Investment Strategies for MBA Students
After leaving home, forming new relationships, and adhering to a schedule are among the major changes college students experience. Given the challenges this new demographic encounters, it is reasonable to assume that investing in financial instruments would be low on their priority list if addressed. However, to their surprise, college can be an excellent investment time. Even with limited funds, individuals can start constructing a portfolio, which may be advantageous as it allows for learning how to invest and deal with potential losses without losing significant capital.
Investing as an MBA student: How to get started
College can be a challenging time, financially speaking, as it can be tough to find the funds for necessities, let alone any extras. Nevertheless, getting started in the investing world does not require significant money. Numerous free or low-cost options are available, enabling individuals to begin with a modest sum of $20 or $30. More significantly, this initial investment helps individuals adopt an investor’s mindset.
The most challenging aspect of investing is transitioning into the investor mindset, whether as a genuine owner of publicly traded firms or as a trader of various cryptocurrencies. It is essential to adopt a long-term mentality toward one’s holdings, analyze market trends periodically, and make decisions that appear to be profitable. It is valuable to learn these lessons when the potential losses are manageable.
Although investing is often seen as an activity for the wealthy, this is untrue. Students should explore ways to use investing to create and secure their financial future, even before starting their careers. Here are seven ways for MBA students to begin investing, ranging from safe options to more daring ones.
1.Begin with a savings account that offers a high-interest rate:
One straightforward method to increase your savings is to start with a high-yield savings account or CDs. These accounts provide interest on deposits at a higher rate than traditional savings or checking accounts offer. This enables you to withdraw at any time while earning a reasonable investment return. In recent years, interest rates for these accounts have increased due to a general rise in interest rates.
Although savers may not view bank products, such as high-yield savings accounts or CDs, as investments, they are. Additionally, they are among the most secure investment options available. CDs offer a fixed interest rate in exchange for a specified investment period, making them an excellent option for holding funds needed on a future date.
For instance, if you have funds earmarked for next year’s tuition fees, you may prefer to keep them in a highly secure account that will not fluctuate with the stock market. In this scenario, a CD is the best choice.
2. Turn to a low-cost or free broker:
Various free or low-cost brokers are available for individuals who want to start investing. Many impressive online brokers, such as Charles Schwab and Fidelity Investments, provide free stock and ETF trades and exceptional educational and research tools to assist you in getting started on your investing journey. These brokers received high ratings for these criteria and are widely recognized for their excellent customer service and user-friendly platforms for investors.
If you want to reduce costs, Robinhood is a great option, especially for college students. Robinhood offers commission-free trading on stocks, options, and cryptocurrency, making it an excellent option for individuals seeking to keep their investment costs to a minimum. Robinhood Gold offers Morningstar research for only $5 per month, making it an excellent choice for those seeking a cost-effective investing platform with an easy-to-use mobile app.
Webull is a choice for investors who are mindful of expenses. Webull, similar to Robinhood, offers commission-free trading, but it also provides additional customer service options and offers retirement accounts, which Robinhood does not.
3. Invest in small amounts every month
Investing small amounts regularly is feasible with commission-free brokers, which can help prevent fees from eating into your capital. By investing even just $20 or $30 a month, you can observe how your money performs in the stock market. Nowadays, some brokers offer the option to buy fractional shares. It’s crucial to begin investing regardless of the current economic situation. Investing your money can increase your motivation to keep an eye on the market and view yourself as an investor. Additionally, investing money will encourage you to research and analyze your portfolio. Even if you’re starting with a small amount, it can be very advantageous.
4. Buy an S&P 500 index fund
A straightforward and efficient method for a new investor to start investing is to invest in an index fund, especially one that follows the Standard & Poor’s 500 index that consists of prominent American corporations, as it owns shares in all the stocks within the index. Since the fund is highly diversified and invests across various industries, it is less volatile than individual stocks and typically offers more stable returns. Moreover, investing in an index fund requires less knowledge as buying one is equivalent to buying the market, and it is the recommended investment strategy for most investors, as advised by the renowned billionaire investor Warren Buffett.
5. Register for a robo-advisor
This article suggests using a robo-advisor as an alternative to investing in individual stocks or index funds. A robo-advisor can create a personalized investment portfolio based on your preferences and timeline. It’s a suitable option for beginners with limited funds, as you can get started with as little as $20 and add money in small increments without extra charges.
Robo-advisors typically charge a percentage of your total assets annually, often around 0.25 per cent. Some may waive this fee for smaller accounts. Two popular robo-advisors that offer this price point are Wealthfront and Betterment. While you may not pay additional fees to the advisor, there may be fees based on your investment funds. In addition, Robo-advisors may offer additional benefits such as attractive interest rates on cash accounts and the flexibility to access your funds anytime.
6. Turn to an investing app
Investing can be made simpler with the use of investment apps. One such app is Stash, which allows users to buy individual stocks or ETFs. You can start investing with just $5 on Stash, an investing app that charges a $3 monthly fee for an entry-level account. Another user-friendly app called Acorns links to your debit or credit card rounds up your purchases to the nearest dollar, and invests the difference in an ETF portfolio. Acorns has two membership options: a core all-in-one membership for $3 a month and a family version for $5. For those who have yet to become comfortable investing with actual money, free virtual trading platforms are available to practice buying and selling without any risk of loss.
7. Open an IRA
If you’re a college student earning money with a job, consider opening an IRA, despite it seeming premature. This account type permits you to delay taxation on all gains and earnings and subtract contributions from your taxable income, leading to tax savings. Starting early in a tax-advantaged account can also maximize the benefits of compound interest.
A Roth IRA, in particular, can be beneficial. Even though you use funds already taxed to contribute to this account, you won’t be taxed on the money you withdraw from it when you retire. Investing in a Roth IRA while in college, when your income tax rate is likely low, can help you avoid a higher tax bill later. Similar to a traditional IRA, investments can compound tax-free in a Roth IRA.
Opening an IRA as a college student can be a simple way to start investing for your future.
In summary, the key message for college students interested in investing is to take action now. The earlier you begin, the sooner you can learn about the market and plan for your financial future. It’s wise to start with small amounts of money and gradually build your portfolio and knowledge. However, it’s crucial to avoid the risk of putting all your money in one stock or asset class, which can lead to significant losses during a downturn. As volatility is common in most investments, learning how to manage emotions that arise from it is an essential part of the learning process.
Author Bio: Mark Edmonds is a finance expert working at Academic Assignments, a platform providing students with MBA assignment help. With years of experience in the finance industry, Mark is an investment strategies expert and provides students with finance assignment help. He is passionate about sharing his knowledge and expertise to help students succeed academically and professionally.