You don’t need to be a financial expert to start investing
The life of a student is harsh. You have lots of work and almost no time for fun things.
Worst of all, you have no money. Student debt, your flat, and groceries all cost a decent amount. And this is not calculating the cost of going out for meals and enjoying a party.
But your years in University might be the most precious to your financial growth.
The sooner you can put some money aside, the greater the effect of compounding will be.
I want to share three ways I grew my investment portfolio from 0€ to 3460€ in 6 months as a full-time student.
You can do the same. I’ll share with you how.
#1 Keep it consistent
Put a set amount of money to the side every month. Only use the money that you don’t need for necessities.
I started at around 400€ per month. After reassessing my finances, I can only spare 280€, which is still better than nothing. You might only be able to afford 50€ a month. And that’s fine as well.
Set up a monthly reoccurring payment to your broker account. That way, you won’t splurge on the next best top or shirt in your favourite brand outlet.
Setting up these micro habits will help you be more disciplined with money. Think of it as training in a gym. You train your muscles to become fit and healthy.
In the same way, by setting money aside for investing, you are training your money muscles. As soon as you gain full control over these muscles, you will see significant results in the long run.
#2 Invest in Exchange Traded Funds
When I signed up with my broker in July 2020, I fell in love with ETFs. ETFs, also known as Exchange Traded Funds, is a group or collection of stocks that follow an index.
A known ETF is the S&P (Standard and Poors)500 that tracks the S&P 500 index. The S&P 500 indexes the 500 companies in the US with the most significant market capitalisation. An index tracks the success of these companies.
By investing in this ETF, you divide your money into 500 different successful American companies. You diversify.
Diversification is a great way to give you the necessary calm in the stock market. If the Apple share in your S&P 500 ETF drastically loses its value, there will be 499 other strong companies to compensate.
Now, what is the difference between index funds and exchange-traded funds (ETF)? While you can trade ETFs during open hours of the stock exchange, you can sell index funds at the end of a business day.
With ETFs, it is essential to make a long-term plan. Maybe it will take a year, five or even ten years. But eventually, you will see your profit increasing.
These funds are brilliant for students who don’t have the time to do thorough research on the stock market. You start with your favourite ETF and then invest the money you set aside into the ETF.
Over time you will see that number grow steadily. The market will always go up.
However, even ETFs will fail to provide absolute safety in a financial crisis. Take this year as an example. If we stick to the example of the S&P 500, this Index Fund has gone up by 7% this year. Despite the massive market crash in February and March this year due to COVID-19.
If all the companies in an ETF suffer, the index will go down. But as others start to succeed again, the Fund will choose the winners and invest in those companies.
My advice to an investor starting this year is to invest in ETFs. You might not see those substantial financial gains as you might if you only invest in stocks. But you definitely will make a profit in the long run.
ETFs only need setting up once in the beginning. Then you can leave them and wait for the profit.
#3 Don’t get scared when the market crashes
Most investors get cold feet when famous people like Buffet withdraw vast amounts of money for cash reserves in a time of crisis.
This last year has been a prime example to prove this point. Many lost a lot of money by liquidising their assets in the stock market in March 2020.
The market dropped by around 30% in a matter of days. No one expected it to be that intense. People lost their money, and at the very worst time, they sold their ETFs and shares and made a considerable loss.
It’s natural to want to withdraw money in a time of uncertainty. But if you can overcome this inner voice, you will reap your patience results in the long run.
By November 2020, most ETFs had recovered the value they had at the beginning of 2020. If those investors that got scared had reminded themselves of their long-term goals, they might have just held out a bit longer and reaped the benefits.
A market crash can also be the best time to invest. Many smart investors used this crash to invest in different assets. They were the winners of this crazy year, not only for the market.
Set yourself a long term goal if you want to follow the route of index investing. This way, you can always remind yourself of this goal when the market dips.
Especially with index funds, you will see the market go up. It might take longer than a specific stock. But remember that you have a more significant and broader safety net. This net might include 500 American Companies or even the world's most successful companies (MSCI world).
Investing is for everyone.
Investing is often made out to be a hard trade; you can only be a part of if you're a financial expert.
However, I believe this should not be the case. As shown in this article, students can set aside a little money and invest in an index fund.
The best thing for these investments is to leave the fund's money for a few years. Once you’ve achieved your goal, you can reinvest in a new fund.
The most important lesson with investing is that you only start investing with the money you don’t need to survive. Always keep enough money aside for emergencies.
So don’t be afraid! Start investing in small amounts every month, and see your profit grow steadily.