(U-WIRE) COLLEGE PARK, Md. – For many students, life is complicated enough without worrying about investing money for the future.
Investment experts, however, say putting even a little money into a bank account or mutual fund can go a long way toward financial security 10 or 20 years down the road.
Student Investing – Deciding Where to Invest Your Money
Russ Wermers, assistant professor of finance and director of the University of Maryland school of business’s financial markets lab used to conduct trading simulations and expose students to financial markets, said even freshmen can begin investing.
"I think [students] should start right away," Wermers said. "At least they’re in the learning process."
Kevin Jordan, assistant vice president of Chevy Chase Bank and branch manager at the University of Maryland’s student union, agrees investing is important.
"You’re spending money on everything," Jordan said. "You have to take the risk in order to get the reward."
However, beginning the investing process may be a daunting task for students who don’t, for example, know a mutual fund from a money-market fund.
Wermers said investors should identify their objectives first. Students must decide when they want the money back because that determines how much risk they should take, Wermers said.
After this crucial first step, the student must decide where to invest the money.
Savings Account a Good Start for Students
Matthew Griggs, a financial adviser for Chevy Chase Bank, recommends beginning by putting money away into a checking or savings account.
Banks offer a variety of savings options for different needs. Chevy Chase Bank, for example, offers a savings account with a minimum balance of $1,000, as well as a Young Savers Account for people under 18.
The difference between savings and investments is that an investment has no guaranteed interest rate. Investment options include stocks (ownership in a company), bonds (loans to organizations) and mutual funds (combinations of stocks and bonds).
Diversified Mutual Fund Best for Student Investors
After establishing some savings, "a mutual fund is a good way to go," Griggs said. He said mutual funds are better for beginning investors with at least a three-year outlook because they are less risky than stocks or bonds alone.
"The shorter the horizon, the safer the investments need to be," Wermers agreed.
According to Wermers, investors choosing a mutual fund should diversify their investments and consider the fees or expenses involved.
Students should not "put all [their] eggs in one basket," said Wermers.
The type of mutual fund selected is also important. Griggs said students should focus on a balance between stocks and bonds and a good track record. He also recommended investing in domestic funds.
Things to avoid include high internal fees and new funds, Griggs said.
"Don’t go after the hottest thing," said Alvin Russell, system vice president of investment at Bank of America. "Follow your instincts; do your own homework, and ask questions before you do it."
Many reference sources are available online that give more information about investing.
MorningStar.com is an investing research firm that provides information, data and analysis of various stocks and bonds.
Lipper gives information about mutual funds.
Standard & Poor offers analyses of individual stocks among other financial analysis.
Although the average student is not going to run an investment management team, he or she can benefit from a basic knowledge of investing. After all, commencement marks only the beginning of a student’s financial future. As Griggs points out, "It’s important to have something there after college."
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