College students––don't wait until graduation to start investing

Are you a college student on summer break? Now is the time to start your lifelong investment journey.

In my role as a proponent of financial literacy education, I can't think of a better time to begin. It's also the position of the SEC's Office of Investor Education and Advocacy, headed by Lori Schock. The U.S. Securities and Exchange Commission (SEC) regulates the securities industry.

Schock recently released a guide that I'd like to make sure you know about. Called "School's Out, Investing For Your Future Is In" (tinyurl.com/bdep33kd), the guide lays out the rationale for getting going now, along with some ideas on what to do.

The simple truth is that one's future security depends on capturing the benefits of compounding -- that takes time, decades of time. Using a "rule of 72" calculation, if you have a return of 7.2%, it takes 10 years to double the investment. Thinking decades ahead leads to financial success -- but what college student do you know does that without a mentor in the picture? Think of Schock as a mentor.

As she says, "The longer period of time you have to save and invest, the better off you'll be financially."

The goal for a college student is to take a tiny amount and put it to work for a long period of time. It doesn't take much -- even a dollar a day can make a difference.

That knowledge is fundamental to achieving financial security. Compounding takes time, with one exception: a 401(k) plan with a match. Someone who participates in a 401(k) plan with a dollar-for-dollar employer match doubles his money immediately. They can take that money with him when they leave the job after the match vests. See Investor.gov's "First Job" webpage (tinyurl.com/yyk6bn89).

Is it unusual for a college student to invest? According to a 2024 survey of 1,012 college students and recent graduates (tinyurl.com/ynerk2fz) by Commonwealth, a national nonprofit that seeks to build financial security for vulnerable people, 44% of students were currently investing, even though the amounts are small (62% had less than $1,000 in total investments). There is nothing wrong with that.

What would be a good starting point? Setting some financial objectives, using a few basic questions offered by Schock:

-- What goals do I want to achieve?

-- How much money do I need to achieve my goals?

-- How much can I afford to save and invest?

-- What's my risk tolerance?

Schock recommends creating a budget "so you can better learn how to manage your money." You'll want to start by figuring out your fixed expenses, things like housing and groceries, and then thinking about other items, using both a short- and long-term outlook when it comes to costs. To help the process, Investor.gov offers a "Roadmap to Saving and Investing" (tinyurl.com/yckh76jk) and a Savings Goal Calculator (tinyurl.com/yes2anvy).

Once the budget plan is complete, the next step involves the process of investing. Investor.gov's Introduction to Investing section (tinyurl.com/4swzfabs) provides important information like "Five Questions to Ask Before You Invest," "Researching Investments" and "Investing on Your Own."

Of course, the investments one chooses are key to success. It would be reasonable for a college student to consider the advice of Bankrate's James Royal, Ph.D., in "7 Best Ways to Invest While You're in College" (tinyurl.com/yn8rwm5e): "One of best investments for college students is an index fund," like those based on Standard & Poor's index of large American companies. A key aspect: "you don't have to know a lot to get started."

There are dangers to avoid. Schock cautions about "unsolicited investment advice from social media platforms, including professional networking, dating, and messaging websites/apps," adding that if a potential investment "sounds too good to be true, it probably is." I agree.

Bankrate's Royal offers a final caution of keeping a "measured approach" when you are starting out, adding: "Volatility comes along with even the best investments, so learning how to deal with the emotions it creates is an important part of the learning process."

Seasoned investment counsel (tinyurl.com/52nus8hz) and award-winning columnist and author, Julie Jason, JD, LLM, promotes financial literacy and investor protection. Read her latest book, "The Discerning Investor: Personal Portfolio Management in Retirement for Lawyers (and Their Clients)" (tinyurl.com/4u7h9pjs), published by the American Bar Association. Write to Julie at [email protected]. While all questions cannot be answered, each email is read and reviewed and can lead to discussion in a future column.

COPYRIGHT 2025 Julie Jason,DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION, 1130 Walnut St., Kansas City, MO 64106; 816-581-7500.