How Should a College Student Invest Their Savings?
College students rarely have money to spare -- they can't work much because their time is devoted to study, and because of the cost of education, most students take on debt. Even so, college is a time for planning. Just as you prepare for a career, you should think about how to invest the little money you do have to give yourself better financial footing later.
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Stocks
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A stock represents a portion of a company. When you buy stock, you buy a percentage of the company. As an owner, you're entitled to some of the company's profits. Stocks can be risky because, even though you're entitled to some of the company's profits, if a company suffers, you also share in the company losses and your stock loses value. However, when you're young, you have much more time to recoup losses you might experience, which is why it makes the most sense to approach stock during your college years. You should put up to 80 percent of your investment money into stocks, according to USA Today. To minimize the risk associated with stock purchase, look for blue-chip stocks. These are stocks from well-established, stable and predictable companies -- Google and Microsoft are just two examples. The trouble with blue-chip stocks is they tend to be pretty expensive. Additionally, to get a good return, you may have to buy many shares -- buying a round lot of 100 shares is standard, says the Askstudent website. If you can't afford this, look to mutual funds. Mutual funds are pools of money from many different investors that go toward a single investment.
Bonds
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If the stock market seems too risky, the next best option is to invest in bonds. Bonds are certificates an organization gives you in return for a small loan -- the amount you spend to purchase the bond. Companies use the loans acquired through bonds to cover operational costs and debts, as well as to fund research and new projects. In return for giving the loan, you get interest. Corporate bonds tend to have higher yields than government bonds. However, government bonds are backed by the United States Treasury, making them slightly safer.
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Savings
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The last real option for college students who want to invest is to put their money in savings. The easiest way to do this is to open an interest-bearing savings account in a bank. However, there also are other options available. For instance, you can get a cash deposit account. A cash deposit, or CD, is like a combination of a bond and savings account. You deposit a set amount into the account, and like a bond, can't withdraw or "cash in" without penalty until a specified amount of time has elapsed. You draw interest on any money in the account. Because of the withdrawal restrictions, CDs are better if you're tempted to dip into your savings or have trouble with spending.
Considerations
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Regardless of how you decide to invest during your college years, think about the liquidity of the investment and your overall financial goals. Liquidity refers to how easily you can pull the money you've invested back out for use. If you have short-term goals, highly liquid investments are the way to go. If you're thinking more long-term -- say, to pay off your mountain of school loans over the next 10 to 20 years -- it's okay to invest in something that isn't as liquid. Also, investments sometimes have extra fees. For instance, you'll need to pay a fee to your broker if you invest in stock. Don't forget these fees when determining the cost of the investment and comparing that cost to the potential return.
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References
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