Dip Your Toes Into Investing This Summer
Tuesday, May 4, 2010 by Shep McAllister 
Despite this picture, the economy is starting to look bullish. Photo courtesy of Flickr user LonePlacebo and licensed under CC BY-SA 2.0With the economy starting to recover, now is a perfect time to start learning about investing, and that free time you have over the summer is a great opportunity to get started.
First you will need to open Dividend Reinvestment Plan (DRP). You probably see ads for lots of these on TV (E*Trade, TD Ameritrade, etc). Personally I'd go with Sharebuilder because it doesn't require a minimum deposit to get started (these can run upwards of $500, ouch!).
Now the safest place to invest your hard-earned summer internship money would be in a mutual fund, US Treasury bond or something equally boring, and I'm not telling you not to (technically I already have a 401k, though I didn't set it up myself). That said, this is a summer project, and it should be fun.
First, do some research. See what companies are out there that you like which have fairly low stock prices. Do a quick Google search for "penny stocks" and you can find information about thousands of companies whose stock prices are $1 or less. Approach the situation like you would a night at the casino. You know there's a good chance you'll lose money, but you're going to have fun anyway.
Invest some nominal amount in a couple of these companies you like the looks of, and see what happens. The real beauty is that you don't have to be an Econ major to do this (though taking an intro to macroeconomics course is a great idea for anybody). Is your goal in life to have your face molded in a block of cheddar cheese? Find a company that does that and invest $50 in them. Worst case scenario; you lose $50. Best case scenario; LeBron James becomes a fan of face-cheese sculpting and endorses your company, making you fairly wealthy in the process. The big thing you have to watch out for is the trading fee. Usually you'll pay about $10 to buy stock and $10 to sell stock, so plan carefully to keep your trades to a minimum.
The point isn't to make a ton of money, it's to have fun and learn a little about what makes our economy tick.
Do you invest as a college student? Share your stories in the comments!
Reader Comments (14)
What do you recommend for people living outside the USA?
I am very interested in buying stocks, mainly because when I graduate college, it will be nice to know that I have been investing and can possibly profit a little out of it. It seems like a good thing to have my hand into, especially since most of my savings accounts and checking accounts have a much smaller interest rate than those of many stocks. I have noticed from my past research that you have to be savvy to know which sites to pick that you put the least amount of your money into the site rather than into the stock your buying. As you mentioned, sometimes there's a minimum you must spend, or you get a fee each time you trade.
This is terrible advice. Essentially you are advising students to start gambling with their summer internship money. That's not the way to approach saving for retirement or the stock market, and most students will get crushed by people on the other side of the transaction, who in all likelihood know more than they do. The fees will eat students with funds in the hundreds or low thousands of dollars alive.
People who don't know anything about the stock market would be well advised 1. to stay away, 2. to buy Treasury Inflation Protected Securities for the long term or 3. buy index funds (called ETF's) for the long term (a good start would be PCRDX, which is composed of over 30,000 different securities). Buying and selling stuff you see on Jim Cramer is a fool's game. Yes, this is "boring," but by definition if you are maximizing portfolio value for minimum risk, your daily portfolio value should not resemble the hills and valleys of a rollercoaster.
If you're interested in saving and investing your summer internship money, that's admirable; even small savings now will make a large impact when you retire 40-50 years from now, and the earlier you start, the better. I'd suggest you start by reading this interview with Less Antman, a financial planner. Less Antman's website, simplyrich.com, is also valuable; ignore the ugly formatting. He recommends that college students diversify around the world through ETF's, and hold for the long term. If books are your thing, try Ben Graham's The Intelligent Investor, or Burton Malkiel's A Random Walk Down Wall Street.
I'm not advocating throwing all of your money into penny stocks, obviously. All I'm saying is that is you have $50-$100 that you would normally just spend on beer anyway, a fun way to use it would be to play the market and see what happens. Now investing in safer long-term options is a great idea if you have the initiative, but it's probably not a very exciting "summer project" post :)
Kevin. You should submit a guest column about investing in securities and index funds as a college student, it sounds like you have a lot of great advice to share.
I always wanted to start or join an investment club. That might be a great summer goal.
@Kevin
Kevin great advice about ETFs, but Shep has a fair point at age most of us can put our investment capital in slightly higher risk stocks, generally you would move to less and less riskier stocks the older you get. Investing 50-100 or even a couple hundred dollars in stocks that you have researched well won't hurt. I wouldn't mind losing 50-100 bucks on an investment at this age. You are correct in saying that total market funds provide a consistent and safe return but the downside to many of these is that a high startup capital is required, I am invested in a Vanguard fund, but I had to put in a minimum starting investment of $3,000, which is not feasible for most college students.
I would suggest that students diversify their portfolio's, I agree when you state that it is stupid to listen to advice from people such as Jim Kramer. Students should research a few small emerging companies or markets and invest small amounts of capital in them. I would say that at this age most students should be able to invest 20-25% of their investment capital into slightly riskier stocks, and maybe another 25% in very low risk investments such as inflation protected securities. The remainder it would be smart to spread across blue chip companies in various sectors.
Investing isn't supposed to be safe, it is a gamble. So don't invest anything you can't afford to loose. Also as far as safe investing, well you'll never make money with safe bets. I started with $100 and turned it into $2000 and well then on from there. Find companies that are on sale, but not going to go out of business. They will eventually bounce back. Like for example when GE was a couple dollars a share, you knew they were gonna come back, they are now at $17 a share.
This is not very good advice, as several people have mentioned before. Why not just go play poker with your money, where a limited amount of information can actually earn you some money? Treating investing like gambling is a sure way to lose your money. I write a weekly column at the Undergraduate Investor, and post the ideas pitched at our largest investment club on campus. Feel free to check it out for some researched ideas with analysis included so you can form your own opinion.
Really great advice :)
I agree with Shep, "gambling" with a small amount is good way to spend your money to learn something than spend it on a case of beer. I think what Shep is trying to tell is experiencing how to handle your money on stocks can give you an idea how the people in the stock market operates.
Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in form of interest, income, or appreciation of the value of the instrument.[1] It is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance no matter for households.
I was looking for such post.I would like to read more about this topic.
Your article is great for those who are planning for their futures. The earlier the better. Although the market is still volitile, studying it, getting your feet wet, and ETF's are great. Shop
wisely. Get educated. This blog is very informative. Will pass on the link!
Cheers guys, and nice post. For those of you that want to get more serious about stock trading you could get some experience by trying different simulators. One of the is Investopedia, and the other is Google Finance. I've been using these since grade 9, currently grade 12, and i've been playing with these portfolios all this time. Last semester I had a portfolio on Google Finance that made 149% return. All stocks for that portfolio were bought pretty much a year ago, after a week or two of research. As soon as I'll turn 18, and I'll get into real investing, I will know that I will have a somewhat solid background