What does your future look like after college? Do you plan on buying a house? A car? Paying off student loans? If so, now is the perfect time to start building assets.
Although most college students may have a checking account, or even a savings account, there is another option: Invest in the stock market. Mutual funds are a great way to begin building a financial foundation.
Mutual funds are different than stocks in that a mutual fund can be a pool of stocks. Here’s an example: You can buy one share of stock for $100 in one company, and one share of a mutual fund for $100. With the mutual fund, you will own portions of shares of stock in many different companies. That way, if one company goes bankrupt you will not have lost your entire investment. Mutual funds are a great way to be sure that your investment is protected. The price per share of the fund will drop, but you will not lose everything. Depending on the percentage of money your mutual fund has invested in that company, the drop in share value of your mutual fund may either be substantial or nominal.
Another reason that mutual funds make for good investments is that they are affordable. Thomas Abrams, a certified financial planner at Mutual of New York, says mutual funds “enable small investors to invest in the stock market.” He explained that larger corporations that have high share prices are only interested in investors who will buy many shares of stock.
It can be expensive to buy many shares of stock in a large corporation, something most people cannot afford to do. It is also risky to only buy one share of stock in a corporation that seems to be financially successful. Instead, find a mutual fund that invests in the business you would like to invest in.
Talk to your local financial advisor, if you don’t have a preference when it comes to investing in companies, he/she can explain the difference between funds and why certain funds may be more suitable for your situation. Before visiting a financial adviser, make a list of financial goals. Your adviser will be able to look at that list and suggest what types of funds you should invest in.
Keep in mind, mutual funds are meant to be long-term investments. The stock market is not meant to be a casino. It is not wise to withdraw all your money when the market begins to drop, because it is normal for stock prices to both rise and fall. If you become worried that your investments may not be doing so well, ask your financial adviser for other investment alternatives. With some planning, paying off your college loans may soon be a realistic option.