College students get a lot of experience spending money and building up debt while they learn and plan for their future. However, except for perhaps finance and accounting majors, many students aren't taught how to manage their money.
Saving and investing is an important skill to learn, especially when private college tuition costs have become three times more expensive than they were in 1971. When hearing the term investment, many tend to think of individual stocks, but there are numerous ways for students to begin investing and saving.
"Investing in your early 20s is important because starting investing early makes a huge difference in the growth of your money over the long run," Keith Gamble, a finance professor, said. "Also, habits are enduring, so establishing a habit of saving a little of each paycheck can grow into a sizeable sum over time."
Gamble teaches Finance 330 at DePaul, which covers investment. He also stresses the importance for graduates to invest in a retirement plan, if available, once they are at their first career-oriented positions.
"You should contribute to the retirement plan, particularly if (your employer) has any type of match," Gamble said. "It's literally free money, and you should immediately sign up."
When an employer offers a match, they will contribute a certain percentage of income into the employee's retirement account, called a 401k, every time the employee contributes a certain percentage of their own income. So, a one-to-one match where the employee contributes five percent, will become 10 percent once the employer matches the contribution."
Contributing to a 401k account is a relatively safe way to invest money for the future, but investing in individual stocks are a more "exciting" way to invest because they can merit much greater short-term yields. Juniors Phil Lullo and Brian Moy are students enrolled in DePaul's Driehaus College of Business and have invested in different kinds of stocks for years that have made money as well as failed.
"I started investing as a senior in high school," Lullo said. "My parents gave me $500 to invest with and I ended up tripling my money."
Lullo said he never buys stock in a market he doesn't understand. Before buying a stock, he recommends researching and picking a stock from a market of personal expertise. Once he finds a stock he believes has an upside, he buys it.
"This might sound weird, but I also go with my gut," Lullo said. "One of my most profitable stocks was Nvidia, who make semiconductors and GPUs. The only competitor they have is AMD, and anyone (in the PC gaming field) knows that Nvidia is the way to go. So, I thought that the stock was completely undervalued at $18 (per share). Sure enough, I bought it, and it ended up going to $35."
Although Lullo used his gut, he never invested in a stock without a plan. When he invested in Nvidia, he made a plan to sell when the stock hit $25. When it did hit his target, he sold half and sold the rest along the way up to $35. However, investing in stocks is still somewhat of a gamble even backed by research.
"My biggest loss was when I invested in penny stocks," Lullo said. "I had to sell them all for a loss, (but) I'm still up in total investments."
Penny stocks are stocks valued at less than one dollar, so investors bank on the hope that the company will take off, yielding early investors a high payoff.
Lullo began investing in individual stocks because he wanted to dip his feet into the world of investing so he could better understand the market before he began his career. While Lullo mostly dealt in more dangerous individual stocks, Moy began to put together a diverse portfolio with accounts for both day trading, like Lullo, as well as long-term investments.
"The best advice I can give an investor is stay diverse and do your analysis," Moy said. "Days of continued research is crucially important before investing in any stock. These days, leaving your money in a bank account for small interest return doesn't come close to meeting today's inflation rate."
Moy said he has invested in penny stocks, ETF funds, commodities and blue chip stocks.
Still another way to invest is by using mutual funds. They are one of the best ways to invest for the long term. Investors using mutual funds give their money to invest in a diverse combination of stocks, bonds and other securities. Mutual funds are a more secure solution than individual stocks because if one of the securities has a loss, it does not make as large of an impact because of the diversification of the fund.
"When you start investing, really pay attention to fees, especially when you have a small amount of money like a lot of students probably would," Gamble said. "There are certain brokers that are going to charge you monthly fees unless you are over a certain amount (of money). It doesn't make sense for a student investor that will get charged a $10 trade fee because it would swamp any returns that they could make."
The internet has made investment fees drop immensely. In the 1980s, investing was usually done only by the rich because broker fees were at their highest. Now, with sites like E-Trade that reduced trading fees to minimal fees, and up-and-coming apps like Robinhood, which allows users to trade stocks for free, high fees are mostly a thing of the past. When investing, make sure it is not done on a whim. Keen investing will help secure financial stability for the future.
"Historically, investing in well-diversified stocks or a mutual fund over a long period of time has outperformed all other types of investments," Gamble said. "Usually, people get too caught up in which mutual fund to invest with. The smartest things you can do is diversify and sign up for a retirement plan."