Most United States high school graduates immediately enroll in a four-year college or university. Thanks to federal programs that effectively provide the entirety of America’s youth with student loan debt if they so desire it, the country is currently facing a student loan debt crisis of sorts.
Let’s see if investing is a good choice for college students, then provide solid tips to help grow their wealth.
What’s the point of investing?
First, a definition and understanding of capitalism is key to understanding why people invest.
Investopedia defines capitalism as “an economic system in which capital goods are owned by private individuals or businesses. The production of goods and services is based on supply and demand, rather than through central planning.”
Most people are fully aware of what capitalism is, how it works, and its characteristics. However, to understand why people invest, it’s important to understand the point of participating in the economic system North Americans are a part of.
Individuals’ and businesses’ central goal in such an economic system is to accumulate as much wealth as possible.
How do investments play into accumulating as much wealth as humanly possible?
Most United States households, unfortunately, are in debt. Roughly 79 percent of all American households are currently in debt. The United States Federal Reserve Bank indicates that the average indebted household is responsible for $137,000 in debt. Compared to the fact that the median American household income was slightly less than $60,000, it’s easy to ascertain that the United States’ many households are in too much debt!
The average American’s annual interest rate for mortgages is 4.44%, automobile loans are between 4.75% and 8.5%, credit cards are 16.3%, and federal student loans are 3.76%.
The Standard & Poor 500 stock index’s annual return in the past year was just 2.65%.
Does it make sense to invest?
The point of the wealth of information shared above is to make sure readers understand that Americans are far too willing to take on massive amounts of debt. To build one’s personal wealth, paying off outstanding debt is a far better idea than investing in stocks or bonds. Just look at the discrepancies directly above this paragraph – investing in stocks earned a gain of just – on average, that is – 2.65%. Americans with any of the above types of debt lose money by placing their money into investments instead of paying off debt.
College students who have zero debt should unarguably invest.
If you do not have any loans or accumulating debt, investing is a great option for students. However, those with any amount of debt should pay off their debts in full before even thinking about investing.
Finally – some investment tips for college students
Stay away from investment programs like Acorns. Fees charged by Acorns are comparatively high when compared to potential returns. College students are better off investing in mutual funds, so long as they are willing to let their money accumulate interest for several years.
Never ignore fees. Brokerage fees are how exchanges and brokers make their livings. Make sure to crunch numbers ahead of time to determine how much return will actually be generated after fees are subtracted from potential gains.
Seek out student discounts and special offers reserved for college students. This seems like a no-brainer, but far too many forward-thinking college kids overlook this fantastic idea.
Once an investment is placed in stocks, bonds, mutual funds, index funds, or any other financial instrument, never try to play the market. Simply leave money invested in such causes and allow returns to accumulate. Trying to actively beat the system will result in the accumulation of fees en masse and can even result in losing significant shares of capital.