If you are in college, and contemplating beginning an investment account, you should know the 5 best investments for college students. Starting to invest at an early age can provide substantial financial security in the future, especially if those early investments are appropriate. The best investments for college students contain a mix of safe, liquid investments along with longer-term riskier investments whose potential for return is greater.
- Mutual Funds. As a college student, your time is dominated by sports, study, and socializing. Typical college students do not have the expertise or the time to properly manage their own investments. An excellent strategy is to invest in mutual funds, each of which has a fund manager whose full-time job is to improve the performance of that fund. These fund managers have more know-how, more time, and more expertise at investing and will likely do a better job at managing money than beginning investing college students. Mutual funds remain one of the best investments for college students.
- Highly rated corporate bonds. A portion of every college student’s portfolio should contain safe investments that provide an adequate return. Upon graduation, most college students will have an immediate need for cash to set up new living quarters, settle in to a new job, and even buy a car for transportation. While a college student, socking some investment money away in safe investments, such as highly rated corporate bonds, will protect that principal for use when it is needed in the near future. A portfolio of bonds is an even better idea; either create your own or find a mutual fund that has already done the work for you.
- Stock Index Fund. Equally as important as maintaining a short-term safe place to put money that will be needed soon is establishing longer-term investments for growth. A college student’s investment horizon is indeed very long – possibly verging on 80, 90, or even 100 years. Historically, the best regular returns come from a buy and hold strategy in the equity (stock) market. An excellent place to begin investing in equities is to find a stock index fund. A stock index fund is just a mutual fund whose composition mimics that of a certain stock index such as the S&P 500. The fund’s performance typically matches the performance of the fund as a whole.
- Life Insurance. Life Insurance is often ignored by the young, especially college students. Life insurance established at a young age has time to grow in value, provide safe returns, and be a safety net should the unthinkable happen. Life insurance bought while young is also significantly cheaper than when bought when older and health conditions have set in.
- Roth IRA. The Roth IRA should be the starting point for any college investor. Although not an investment per se, the Roth IRA gives a college student a place to house long-term investments for retirement. Establishing a Roth IRA while in college, and even contributing just a little bit each year, has the potential to reap substantial rewards when it comes time to retire. Establishing an IRA is one of the best investments for college students – and investment in the future.