Investing In The Stock Market for College Students

by Jalen

Ever thought about making your money work for you while you’re cramming for finals or hanging out with friends? It’s totally possible. Investing early can be a game-changer for your future, and no, you don’t need to be a finance major. In this post we’re breaking down the ins and outs of investing and the stock market. No jargon, no fluff, just the essentials. That said, we aren’t promoting any single investment strategy and only intend for the information in this article to be purely for educational purposes. Any investments in the market will always incur a risk. With that out of the way, let’s get started. 

I. Stocks Explained Simply

Stocks are a type of security whose fractional units are called shares. When you buy stocks, you’ve essentially become a miniature owner of that company. You would be entitled to the profit they make and the assets they own proportional to how many shares you have. Kinda cool, right? Your investment contributes to the operations, products, and services of that company. As the company thrives and grows, the value of your shares can grow too. On the flip side, if the company faces some rough times, the value of your shares might dip. For more specific information on the ins and outs of stocks, check out

So where can you buy stocks? The most accessible place for the public to buy stocks is through online brokerages like TD Ameritrade, Robinhood, or Fidelity investments to name a few. However, you are only able to buy stocks of publicly traded companies. These are big name corporations like Apple or Tesla. On the other hand, privately held companies keep their stock private. They don’t sell shares to the general public, and their ownership usually involves a close-knit group of investors.

How does the stock market work?

The stock market itself is basically a massive, global marketplace where people buy and sell shares of companies. But instead of meeting at a physical marketplace, these transactions settle on stock exchanges such as the New York Stock Exchange (NYSE) or NASDAQ. 

When you place a trade on Robinhood or other retail brokerage platforms, your trade order doesn’t directly go to the NASDAQ or NYSE. Instead, Robinhood often routes your order to market makers, which are firms that execute the trade and might provide Robinhood with payment for order flow. These market makers may then interact with larger exchanges to actually execute the trade. So, while your trade might ultimately be filled on an exchange like the NASDAQ or NYSE, it first goes through intermediaries before reaching these exchanges.

The price of a company’s shares on a day-to-day basis is largely affected by supply and demand. If more people want a stock (demand) than want to sell it (supply), the price goes up. If the opposite happens, the price drops. The factors that can influence this demand however can be extremely complicated. Earnings reports, Industry trends, interest rates, and inflation are just some of the litany of things that could affect a company’s stock price. 

II. Key Concepts In Investing

Understanding risk and reward

Ever hear the saying “no risk, no reward”? This statement especially is true when it comes to investing. When you invest, you’re hoping for a return, a profit. However, the possibility to make money is balanced by the possibility that you could lose the money you invested. This what’s called the “risk-return trade-off.” In general, the higher the risk you’re willing to take, the higher the potential return. But the flip side also holds true: higher risk means a higher chance of losing money.

Before you start making any investments, you need to ask yourself what kind of investor you are. If you’re the cautious type or don’t want to constantly check your own investments, you might want to go for a more conservative investment strategy. Think government bonds, blue-chip stocks, or ETFs. The trade-off with this investment strategy is that lower risk usually means lower returns. You won’t lose much, but you’re also less likely to strike gold.

On the other hand if you have a higher risk tolerance, you might prefer to lean toward an aggressive investment strategy. Most people with this level of risk tolerance invest in more volatile assets, such as, but not limited to: technology stocks, “meme stocks”, cryptocurrencies, or options contracts. These investments can be much more volatile and carry significantly more risk than “safer” options, and thus can either rocket you to stardom or make you crash and burn. 

Whatever strategy you choose, it’s always key to do your own due diligence and seek a financial advisor for specific questions pertaining to your situation. 

Why diversification is important     

Markets can be unpredictable—some days they’re up, and other days they’re down. This is why diversification is key. When you diversify your investments, this means spreading your money across various types of assets, be it stocks, bonds, real estate, or even that new startup you’ve heard about.

Imagine if you’ve dumped all your cash into just one company’s stock and all of a sudden they announce a massive recall on their latest product, you might see your investment nosedive. However with a diversified portfolio—a little in tech stocks, some in bonds, a pinch in international markets—if one area dips in the red, the rest could’ve stayed steady or even grew.

Diversifying your investments is all about playing it smart, ensuring you aren’t overly vulnerable to a single market hiccup. It’s about giving yourself multiple chances to win, even if one of your bets doesn’t pan out.    

Why you should start investing early

As the titan of finance Warren Buffet himself agrees, when it comes to investing, its all about time in the market. When you start investing early, the longer you hold on to your investments, the more money you’re able to accrue from exposure to our ever-expanding economy. If you wait ’till later in life, you’re missing out on years of potential growth, and you’d need to invest significantly more to catch up to someone who started earlier with much less. That’s not even taking into account how your money loses value to inflation each year sitting dormant in your bank account (or under your twin XL mattress).

A bit of math:  

Let’s say you invest $1,000 at a 7% average annual return. After the first year, you’d earn $70, making your total $1,070. After the second year, you would have $1,144.90, as you’d make 7% not just on your initial $1,000, but on the full $1,070. This continues year after year, and the growth can be exponential over time. Setting aside a little now for investing can set you up to win in the long run. 

IV. Getting Started With Investing

Investment Vehicles for Beginners

Now you may be asking, “But if I diversify my investments, doesn’t that mean I would have to research and track a whole bunch of different companies?”, and you’d be right 100 years ago, but now in the modern era of finance we have much more convenient ways to do this via investment vehicles such as mutual funds and exchange-traded funds (ETFs).

Imagine mutual funds as a big pizza party where everyone chips in cash. With that combined cash, a chef (the fund manager) makes a variety of pizzas (stocks, bonds, and other assets). By contributing, you get slices from different pizzas, letting you taste more flavors without buying every pizza yourself. So, instead of risking all on one topping, you spread the risk and enjoy a bite of the whole menu. This way you’re getting more for your dough! 

At first glance, ETFs may seem like mutual funds’ twin, and in many ways, they are. They both offer a diverse mix of investments in one package. However, ETFs are traded on stock exchanges, just like individual stocks. This means you can buy and sell them throughout the trading day, offering a bit more flexibility. In addition, ETFs also offer some tax benefits due to their structure, and generally have lower fees involved.

Both mutual funds and ETFs offer a fantastic gateway for newbie investors because they allow for diversification without all the tediousness of buying and monitoring stocks. These are some of the easiest ways to spread your risk across the market. 

V. Basic Steps In Making Investments

Opening an Investment Account

Now that you have a basic background on how stocks work, the next thing you need to do is choose a brokerage platform. It’s a good idea to do a bit of detective work. Check out reviews, see what kind of tools they offer, and definitely sneak a peek at those fees. You want a platform that fits your vibe and, more importantly, your budget.

Once you’ve got your ideal brokerage platform you’re going to have to set up an account. You’ll need to let them know your name, your address, likely your employment status, and your income. They might also ask for your level of investing experience. They want to know if you’re a newbie or a seasoned pro in disguise. 

The next thing these platforms ask is for you to verify your identity. A picture of your ID, email verification codes, or even through small deposits in a connected bank account are examples of how your preferred brokerage might want to verify who you are. A brief wait time usually follows after you submit all of your relevant information, but after everything clears you can begin responsibly trading away!

Making Your First Investment

So you’ve opened that brokerage account, and now you’re staring at the dashboard thinking, “Alright, now what?” Let’s break down how to make that very first investment. 

Choosing what to invest in is kinda like choosing your major. You want something that fits you, right? If you’re a hands-on person who loves to dig deep into companies, individual stocks could be your thing. Maybe you’re into tech, so a share or two in a hot tech company makes sense. On the other hand, if you’re all about that “set it and forget it” lifestyle, look into mutual funds or ETFs. As mentioned before, these have less micromanaging and more diversification.

Once you got your preferred stock or ETF, now it’s time to place an order. Head over to the trading section of your platform, and you’ll usually see options to “buy” or “sell.” Type in the name or ticker symbol of what you want, specify how much, and hit that “buy” button. You can also choose the type of order, like a “market order” to buy at the current price, or a “limit order” to wait for it to hit a specific price. 

Now, a quick note on transaction fees. Some platforms offer commission-free trades, which is awesome for those who are very budget-savvy. Others might charge a small fee per trade. So, if you’re buying $100 worth of stock and the fee is $5, you’ll actually spend $105. Just something to keep in mind when you’re counting your pennies (or dollars, or soon—hopefully—hundreds!).

VI. Investing Strategies For College Students

Start Small and Gradually Increase

Imagine you’re learning to ride a bike. Would you kick off by speeding down a hill without any brakes? Probably not the best idea, right? Investing in stocks is a bit like that. Markets can be unpredictable, and stocks can take unexpected downturns. So, if you overcommit your initial funds, you risk a financial scrape or bruise that could be tough to bounce back from.

Now, as you get the hang of investing, as with biking, you’ll grow more confident. Every transaction, win or loss, teaches you something. It’s like gaining XP in a video game! And as you level up, you can start committing more funds. But here’s the thing: that added confidence and knowledge doesn’t mean the risks vanish. It simply means you’re better equipped to navigate them. This is why it’s wise to incrementally invest as your financial know-how expands. You’re essentially adjusting the training wheels as you become more adept at riding the market waves.

While we all dream of making it big overnight, there’s real magic in starting small, learning the ropes, and growing your investments at a pace that matches your evolving expertise. 

Long-Term Mindset

Seeing a stock skyrocket can give you a serious case of FOMO. But let’s remember: Investing isn’t a sprint; it’s a marathon. Chasing quick gains will often lead you to ruin, so try not to buy and sell your entire net worth in stocks based on emotion. It’s like exercise: If you’re trying to get fit, one workout session isn’t gonna cut it, right? It’s the consistent, week-in, week-out effort that gets you those results. Aim for consistent contributions to your portfolio and stick to a well-thought-out investment strategy. Time in the market generally beats timing the market.     

Final Word

Starting your investing journey while you’re in college can give you a huge edge later in life as your net worth grows over time. Practice investing using virtual trading platforms to hone your skills risk-free, and seek helpful resources to increase your financial literacy. Trust me, your future self will high-five you for taking the plunge now!

If you found the information in this post helpful, be sure to check out our Frugal Student Newsletter for all thing’s budget conscious and financially savvy that will help you stay ahead of the curve in your financial journey.

You may also like