How to Start Investing After College

Recent college graduates face many important decisions, including how to invest after college. Consider this important transition time as a reminder to review your investment strategies. Or, if you do not have a long-term financial plan, take this opportunity to create one. As with all financial matters, what works for someone else may not work for you. Speak with a professional financial advisor about your personal situation when making decisions about investment after college.

Investing for College Students

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  • How should I invest my money after college?

    Invest in a 401(k) and a traditional or Roth IRA. Experts also suggest that recent grads should expand or start a personal emergency fund if they do not currently have one.

  • How do I start investing with little money?

    Consider a micro-investment app, like Acorns, which automates and manages small investments. Options also include buying fractional shares of stocks or an investment portfolio run by robo-advisors.

  • What are the different types of investments?

    Investment products include stocks, bonds, mutual funds, and insurance-related products, like variable annuities. Potential for risk and return varies among these options.

  • Which investments give the best returns?

    Investment products with good returns include high-yield savings accounts, individual stocks, mutual funds, and cryptocurrency.

Evaluate Your Finances

Begin your investment strategy by developing an accurate picture of your finances.

Capturing an accurate financial picture starts with building a budget. Tracking your spending habits helps you identify ways to save money. If you have not made or followed a budget before, start now. Budgets provide you with essential information to help you meet your investment goals.

Budgeting starts with calculating your income and expenses, leaving room for the unexpected. Include all of your income sources, including salary and side hustles. Review the last several months, or even year, to identify spending patterns. And remember to factor in all your expenses: rent, groceries, health insurance, transportation, and entertainment. Include debt, like student loans and credit cards, in your budget analysis.

Financial experts recommend the 50/30/20 approach to budgeting. This approach suggests spending 50% of your income on essentials, like housing and food, 30% on discretionary purchases, and saving or investing the remaining 20%.

Finally, Experian, one of the three major credit reporting agencies in the U.S., suggests seeking free nonprofit financial counseling if you face significant debt or difficulty in creating a sustainable, balanced budget.

Set Goals for Yourself

Start the journey toward a good financial future by identifying short- and long-term goals.

Short-term goals may include paying off student loans or debt, building an emergency fund, or saving money to pursue more education. Long-term goals typically include buying a house or saving for retirement.

In addition, take advantage of opportunities to improve your finances and incorporate them into your goals. For example, try to contribute the maximum amount to your 401(k). This will allow you to fully capture your employer’s matching contribution. Some employers offer tuition assistance, which can significantly reduce the cost of additional education. Also, remember to incorporate monetary gifts from family or unexpected windfalls, such as a tax refund from family, into your retirement planning.

Many students who just finished college feel forced to limit their financial goals. For example, should you pay off student loans or save for buying a home? Each approach offers pros and cons. But with the right approach, financial experts say you can pursue simultaneous savings strategies.

Your saving and investment strategies will vary depending on whether you consider long-term or short-term goals more important. Regardless of your priorities, it is better to start sooner rather than later.

Plan Your Investment Strategy

With so many options and strategies available, the world of investing can seem overwhelming. Below, we offer some high-level financial industry basics explained in plain language.

Investment accounts, like 401(k)s or Individual Retirement Accounts, better known as IRAs, contain money, stocks, or bonds held by a financial institution. These types of accounts best serve long-term financial goals. Employers match all or some of their employees’ contributions to a 401(k). IRAs offer specific tax advantages. They also allow individuals to save and invest in a tax friendly way.

Your investment strategy may also include trading or investing in the stock market. Trading is a short-term approach, with the goal of maximizing profit over a few weeks or months. Investing, however, serves as a more long-term strategy. Investors tend to feel more comfortable with short-term market fluctuations.

Investments with higher potential returns also have higher risk premiums. A balanced asset mix typically comprises stocks, bonds, and cash. The cash component, in turn, may include money market funds, certificates of deposit, and savings accounts. A diversified financial portfolio reduces risk. However, lower risk often means less return on an investment.

Other types of investment vehicles include high-yield savings accounts and certificates of deposit. Typically considered low risk, low return investment strategies require minimal management.

Cryptocurrencies, like Bitcoin, have emerged in recent years as another type of investment. No central bank or entity controls cryptocurrency. Cryptocurrency investments can generate good returns. But, as an emerging technology, it also poses a potentially high risk investment. The Motley Fool reports that investors in crypto “should expect venture capital-like outcomes in which the vast majority of crypto projects fail and become worthless.”

Recent college graduates should also consider the cost of their time spent managing their investments. Institutional investors usually manage mutual funds and hedge funds on behalf of many clients. This service reduces some of the responsibility of directly managing your health and wealth of investments.

Begin Investing

After creating and vetting a strategy, get ready to make your initial investments. Start by automating your contributions to savings and investment accounts. Doing this will make saving an easy, positive aspect of your short- and long-term financial plan. Some brokers cater specifically to recent grads and new investors. Most low-cost brokers operate through online platforms or digital apps.

Robo-advisors require even less engagement. Users submit basic information, like how much risk they are willing to accept, the amount of return on investment they expect, and the timeframe of when they want the money. The robo-advisor uses that information and algorithms to create and manage a diversified investment portfolio.

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Nate Delesline III

Nate Delesline III is a Virginia-based writer covering higher education. He has more than a decade of experience as a newspaper journalist covering public safety, local government, business, transportation, and K-12 and higher education.

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