I started researching investing at age 15 and began building an investment portfolio the year I entered college. During my college years, I learned how to manage my investments without compromising on my studies. Drawing from this experience, I offer 5 tips to help student investors make the most of their college years.
1. Ask yourself why you want to be an investor.
Before delving into how to invest, it is important to consider why you want to invest. Contrary to what popular culture might have us believe, achieving long-term investment success requires patience, hard work, time, and psychological discipline. You are only in college for a few short years, and it takes serious effort to perform well academically. Ask yourself whether spending your limited time and energy on investing is the right decision for you. Weigh it against other major commitments you could pursue, such as completing a second major, learning a foreign language, working for a professor, doing internships, or being involved in athletic and community groups. Although it is possible to do many of these things in addition to your investment and college studies, it is important to acknowledge that there is a limit to how many commitments you can maintain at once.
Naturally, different investors will have different motivations. I know of one investor whose goal is to finance the education of 1000 children. Others may be motivated by simpler goals, such as the desire to build financial resilience for themselves and their family. My own long-term objective is to develop a philanthropic fund to support critical services in my home city of Vancouver. No matter what your objectives may be, having a strong sense of why you want to be an investor will contribute to your long-term resilience and success.
During times of financial crisis, it can be very tempting to sell your investments at unusually low prices, out of fear of further losses. Similarly, in times of consistently elevated returns, it can be hard to resist buying overpriced securities whose prices continue to rise. Giving serious consideration to why you want to invest will encourage you to remain diligently committed to your investment strategy during good times and bad.
2. Don’t underestimate investor psychology.
As investors, our mental habits can be our greatest ally or our greatest enemy. As mentioned above, many investors fall victim to the temptation of buying high and selling low—a recipe for financial disaster.
Oftentimes, this temptation is compounded by social pressures. As investors, it is inevitable that we will sometimes doubt ourselves and feel afraid of missing out on other investors' returns. Yet it is important to resist this fear in order to prevent ourselves from being lured off-course by the temptation of short-term gains.
College can be a particularly challenging environment in this regard. One example in particular stands out as a case in point. During my college's orientation day for new students, the president of the student union gave a speech in which he urged students to approach their college years with a healthy dose of FOMO, otherwise known as fear of missing out. Even then, it occurred to me that this was terrible advice for investors!
One of the best ways to prevent yourself from making poor investment decisions is by educating yourself about the nature of investor psychology. There have been many great books written on this subject over the years. Two of my favorites are Animal Spirits, written by Nobel-prize winning economists George A. Akerlof and Robert J. Shiller; and Jason Zweig’s Your Money and Your Brain. Studying these books will help cement your understanding of the profound role which psychology plays, both in your own decision making process and in the financial markets as a whole. Understanding the psychological side of investing will help you avoid irrational investment decisions.
(Learn more in Avoid These Common Investing Psychology Traps)
3. Adopt an investment strategy which is realistic given your schedule.
Conducting thorough investment analysis takes a significant amount of focus and time. As a student, it is unlikely that you will have the time to perform this kind of in-depth research. In light of this, it makes sense to adopt an investment strategy that you can realistically implement in your limited free time.
(Learn more in Fundamental Analysis: What Is It?)
Perhaps the simplest such strategy consists of regularly investing in a portfolio of diversified investment funds, such as index funds, exchange-traded funds, or mutual funds. This approach may be advantageous for investors who are less interested in performing in-depth analysis of individual investments, instead preferring to delegate the more laborious aspects of investing to a third-party. On the other hand, investors who wish to have their funds actively managed will have to pay for it in the form of higher management fees.
(Learn more in Pay Attention To Your Fund's Expense Ratio)
Full-time students who want their own portfolios will need a time-efficient investment strategy. For my part, I chose to build my portfolio primarily on the basis of businesses priced at below their liquidation value. I chose this strategy because it is more amenable to quantitative analysis and monitoring. For example, I created a standard investment checklist to screen investment candidates. As part of this checklist, I determined the exact prices at which I would buy and sell the business’s shares. I then set automatic alerts using services such as IFTTT and Zignals, in order to notify me when the shares reached their specified price thresholds. Through this strategy, I was able to gain real-world investment experience without compromising on my studies.
(Learn more in Net Current Asset Value Per Share)
For students who want the experience of investing in a hands-on manner but don’t have the funds, an excellent third option is to invest using online simulators such as Investopedia’s Stock Simulator. Indeed, experimenting with simulators is a great way for all investors to test out new ideas without the risk of exposing real capital.
4. Invest in your knowledge.
If you lack the time or resources to invest during your college years, it is worth remembering that, oftentimes, the best investment you can make is to develop your own knowledge. Indeed, this principle holds true equally for those students who do have the time and resources to invest.
Depending on your choice of major, you may find that your college studies contribute directly to your investment education. Others may need to find creative ways of finding overlap between their education as investors and their college curriculum. My own chosen major—honors history, focusing on the history of science—has no direct relationship to investing. Nonetheless, I found that many of the skills I developed in my major have clear applications in investment research and analysis--skills like primary research, writing, and critical thinking.
Regardless of your chosen field of study, if you approach your investment education in a proactive manner, you will be surprised to find that many industry professionals will be open to answering your questions and supporting you in your development as an investor. I strongly encourage all student investors to attend networking events and reach out to industry professionals, .
Another great way to start building your knowledge of investing is by learning from the world’s greatest investors . For my part, I chose to base my knowledge on the value investment methodology developed by Warren Buffett’s mentor, Benjamin Graham. I recommend Benjamin Graham’s The Intelligent Investor. Another classic is Security Analysis, which Graham cowrote with David Dodd in 1934. To get a sense of how value investing has evolved since Graham’s time, I highly recommend studying the letters written by Warren Buffett to the shareholders of his holding company, Berkshire Hathaway (BRK-A, BRK-B). The letters give you a sense of how Buffett implemented and expanded upon Graham’s principles of value investing. Reading these letters is especially helpful because Buffett acknowledges and reflects upon his mistakes. Taken together, Buffett’s letters to shareholders and the classical texts of Graham and Dodd provide a well-rounded introduction to the theoretical foundations and practical applications of value investing.
(Learn more in The Intelligent Investor: Benjamin Graham)
5. Keep good company.
One of the greatest advantages of being a student is the opportunity to connect with a diverse range of people on campus. In my experience, finding a network of peers with whom to discuss investing has been instrumental in developing a more nuanced investment decision making process. In building this community, the key is to find individuals who are both interested in discussing investing and willing to engage in constructive debate.
Of course, this is easier said than done. In my experience, one of the keys to building this network was to be open about my passion for investing. It took me until my third year of college to overcome my inhibitions and start an investing website where I share my thoughts on investing. After taking this jump, I was amazed to find that many people who I had never assumed to be interested in investing started to approach me with questions and feedback about my work. For the first time, I started building a network of peers through which to discuss investment ideas.
The long-term value of such communities truly cannot be overstated. At the same time, it is important to keep in mind that people tend to emphasize their own investment successes, while hiding or downplaying their mistakes. As such, it is especially important to approach discussions of investing with a healthy degree of skepticism.
The Bottom Line
Learning to invest during college is certainly a challenge. Students who approach this challenge with a clear sense of purpose, a realistic investment strategy, and a commitment to learning from the best can use their college years to lay a strong foundation for their investing future. Who knows? One day, students may be studying your investment philosophy.