The topic of investing always generates a buzz. After all, who doesn’t wish they could use their existing money to make more money?
But here’s the thing. While the stock market does trend upwards over the long term, if you invest, you will sometimes lose money.
Yep. You heard that right. When the market goes down, your investments tank. So don’t invest cash you expect to need soon.
When you do choose to start your investment adventure, don’t expect to make lots of money in a short amount of time.
You probably won’t find the next Apple when you invest. And even if you do, the amount of money you have to devote probably isn’t enough to create a monster-sized monetary return.
Let’s say you invested $1,000 in Apple at the beginning of October 2009 and bought 37 shares ($26.71/share).
At the end of September 2014, the shares were worth $100.75 each. So you would have made a profit of over $2,700 in five years. A nice round number, right? But hardly enough to retire on.
And this is about as high a return as you could hope for. Most of the time, investing yields far less.
Sometimes.
You shouldn’t start investing as a college student if you’re only doing it to make tons of money. That just isn’t going to happen.
In fact, you shouldn’t invest unless you have a solid emergency fund in the bank. You need cash on hand so you can take care of emergencies and other short-term monetary needs.
Once you’ve got that taken care of, you can start investing—but only to achieve long-term goals. In other words, don’t invest to make spring break money. But if you want to put money away so you can eventually buy a house, or retire in style? Invest away.
Make sure you diversify your portfolio. In other words, don’t put all of your money into one stock or bond, or invest in multiple entities in the same industry. That’s a good way to increase your risk of losing money.
Spreading things around helps prevent you from losing your investment rapidly should the company and/or industry that you’ve invested in collapse.
Plus, if the market trends in the right direction (up), diversifying your portfolio should result in a steady increase over the life of your investment.
Translation? If you keep a diverse portfolio, in the long run, you’ll make money.
Once you get a job, make sure to invest in whatever retirement plan your employer offers. Always. At every job, from your first to your last.
While it may seem strange to set aside money for retirement while you’re in your 20s, the power of compound interest is astounding. It could be your ticket to a comfortable retirement.
For proof, check out this investment calculator. It will show you how your money can grow. Then try it again, this time taking five years off the life of the investment. It’s an easy way to see how much delaying saving for retirement can hurt your eventual return.
To get you started, the IU MoneySmarts Team is here to help you set up your budget and get you to start saving so you can get to investing sooner. Sadly, we are not licensed to provide any specific investment advice, but there are always financial advisors you can contact to help you get started. Good luck!
