Many of us think about investment as a pipeline dream. Something that’s not achievable for the average student. The stereotype of an investor is someone who is rich, 60 years+ and someone who is better informed than the rest of us when it comes to making their money grow. But this is an outdated idea, and really, there is no better time to start capitalizing on the market than when you are at college. If the idea of investing interests you and you want to make a head start on your journey to achieving financial security, there are a few things to consider.
Do Your Research
Many successful stockholders will tell you that the most important aspect of successful investing is research. As we’ll discuss below, risk is a major factor in protecting yourself, and a solid understanding of the market is crucial to reducing that risk. You can make smaller investments as a way of learning and testing the market and different strategies. To start out, you can buy penny stocks, which typically cost less than $5 per share. Find a penny stocks list online and explore the options that are listed. With small stakes, you can risk a small about of money and learn invaluable information about premarket data, aftermarket prices and market movers.
Learn About Risk & Risk Management
But before you begin to hunt around for the best places to put your money, it is worth thinking about what kind of investor you will be. Some investments can be highly lucrative but often come with high risk factors. There are also those that will earn you a more moderate income with less risk attached. Learning about the different types of risk is key if you want to be successful. Liquidity, inflation, horizon, credit, market and concentration risk are just some of the areas you’ll have to explore. You must also think about the different levels of risk; do you know the difference between mild, moderate, elevated, severe and extreme risk? If not, it’s essential that you educate yourself on the factors that distinguish one from the next.
Diversity Is Fundamental
One way to limit your risk is to diversify your portfolio. Not sure what a diversified portfolio is and why it is so fundamental? A combination of various assets that earn the highest return for the least risk, a diversified portfolio normally features a mix of fixed income, stocks and commodities. Having this kind of diversification is important because assets react differently to shifts in the market and, because your assets won’t correlate with each other, you’ll minimize your overall risk.
Getting some professional insight into diversification and how it could help you to maximize your ROI is a smart move. You’ll get to know more about low-risk CDs (certification of deposits), S&P 500 index funds, penny stocks and opening an IRA. Remember, you’re still in college and putting the time in now to learn about the market and how to invest could be the differentiating factor in your success as an investor once you graduate.