9

I'm a University student (with a University student budget) and I was wondering if it is worth my trouble and my money to invest in the stock system? I don't know much about it, but it seems like a good way to make money. Are there any stocks that are "sure things"?

Basically, I want to know if its worth investing now when I only have about 2000$ in personal money after paying for University.

12

The power of compounding interest and returns is an amazing thing.

Start educating yourself about investing, and do it -- there are great Q&As on this site, numerous books (I recommend "The Intelligent Investor", tools for small investors (like Sharebuilder.com) and other resources out there to get you started.

Your portfolio doesn't need to include every dime you have either. But you do need to develop the discipline to save money -- even if that savings is $20 while you're in school. How you split between cash/deposit account savings and other investment vehicles is a decision that needs to make sense to you.

  • What is this "power of compound interest" you speak of?! I keep hearing about it... xkcd.com/947 – Mehrdad Dec 29 '16 at 5:38
  • @Mehrdad Maybe it is overrated, but I think it still stands. The xkcd comic used 2% which is not great. With 8.31% CAGR of 2007~2017 US Stock Market(not inflation adjusted), it becomes $2,221.7. – user2652379 Oct 5 '18 at 1:25
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For most people, investing in the stock market directly is one of the last things to do. That's not to say you shouldn't, but rather that there are other things to consider as well.

Start with automatic monthly deposits to a liquid account such as savings or money market. The morale boost you get from seeing the balance grow is nearly impossible to beat. Following that, paying down any debts such as student loans or credit cards.

Once you've done that, then you should look at company sponsored 401k plans or IRAs. Sharebuilder offers IRAs holding whichever stock or fund you pick. Again, automatic monthly deposits are the way to go here.

Good luck, and happy investing :)

  • Totally agree... – Fattie Oct 4 '18 at 14:31
5

There isn't really a clear way to answer this question objectively.

I'd offer my opinion that yes it is a good idea. You don't need very much money to start (I began investing on $200).

To answer your second question, no there are never any "sure things."

Instead on focusing on making money, focus on learning how the markets work. Pick a few companies you know (perhaps in an industry you are familiar with) and buy one or two shares at a time. Watch the prices evolve over time and make note of the changes and always ask the question "why did it go up/down".

Good luck.

  • Thanks @Mike G - I'm in the tech field so I'll start looking into that – n0pe Jul 30 '11 at 13:04
  • IMHO, that's a great field to invest in right now. When you get comfortable, consider branching out into related industries (like entertainment [NFLX was great to me 2 years ago]) and even unrelated ones (BWLD was also great to me) to keep things diverse. – Mike G Jul 30 '11 at 13:12
  • 1
    "Buy one or two shares at a time"? The commission costs and the extra per share cost because you are not buying a round lot are going to eat away at the returns. – Dilip Sarwate May 22 '12 at 18:14
3

Investing in the stock market early is a good thing. However, it does have a learning curve, and that curve can, and eventually will, cost you.

One basic rule in investing is that risk and reward are proportional. The greater the reward, the higher the risk that you either (a) won't get the reward, or (b) lose your money instead. Given that, don't invest money you can't afford to lose (you mentioned you're on a student budget).

If you want to start with short but sercure investments, try finding a high-interest savings account or CD. For example, the bank I use has an offer where the first $500 in your account gets ~6% interest - certainly not bad if you only put $500 in the account. Unfortunately, most banks are offering a pittance for savings rates or CDs.

If you're willing to take more risk, you could certainly put money into the stock market. Before you do, I would recommend spending some time learning about how the stock market works, it's flows and ebbs, and how stock valuations work. Don't buy a stock because you hear about it a lot; understand why that stock is being valued as such. Also consider buying index funds (such as SPY) which is like a stock but tracks an entire index. That way if a specific company suddenly drops, you won't be nearly as affected. On the flip side, if only 1 company goes up, but the market goes down, you'll miss out. But consider the odds of having picked that 1 company.

  • "One basic rule in investing is that risk and reward are proportional." - This is not a statement of fact but rather an academic theory. The Markowitz frontier claims that risk/reward are proportional, but many of the world's top investors (Buffett, Klarman, etc) claim that you can get above average returns with a low/moderate level of risk and their investment record can prove it. Your claim is particularly dangerous because people can have different definitions of "risk". – BlackJack Jul 31 '11 at 14:36
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Contrary to most other advise given here, I'd recommend (in your situation) not to invest in stock (yet). There are some 'hidden' cost to investing that will eat your profit and in the end, that's why you are investing. Banks will charge for buying, selling and maintaining stock as well as for cashing dividends. Depending on which bank or intermediary these costs will rise.

So, my advise is to start playing with stock creating a virtual portfolio and track that. Just as duffbeer says, start saving. Also look at my answer here.

2

I say, before investing your real capital into the Stock Market, play around on the virtual stock exchange game. It let's you invest with virtual capital and you can gain experience with the stock market.

I wouldn't start investing in stock until I'm sure I can cover losses though. If you do intend to invest stocks so early in your career, then you should learn how to read SEC filings (not necessary, but helpful in understanding how investors think) such as 8-K/10-K/10-Q documents so you can predict profitability and growth of companies you invest in. Once you become a veteran of the stock market game, you probably won't need to read the SEC filings into too much detail - especially if you have a diverse portfolio.

Good Luck. The one takeaway from this message would probably be: Stop! and play around on virtual stocks before immersing yourself in the real thing.

  • Which game would you suggest? – Dante May 23 '12 at 8:23
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You can start investing with any amount. You can use the ShareBuilder account to purchase "partial" stocks through their automatic investment plan. Usually brokers don't sell parts of stock, and ShareBuilder is the only one allowing it IMHO using its own tricks. What they do basically is buy a stock and then divide it internally among several investors who bought it, while each of the investors doesn't really own it directly. That's perfect for investing small amounts and making first steps in investing.

protected by Chris W. Rea Feb 22 '14 at 13:17

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