By Fred Chang - UPenn
If you’re like me, you are an opportunist, and are always looking to accomplish something productive. Unlike the stereotypical student, I don’t find much satisfaction in spending all of my money immediately on new clothes or electronics.As a result, I spent my summer paycheck in an unconventional way. Rather than buy a new Play Station, I invested around 80% of my $1,200 paycheck and opened a checking account with the remaining 20%. It has been a learning process–I admit, I’ve stumbled a few times. I had to self-educate myself on financial terms such as “market capitalization” and “exchange traded fund” and worked to help create the NextGenVest Course on Investing 101.
If you are reading this article, hopefully you are a newbie to the investing world (just like I was) and are looking for some tips on how to invest. Below are some tips based on my personal experience on how you can get started on investing early and efficiently!
Open a Custodial Account
No matter how mature you think you are, if you’re a minor (under 18), you can’t just own a regular trading account. You have to open what is called a custodial account (with the help of a parent). In this account, you legally own the money within the account but are under the supervision of a registered adult. The purpose of these accounts are usually for education because, let's face it, with a student's paycheck, you won’t be rolling in the big bucks quite yet! Personally, I use E*Trade but you can get started on any brokerage firm that provides this type of account.
Do Your Due Diligence
Now that you’ve got an account, you are finally open to the financial world of trading. One thing you must always remember is that you are dealing with REAL money. This isn’t one of those virtual stock-market games. The key here is researching stable companies that you think have potential to grow in different industries - Google Finance, The Wall Street Journal, and Stocktwits are all great resources to look up specific companies. If you want to be a good investor, you’ll spend the majority of your time in this step.
So, you’ve learned some new terms, and now you can make solid judgments on publically traded companies. The biggest factor here is to be your own investor. I never read those articles labeled “Top 5 Stocks Billionaires Love”. I find them shady and unreliable. You should trade in companies you truly believe in. For example, if I strongly believe that the production of plastic cups hurts the environment, I won’t invest in a plastic cup company. One thing to keep in mind is that usually there is a trading commission charged for transactions. For example, E*Trade has a $10 commission for each trade, so essentially, you need to make $20 (buying and selling transactions) off the stock to get your money back. PRO-Tip: The Robinhood app has $0 commission and the Acorns app invests small amounts of all your transactions pasively so you don't have to think about it.
Keep Your Cool!
After you’ve made your first purchases of stock, all you can do is wait. With these small cash dealings, there is no sense in day-trading and trying to make a “quick-buck” because you will end up wasting a lot of money in commissions. Keep track of your stocks daily on an app, just to know how they are doing. The biggest thing I can stress in this process is to not freak out if a stock drops a large percentage. The tendency is to sell that stock immediately since the terrifying red, negative color incites fear that you are losing money. Many people buy on good days and sell on bad days, which is NOT what you want to do.
After a few months, it’s more than likely that there will be at least modest gain in your portfolio. Don’t be greedy. When you’ve gained enough money so that selling the stock with the commission will still lay you out comfortably on the positive green side, sell it! This goes the same for losses. If a stock just has not been working out for you, cut your losses and move on. Don’t mope over it and keep holding onto it if it has proven to be unreliable.This strategy has proven to work for me and has allowed me to learn and experience new things regarding investing. If you follow the principles of this guide and invest some time to learning the terms of the financial world, then investing at a young age will prove to be extremely beneficial. As I discussed, time is the largest factor, and at this young age we all have the largest amount of time to watch our investments grow!
Want to help other students be smart about college, money, and careers? Text NextGenVest at 646-798-1745 saying "Hi my name is X and I would like to get involved.”