College can be an exciting time, filled with new experiences and personal growth. But amid the fun and academic pressure, it is also a valuable time to begin thinking about your financial future. The earlier you begin saving and investing, the better you will be in the long run. Even as a student, there are simple and effective strategies that can be utilized to build wealth, while avoiding unnecessary risk. Unfortunately, Dan Bragiel, a student at Indiana State University learned the hard way. He lost a significant amount of money he had saved up by investing in “meme-coin” cryptocurrencies (these are incredibly risky, unregulated, and often fraudulent in nature). He described his losses by saying, “my money went into the wind, it was like blowing salt off your hand.” As is common with many students who have saved money, whether it be from an internship, summer jobs or recent graduates who are now in the workforce, Dan is not certain on how to invest strategically. In reference to his past misfortune, he told me, “Ever since then I have laid off the crypto's, but I don’t really have a good idea of what to do now”. Well, worry no longer, because I have compiled a list of five recommendations a college student can utilize to begin saving and investing for a better financial future.

Recommendation 1: Growth Investments

Before diving into the specifics, it is important to understand the concept of growth investments. Growth investments are stocks in companies who typically reinvest their earnings back into the company to fuel expansion, rather than paying dividends. By doing so, the aim is to increase its share value over time.

Why Focus on Growth?

As a college student, you possess one of the most powerful advantages when it comes to investing... time! The longer your money is invested, the more opportunity it has to grow, and the more you can compound your returns. Compounding allows your earnings to generate additional earnings over time, leading to exponential growth in your investments. For example, an investor who starts at age 20 will accumulate significantly more wealth than someone who starts at 30—even if they both contribute the same amount over time.

However, growth investments typically come with higher risks, especially in the short term. But that is not necessarily a bad thing. According to Mclean Asset Management, younger investors with longer timelines to retirement are generally encouraged to take more risk in their portfolios since they have plenty of time to recover from market downturns.  Todd Oberle, Portfolio Manager with Insight Investments out of Stateline, Nevada put it this way, “College-age students have the tremendous benefit of time. So, when looking at the landscape of available investments for that time horizon it would be a mistake not to focus on growth instead of income for their long-term savings. This means owning stock in growth companies both here in the U.S. and internationally. I would say it is a greater long-term risk to not allocate a high percentage of your portfolio to this asset class when you are young.”

Stocks are a superior long-term investment compared to bonds

Stocks typically offer a higher potential for portfolio growth compared to bonds. This is because stocks represent ownership in a company, and as that company grows, so does the value of your investment. While stocks can be volatile in the short run, young investors can tolerate this risk as they have time to ride out short-term market fluctuations. According to Wood Gundy advisors the average real returns per year from equities (stocks) were 3.6 times higher than those of bonds, and over any 15-year or 20-year period, stocks outperformed bonds 100% of the time. For college students, the choice is clear.

Recommendation 2: ETFs/Index Funds

For most college students, individual stock picking can be challenging and often risky. Fortunately, ETFs and index funds make for a simpler way to get involved. As Todd Oberle explains, "Exchange Traded Funds, known as ETFs, have become an easy way to get diversified exposure to a variety of growth public companies with a single investment.  For instance, SPY is an ETF that represents the S&P 500 Index. You can also buy ETFs that focus on specific sectors like technology, healthcare, financials and many more." ETFs are essentially baskets of stocks that trade on stock exchanges. Similarly, index funds are mutual funds that also track a specific index such as the S&P 500. Index funds have little, or no management fees compared to actively managed mutual funds, and like ETFs, give you exposure to a wide range of sectors while spreading risk. According to the Corporate Finance Institute, ETFs of the technology and healthcare sector have had significant growth over the last decade.  

Why are ETFs/Index funds ideal for College Students

Madelen Betbadal, Private Client Advisor at Chase Bank of Carol Stream, advises ETFs and index funds to college students for three reasons. First, these funds give you exposure to a wide range of companies and sectors, which lowers the risk of investing in a single stock. Second, index funds and ETFs typically have lower management fees than actively managed funds, which is beneficial for a student with minimal contributions. And last, since you are still young, these types of funds give you a good chance to earn more consistent returns over the long term.