With Whit

How to Invest in Stocks as a Student

December 28, 2017 Comments Off on How to Invest in Stocks as a Student

For anyone who is new to stock trading and is unsure of how you can make money by investing in them, here is a simple rundown: If you buy 100 shares of stock XYZ at $10 each for a total of $1,000, you now own a small share of XYZ. As the market fluctuates, and the value of the company goes up and down, your share of the company can either increase or decrease in value. For instance, if XYZ increases 50% and is now selling for $15 per share instead of $10, you make $5 per share you own. Now, instead of your 100 shares being worth $1,000, they are worth $1,500. This gives you a total profit of $500. Make sense?

DISCLAIMER: I am not a financial expert, nor do I have any formal education on investing or finance. The following post contains my personal tips that I’ve found helpful through my experience with ETF’s and stocks. I am not affiliated with any companies listed below.

Have you heard of Wall Street and the New York Stock Exchange? If so, you’ve probably heard about them in reference to an American History course, or a news anchor rattling off a barrage of numbers for NASDAQ. If you are new to trading stocks, getting involved can be intimidating and overwhelming. Believe me, if you save and manage your money, trading stocks can be an incredibly exciting and worthwhile investment. But you have to play it smart.

Trading stocks and investing in mutual funds are the best ways to make your hard earned money work for you, but these investments will not provide immediate gratification. What does this mean? Well, it means that, in a few month’s time, after you put money into a fund, it has the potential to grow exponentially with minimal extra effort on your part!

Whether you are a high school student or nearing college graduation, it is never too early to get involved in the stock market. If you look 10 years into the future and think of all the money you can accumulate through smart investments, you will not regret the small amounts of money put aside each paycheck for stock.

Here are some tips and tricks that I’ve discovered to help maximize your earnings when starting off as an investor!

 

Related post:

 

Find a good online broker (bank to trade stocks)

There are several different banks that allow for online stock trading. You could do hundreds of hours of research on which bank is best suited for you, but why waste your time when NerdWallet has done it for you? Each bank will have its own special signup offers and commission rates, but ultimately, which broker you choose won’t drastically effect your stock selection or potential earnings as a beginner.

Personally, I use TD Ameritrade because their online interface and mobile app are simple to use and easy to understand, and their selection of stocks to invest in is, to my mind, limitless. All you have to do is sign up online and voila! You have access to the stock trade with no account minimum. Keep in mind that TD Ameritrade charges $6.95 per transaction (buying or selling stocks).

 

Save at least 20% of your paycheck

As a student, I know how hard it can be save your hard earned money instead of spending it on new clothes or a night out. After all, that’s the whole reason you decided to pick up a part time job, right? Think of your future! Saving your money instead of spending it on that new sweater will be worthwhile! Obviously, you are not limited to saving only 20% from your paycheck or stashing away only money from your paycheck, but saving approximately 20% of your income will add up quickly without eating into your spending money too much.

If you are 18 and have your own bank account, the easiest way to put aside this 20% is to open another account under your name and transfer money into a separate account after each paycheck. Here is an example of my separate bank accounts! My account numbers and balances are blanked out for security.

I use Bank of America, but this can be done under any bank. When I get my paycheck each week, my money is deposited into my BofA Core Checking account. Immediately, I transfer 20% of it to the “DO NOT TOUCH” account. Once I’ve saved up approximately $1,000, I transfer it into TD Ameritrade to invest!

 

Do your research!

Researching the companies you’re interested in is THE single most important thing you can do when you’re beginning to trade stocks. Simply googling a company that you want to invest in can give you myriads of useful information. Some questions that you want to keep in mind before investing are:

  • Does the CEO of this company seem competent and reliable?
  • What is the stock’s 6 month history?
  • Who is this company partnered with?
  • How does the current economy affect this company’s performance?
  • Is this company looking to expand? Domestically? Internationally?
  • Does this company have an international influence? If so, where?
  • Is this company somehow involved in the tech industry?

If you look on the website or download the mobile app for the online broker you select, there are free news articles from investment firms for every stock open for trading. Reading these can give you an idea of how the company’s performance is and what partnerships are forming between that company and others.

Just because you follow the performance of one stock for a week and see its numbers have a sudden increase does NOT  mean it is a good investment! Take the time to read up on each company you’re interested in to make sure that your money will grow.

 

Focus on stocks outside of FAANG (Facebook, Apple, Amazon, Netflix, Google)

One of the hardest parts of investing in stocks is finding good ones to buy. Ideally, everyone would like to find the “new Apple” or “new Netflix” in its beginning stages to invest in before it becomes an intangible behemoth of a company. Unfortunately, when companies are in their beginning stages, they don’t make headlines like the bigger, more established ones. However, it is not impossible to find these companies!

Reading up on the news where bigger stocks are mentioned, or subscribing to financial magazines such as Money, The Economist, Barron’s, and Bloomberg Business Week (to name a few of my favorites) can help expand your knowledge about what stocks are available to trade. Read through one or two financial magazines, take note of stocks that pique your interest, and do your research on them to make sure they sound like a reputable company.

There is nothing wrong with wanting to invest in any of the FAANG stocks. Admittedly, I am a shareholder of Netflix and Apple. These companies are very influential in the tech industry, and investing in them could yield a substantial profit. However, it is important to be patient when thinking about investing in FAANG. The worst possible scenario is investing in one of these stocks at its highest price and then having it drop.

Be Patient.

Deja vu! Didn’t I just say this?

I cannot emphasize this point enough. Unless you are a risky investor, stocks are not a tactic to “get rich quick”. Yes, there are such things as short sellers, and, yes, people do make lots of money by doing this, but there is no stability with short selling (at least, not on a student’s budget).

Instead of stressing about individual stocks and the cents that they’re gaining or losing, focus on the trends of the market and how the current news may affect each industry. I recommend waiting at least a week after following and researching a company before investing in it!

Trading stocks is a game best played by those who are willing to wait.

 

Become obsessed with trading stocks

Think back to something you were passionate about. How much time did you invest to pursue this passion? Because you spent so much time doing it, were you successful in what you were trying to achieve? In my experience, success with the stock market relies somewhat on how involved you are with it. Think about it. The more passionate you are about trading stock, the more you will want to read and research, which in turn will lead to well thought out investments! It is also worthwhile to spend the time to familiarize yourself with the website and mobile app of the online broker you choose to use. That way, you can research, buy, and sell stocks without frustration. If you are the least bit tech savvy, navigating these online broker websites and apps are not difficult. Like anything, it just takes time to learn.

 

Stay up to date

Have you heard of stock market predictors? With one publication or one newscast, it seems like they can control the market and influence a stock’s success. Well, to some degree this is true.

If you think about stocks and how they rise and fall, they generally do so according to influxes of investors buying and selling their shares of that company. If any financial investor or financial magazine with any clout publishes news that they believe XYZ stock will quadruple in price in the next month, then guess what. You’ll most likely see that stock increase in the next month, and you should invest in it before it quadruples!

The same is true for the contrary; if news gets out that a stock market predictor believes XYZ is not worth the hype and will drop in value, people will sell their stock and the value will drop!

Market predictions from financial advisors can be published or broadcasted at any time. If you stay up to date with the news and claims made by influential financial advisors, it will tremendously help you understand why the market may be fluctuating so rapidly.

 

Set a limit and stick to it

Greed will determine whether you are a successful or unsuccessful investor. Just because your stocks are up one day does NOT mean that they will continue to increase in value. They could decrease at any given time, and if you don’t cash out before that stock’s downfall, then guess what? You’re going down with it. And all your money.

The best way to avoid losing money after you’ve invested in stocks is to set a limit of how high you’re willing to let the stock’s value increase before selling it. Be realistic. If you invest in one of the FAANG stocks at the height of its value, it is likely that its value will not increase exponentially, so you need to take that into account when setting a limit of when to sell.

If you invest in a smaller company that has not grown much yet, it’s OK to set a limit of when to sell after you’ve had the stock for a bit. For instance, most recently, I invested in ROKU. ROKU has a history of being extremely volatile (changes rapidly) and popular amongst short sellers. So, after buying ROKU at $44 per share, I set a limit to sell all of my shares once ROKU’s value hit $50. And I did! With 55 shares and an increase of $6 per share, I made a total profit of about $315! (after deducting the $6.95 transaction fees to buy and sell). Although the stock continued to increase in value after I sold it, I still have no regrets about selling it at $50 per share because I still got $300 profit from it.

***

If you are considering investing in stocks, there is no better time to do so than the present! Seriously, once you get comfortable with researching stocks, begin investing, and start seeing returns on your money, you will not regret delving in.

In this past year, I have grown my portfolio over 300% just through profits alone, and my account went from having 4 figures to 5. This does not include the extra savings that I added after I’d begun trading stock. I sound like a broken record, but I will reiterate: taking the time to invest in stocks NOW as a student is totally worth it! Take the time and make the effort to invest in your future finances. You will not regret it.

RELATED POSTS