Students can benefit from investing early


In high school, we might have learned the bare minimum about personal finance — perhaps how to make out a check or create a budget. But sadly, not many of us learned the basics of investment.

With all the horror stories circulating about vanishing 401Ks and retirement pensions, it is wise that we, as college students, take investment education into our own hands and learn how to cultivate million-dollar nest eggs.

There are many different avenues of investment — bonds, treasury funds, mutual funds, venture capital — but a good place to start is by building a stock portfolio.

Investing in the stock market is risky, but there is  potential for high returns, particularly for those who have a long-term investment strategy.

If you begin investing in college, you will have time on your side. Compounding is that phenomenon in which a sum of money grows exponentially by a process of interest and reinvestment. The earlier you begin investing, the less money you’ll need to part with to achieve the same return as someone who begins investing later in life.

Larry Swedroe illustrated this in his book, The Only Guide to a Winning Investment Strategy You’ll Ever Need.

In essence, Swedroe says that a student at age 25 who invests $5,000 annually for the next 10 years will, assuming a 10 percent annual compound rate of return, have generated a portfolio of $1.4 million by age 65.

On the other hand, an adult who waits until age 35 to start saving the same amount of money for the next 30 years will, assuming the same rate of return, have profited only $820,000, 40 percent  less than the student’s.

Though starting your investment portfolio early is a logical approach, students must take note of a few guidelines for developing a successful investment venture.

And with our access to resources at USC, students can put those guidelines into use.

Among the guidelines we can utilize is to diversify our stock holdings as we become exposed to different industries.

Diversify across industries and across continents. People who went crazy buying tech stock in 2000 suffered severe disappointment with the explosion of the “Dot Com” bubble. They lost everything.

Realize that there will be more Enrons  and that a famine in China might wipe out the rice company you invested in, but such events will not destroy you if you have taken care to diversify your interests.

Moreover, a passively managed fund, such as an index fund, requires less risk and is designed to match the performance of the stock market as a whole. Such a plan might therefore be more conducive to college students.

If you choose to invest in these type of funds, you do so with the understanding that it will take decades for your money to grow. You aren’t hoping to make it rich off one stock that skyrockets overnight.

Let’s say that instead of spending $50 per month on beer, you decide to begin building a passively managed, diversified portfolio. We’ll assume a 10 percent per annum compound rate, the historical average. After four years, you will have generated a little more than $3,100. But if you faithfully put the $50 in every month for 40 years, you will end up with a little more than $294,000.

Whether you join a campus investment club or want to learn on your own accord, it’s vital in today’s economy to learn to make painless investments early on. Then, you will be able to watch your paltry beer change grow into a hefty nest egg.

Jordan Lee is a sophomore majoring in broadcast journalism.

1 reply
  1. Cassie Breithaupt
    Cassie Breithaupt says:

    A well written piece that every college student should pay great attention to! Great job Jordan

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