The more you know: Investing 101

Money is the universal language of college students, and, most of the time, the language focuses on their lack of this trading tool. For many students, college is the time to gain knowledge but lose money, and the struggle to find a happy medium has proven to be challenging.

Part of the money problem is the financial terms that come along with understanding how to better manage income. From savings to checking, from stocks to bonds, the money dictionary is filled with confusing words that make maximizing profits seem like a far-fetched notion. However, one of these terms is actually quite simple and is beneficial to earning some extra income.

The name of the income game is investing, and it’s not as daunting as the term may sound.

Albert Williams, associate professor of finance and economics, said that investing is using savings to purchase assets that increase in value over time.

“It’s putting your money to work today so it can grow in the future,” he said. “You can buy things that you can see will go up in value, and then, after a while, you can sell it for a higher price [than when you bought it].”

There are many types of investments, including stocks, bonds, mutual funds and alternative versions. While many people typically think of investing in the stock market, Williams said that students should also consider investing in valuables, such as jewelry or artwork, and small businesses.

Williams said that students need to have a cushion in case of an emergency and that financial security is extremely important.

“You need to have funds to live,” he said. “If you make $5,000 a month, and you spend $6,000 a month, you’re in big trouble.”

Many students focus on putting money into savings accounts, but Williams said this isn’t always the wisest decision. With savings accounts, the money put in gains less than half of a percent of interest per year and that barely covers the cost of inflation, which is approximately 2 percent.

“I usually don’t encourage a long-term investment in a savings account except for when you’re older and retired, and you don’t want your money to be exposed to a lot of risk,” Williams said.  “You’re never too young to start investing.”

As an alternative to placing all extra money into a savings account, students should create a budget that allocates an amount to paying bills, spending, savings and investments.

According to Williams, figuring out what to invest in is one of the hardest tasks people do. He said that students should be aware that, while there are great benefits, such as long-term financial security, there are also risks. The more money one invests into an asset, the greater the risk associated with that investment.

“If you love to take risks, go for the really risky investments,” he said. “It just depends where you fall on the risk-certainty spectrum.”

According to Investopedia, bonds are usually for those who like to be more certain of the return they will receive, though it will not be much, while stocks are typically more high-risk with a higher potential of return.

To figure out what to invest in, Williams said to look around the house and pick out items that are the most useful. Upon researching the manufacturers of these products, one can then decide to invest in their companies, and, generally, make a profit.

Although he is an advocate for investing, Williams strongly suggested that students take personal finance courses, which give overviews on how to manage money and do research before becoming involved in the stock market or bonds.

“Get your financial education. It’s almost non-negotiable,” he said. “You need to get a hold of some books or take a course and learn how money works. If you don’t do this, you’ll take your money and spend it, and you won’t have money in the future.”

NSU offers personal finance courses every semester, and there are also websites available that allow students to compete in a mock stock market to gain experience.

“When you put your money out there, you can make [more], and you can lose,” Williams said. “All NSU students need to learn how to manage money. When you’re in college, you can take advantage [of your education] and learn how to do so.”

Williams said that, in college, it’s difficult to find time to invest, but once students are out of college, they will need something to fall back on. He said that investment isn’t only critical for individuals, but also for corporations and the government, and that it’s a key part in developing the country.

“Investment is a continuous process,” he said. “Every student who comes to NSU is making an investment in human capital. Everybody is investing every day to increase their value.”

 

 

Where can I learn more?
Investopedia.com
forbes.com
stockmarketgame.org
etrade.com
Scottrade.com

Terms to know, as stated on Investopedia.com:

    • Stock: “A holder of a stock has a claim to a part of the corporation’s assets and earnings…A shareholder is an owner of a company. Ownership is determined by the number of shares a person owns, relative to the number of outstanding shares.”
    • Bond: “A bond is a debt investment, in which an investor loans money to an entity which borrows the funds for a defined period of time at a variable or fixed interest rate.
    • Mutual fund: “An investment vehicle that’s made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.”
Print Friendly, PDF & Email

Leave a Reply