don’t have. You can use this time for investing. Starting sooner rather than later could be great for your future finances. Even if you’ve never invested before, starting early may give you a bit of experience and financial cushion. In fact, the legal age to invest is 18 in most states, so you should be able to invest even if you’re a first-year student.

But how much does it cost to invest? Many college students, though interested in investing, likely fear they may not have enough money to actually invest. This is understandable, but it’s also important to consider that not all company shares cost hundreds of dollars. Because share prices vary for different companies, you won’t have to break the bank to buy equity. In fact, even blue-chip stocks sell for a range of prices. For instance, while Amazon stock runs more than $1,900 per share, a company like Macy’s only offers shares for about $21. The amount of money you’ll spend ultimately depends on the company you choose.

How to Invest As a College Student

You’ll have a couple of choices when deciding how you’d like to invest your money. You can either choose self-directed investing, or you can have an investment service manage your trades. With self-directed investments, you retain absolute control over your portfolio. In other words, you fund your account, manage asset allocation and determine when to buy or sell. Through this approach, you also get to decide which types of investments you’d like to purchase. Whether it’s mutual funds, exchange-traded funds (ETFs) or bonds, you’ll ultimately decide when and where your money goes.

The other option is to have your investment portfolio managed. This approach may be considerably easier for college students without enough time to manage their investments. You’ll simply turn your money over to a manager or investment service that will oversee your portfolio for you. But the prices do vary for each service. This depends on how and where you invest. You’ll likely run into trading fees and minimum investment amounts if you choose to buy shares through investment brokerages. In addition, hiring a financial advisor could be a costly option as well. But that doesn’t mean that managed investing is completely out of question. You can still turn over your portfolio to investment management services that charge little or nothing at all. We discover your options below.

Types of Investments

Here's a guide to investing for college students.

Before you buy equity, it’s important to consider the different types of investments. These primarily include stocks, bonds, mutual funds and ETFs, among others. Stocks allow investors to purchase shares in specific companies. Bonds, on the other hand, are loans you give to companies or organizations. You provide the loans in exchange for repayment plus interest. With mutual funds, you can purchase a range of investments by pooling your money together with other investors. However, ETFs, which are similar to index funds and stocks, track market indices and trade like stocks on an exchange.

But for new investors with limited funds, stocks will probably be the best option. You’ll be able to purchase a piece of a company’s assets with the potential for great return. All you’ll need to do is select a company, choose your investment platform and invest.

Where to Invest

If you’d like to go with the self-directed investing approach, you’ll have a range of investment services to choose from. Many online and discount brokerages offer competitively low account minimums and trade prices for investors. For instance, Charles Schwab requires no account minimum and only charges $4.95 per trade.

For those considering managed-investing, however, robo-advisors could be a great option. After you choose how much to invest, how often and where you want to invest, these services automatically handle your investments for you. You’ll also find competitive offers as you explore your options for robo-advisors. Betterment, for instance, charges low fees with no account minimums. But those interested in managed-investing also have the option of purchasing mutual funds. By investing in mutual fund families, you can grow your wealth by combining your money with other investors. But mutual funds can be more costly and require higher account minimums, so a robo-advisor may be a better choice.

Bottom Line

College presents it’s own challenges, so it can seem unpractical to set aside extra time, and extra funds, to make a risky investment. But even with limited funds, you can reserve a portion of your savings for investing. Another thing to consider is that you’ll have already established an investment portfolio by the time you graduate. Regardless of whether your investments are successful, you’ll have a financial foundation upon which you can build.

Tips for Investing

Here's a guide to investing for college students.

  • If you aren’t sure exactly how much your investments will generate over time, you should consider using SmartAsset’s investment calculator. All you’ll need is your initial investment sum, the amount and rate at which you plan to contribute, your expected rate of return and the number of years you want it to grow. Investing can be an unpredictable process, so this could give you a better idea of where your investments could land.
  • Interested in creating a diversified portfolio with strong asset allocation? A financial advisor could be right for you. Though perhaps costlier than brokerages and robo-advisors, financial advisors can offer useful investment strategies and much more. SmartAsset’s financial advisor matching tool will pair you with up to three local advisors suitable to your needs.

Photo credit: ©iStock.com/damircudic, ©iStock.com/RgStudio, ©iStock.com/andresr

Rickie Houston CEPF® Rickie Houston writes on a variety of personal finance topics for SmartAsset. His expertise includes retirement and banking. Rickie is a Certified Educator in Personal Finance (CEPF®). He graduated from Boston University where he received a bachelor’s degree in journalism. He’s contributed to work published in the Boston Globe and has worked alongside award-winning faculty for the New England Center of Investigative Reporting at Boston University. Rickie also enjoys playing the guitar, traveling abroad and discovering new music. He is originally from Wilmington, North Carolina.
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