(U-WIRE) RADNOR, Pa. – Most college students must take out loans to pay for their education. Therefore students should have some sort of investments to help them pay off their loans or even help them in the distant future.
Students today are living in a world where a college education is both necessary and extremely expensive. Although most colleges offer many grants and scholarships to aid its students, there are still many students who have to take out loans to cover the rest of the tuition, room and board costs.
After graduation, students not only have to worry about finding a job, pay off their loans and find and pay for a place to live but they also have to start planning their retirement funds. It is a well-known fact that by the time today’s college students are old enough to collect Social Security, the funds that will be given to them will not be substantial enough to support the person’s lifestyle.
Due to all of these factors, it is important that students start investing money. There are several ways to do so. Some methods could potentially provide more earnings than others. However, those methods are usually more risky than the ones that give you a lower return on your investment.
A couple of ways to invest money that are less risky than entering the stock market are bank accounts and savings bonds. A savings account is going to earn the owner of the account minimal interest while most banks require a minimum balance of $300. If the balance falls below the $300 mark, the owner of the account will actually be charged additional fees.
Banks also provide money market accounts. Money markets require a higher balance than savings accounts, but the owner of the account earns a higher interest rate on their funds. The minimum balance for these accounts can be anywhere from $1,500 to $5,000. If the balance drops below the minimum balance, a $20 fee may be incurred.
Many students are given savings bonds when they are young. They are usually bought at half of the face value on the bond and over a period of 10 to 20 years the bond eventually reaches its face value. If the bond is not cashed in when it reaches face value, it will still continue to gain interest. Bonds do not drop in value. However, the interest rates on them do vary from time to time. They are considered a safe investment but are also slow to increase.
Stocks are an extremely risky investment. An investor should be well-educated in the stock market before jumping into it. Cabrini College Assistant Professor of Finance Mary Harris warns: "To make a profit in the market, you want to ‘buy low and sell high,’ but that is easier said than done."
Mutual Funds Offer Safer Investment
A slightly safer way to invest in the market is to invest in mutual funds. They are safer because they offer diversification. This means that one is not only investing in one stock or as Harris says, "not all of your eggs are in one basket." Although mutual funds offer less risk they give you a lower return.
If students decide not to participate in any of the before-mentioned investments, their world is not going to end. However, when they do graduate and get a job, they should begin contributing to a 401(k) plan as soon as possible. Harris recommends that one should contribute the maximum amount that their company will match. If the company does not match their employee’s contribution then the employee should contribute the maximum amount allowed that is pre-taxed.
Although there is still some risk in a 401(k) plan the investor is able to choose their investment and plan their own risk/return portfolio and watch its progress. If the individual decides that something is not right with their investment, most plans will allow the investor to make changes at certain points in the year. A 401(k) is often used by employees as their main retirement fund. If it is started immediately, the investor will have a large fund available upon retirement.
Right now, paying off loans and setting up a retirement fund seem far off in the future to many students, but if they tackle the situation in their college years, they probably won’t have to worry much about their financial future later.
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