7 Easy Ways For Students To Begin Investing

Investing doesn’t have to be the minefield that it is often portrayed as. In this post I will break down the 7 easiest ways to start investing as a student. And yes it is never too early to start investing. Actually the younger you are when you start, the better because of the magic of compound interesting.

Compound interest has been called the ninth wonder of the world because it is so powerful. The younger you begin investing the better because this means more years to harness the power of compound interest.

Why is compound interest so important?

Example: Q invests £250 a month for 30 years. At an average of 6% return each year, after 30 years Q’s investment is worth £237k. If Q began investing 5 years earlier, their investment would be worth £334k.

So as you can see the earlier you begin, the better!

{Disclosure: Please keep in mind that some of the links in this post are affiliate links and if you go through them to make a purchase I will earn a commission. I link to these companies and their products because of their quality and not because of the commission I receive from your purchases. I am not a financial advisor, none of this is financial advice} 

Things to Know Before you Begin Investing

#1 Your capital is at risk.

You need to be prepared to loose any money that you invest. Whilst the stock market has increased at a 10% average over the last 90 years, gains are not guaranteed. Make sure you already have an emergency fund saved before you begin.

#2 You should be in it for the long haul.

Warren Buffet once said investing is about time in the market not timing the market. This perfectly sums up the attitude you should have towards investing in the stock market.

As a rule of thumb, only invest money that you won’t be needing for at least 5 years. Therefore, it may not be wise to invest with the money you’re saving for a house deposit, if you want to buy next year. That is just gambling.

#3 Investing is not a get rich quick scheme.

Unlike what many marketing scams may make investing out to be, it shouldn’t and won’t be a get rich quick scheme. Investing for long term wealth should have a turtle approach rather than a hare approach – slow and steady wins the race!

Here are 7 easy ways to begin investing as a student….

#1 OPEN AN ISA

ISA’s are the best starting point for investing in the UK. ISA stands for Individual Savings Account, they act like tax bubbles for your money. Any interest gained is completely tax free. This means that you avoid paying any Capital Gains Tax on your investments.

Currently, each tax year, you are able to contribute up to £20,000 into one or more ISA’s. You can spread the £20,000 between one or more types of ISA’s.

Best ISA’s for Investing

Stocks & Shares ISA

This type of ISA is probably the most accessible for beginners. Whilst your money is invested and tax protected it is also available at any time. There are two types of Stocks & Shares ISA’s – one where you choose exactly what your investing in and one where a Robo-advisor does it for you.

The DIY version often comes with higher rates but you have more control over the investments. This type is great if you know what you’re doing and have specific funds in mind.

The Robo-advisor type is often cheaper, simply because the portfolio is already pre-made. Most providers will get you to fill in a questionnaire about you risk attitude, any goals and how much you can afford. These answers indicate which portfolio your money is invested into. Opening this type of Stocks & Shares ISA makes investing easier, hassle-free and less pressure.

Lifetime Stocks & Shares ISA

This ISA is for people aged 18-36 and any money invested into this type of ISA can only be used to buy your first house or becomes available at the age of 60. If for any reason you remove the money for any thing else you will face a penalty. However, this is a great option if you fit the criteria because the government will give you a 25% bonus on any contributions up to the max of £4,000 each tax year. Meaning you could gain an extra £1,000 simply for keeping your money in this ISA, that’s the potential of £33,000 if you max out the contribution for the entire available time (ages 18-50).

Want to know more about ISA’s, how to open one and which provider to go for? Read this post!

#2 INVEST IN BONDS

Bonds are distrubuted by large companies and governments as a way for them to raise capital. Therefore, you are effectively lending money to these organisations. The easiest way to invest in bonds in the UK is to buy Premium Bonds.

Premium Bonds

These forms of bonds are directly from the UK government. You can buy up to £50,000 in Premium Bonds and each month you are entered into a prize draw. In each prize draw, you have the chance to win between £25-£1,000,000. Plus, any earnings are tax-free which is a great bonus.

Buying Premium Bonds is a loose form of investing, simply because you are not guaranteed any rate of return, positive or negative. The average annual rate of return is currently 1.4% for these bonds.

Investing in these bonds is a stable choice because the only way you could loose money is if the UK government no longer existed. Therefore, buying Premium Bonds could be a better option than keeping your money in an ordinary savings account. However, if you are unlucky and never win in the monthly draws then your money may be hit by inflation.

#3 CROWDFUNDING

Crowdfunding is where a group or individual proposes a business idea or venture and aims to get the funding to start this from a crowd of people. Raising capital this way, means that they can avoid the banks and hefty loans.

The type of crowdfunding that I’m talking about here is investment-based crowdfunding. This is where in return for investing money into a business or idea you receive a stake in said business, usually in the form of shares. This type of investment can be very risky because you are not guaranteed a return.

To reduce this risk, only invest money that you can afford to loose completely when crowdfunding. To learn more about crowdfunding or to get started read this article.

#4 ETF’s

ETF stands for exchange traded fund which can be traded just like stocks. The only difference is ETF’s contain all types of investments (stocks, bonds, commodities), so instead of investing in a piece of the pie you’re investing in the entire pie.

This type of investing is less risky because you are not putting all your money in one company, rather a little bit in all of the ones in the ETF you purchase. ETF’s are a great way to make sure your investments are diversified without having to do extensive research.

There are loads of different ETF’s available, a popular one being the SPDR S&P 500 ETF, which follows the S&P 500 Index. This follows the top 500 companies currently trading on the US market.

RELATED READING: How To Save Money and Still Have Fun

#5 INDIVIDUAL STOCKS

Investing in individual stocks should only be done if you’ve done your research and know the risks. With that said, investing in individual stocks could produce a better return than investing in mutual funds or ETFs (like what your S&S ISA will invest your money in).

Platforms like Freetrade and Trading212 are great apps to begin investing in individual stocks on. They offer commission free investing and you can get started with under £2.

Fancy a free stock? Click on these links, open an account (takes max. 5 minutes) and add funds (£1 for Trading212 and £2 for Freetrade) to receive your free stock. This is basically free money!

#6 INVEST IN YOURSELF

Investing in yourself will mean something different to everyone. It may mean investing in your mental health by paying for a therapist. Or investing in your physical health, maybe getting a gym membership or replacing your worn exercise clothes. Or even investing in yourself through education by enrolling on a course or gaining an additional qualification.

Whatever this means to you, investing in yourself is a great way to spend your money when you’re still young. Creating this habit of making your wellbeing a priority early on, will ultimately benefit you in the long run.

#7 START A BUSINESS

This one could also come under the heading of investing in yourself. Investing in your own ideas and beginning a business could be the best investment you ever make.

Most students have a lot of down time, especially at the moment when everything is online and at home. Starting your own business could be a great use of this time.

So that’s it, 7 easy ways to begin investing for students. But these are relevant for everyone not just students!

Have you started investing yet?

Save this post for later?

READ NEXT: How To Make Money As A Student