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How To Invest In Stocks As A Student With A Low Budget

How To Invest In Stocks As A Student With A Low Budget

It might seem counter-intuitive investing in the stock market while getting an education but in reality they are one in the same. For a lot of young people getting a secondary education also signifies moving out of the house and getting started in life. Part of becoming an adult includes planning long-term financial goals in ensuring financial security. Even with the meager resources students are usually dealing with on a daily basis it doesn't take a lot of money to get started in investing. Many stock accounts, mutual funds and other investment vehicles often have minimal requirements when establishing an account.

The easiest way to get started investing in stocks with a minimal initial investment is opening a mutual fund account. A number of highly regarded successful mutual funds which normally require a minimum initial investment of between $1,000 and $2,500 will waive the minimum if the account is opened with a minimum monthly direct deposit. The minimum monthly deposit is normally $50.00 and as long as it is made every month the minimum initial investment is waived.

Mutual funds aren't for everyone however and if you would like to be more active by selecting individual stocks there are a few key pointers to keep in mind to maximize your investing dollar. Many online brokerage firms do not have a minimum initial investment and even the ones that do often start at $500. It is recommended to go with an online broker instead of a discount or full service firm due to the lower per trade commission price, minimal accounting fees and extensive research information.

When purchasing individual shares of stock keep in mind most stock purchases are in blocks of 100 shares. There is also a trade commission of anywhere between $5.00 and $15.00 on both the purchasing and selling of the stock. It is possible to purchase less than 100 shares but at that level the commission on smaller lots makes this stock purchase less profitable. So while it may be possible up to purchase 10 shares of a $15.00 stock it's not worthwhile spending $26.00 on commissions for a $150 stock transaction.

While investing directly in individual stocks is more exciting when getting started, maximizing resources on a limited student budget means mutual funds often the better investment. Mutual funds provide diversification with lower fees as one of their many benefits. Purchasing a no-load mutual fund minimizes account fees, also known as 12B-1 fees, and often achieve the same performance or better of load mutual funds.

As a student with limited resources it is also important to consider your individual risk tolerance level in making investment decisions. Mutual funds in general have lower returns than individual stocks but because they are diversified among many different stocks they also tend to lose less in market downturns.

An added benefit of setting up a mutual fund or stock account is that they can be created as Individual Retirement Accounts, also known as an IRA. Whether creating a traditional IRA or Roth IRA, thinking about retirement while in college or secondary education is a great way to start planning for the future when you graduate and get started on a career.

Many people find out once they get started in life that it's not how much money you make but how you make your money work for you. So even students, interns, and entry level workers can do well financially if they start early enough and invest wisely.

Image by: Mike Ward