How to Invest as a College Student

Everyone wants more money, but most college students are strapped for cash. At the very least, we don't have extra money to risk in investments, right? Wrong! College is the best time to start in the world of investing. Your mind is already used to searching for information, and you don't even need to "invest" that much time if you don't want to. And you can put in whatever amount of money you want.

Of course, you can always jump right into day-trading on the stock market, but if you don't know much, there is a steep learning curve there.

Instead, I'm going to let you in on a "secret" (it's not really a secret in the sense that no one knows about it; more like it's a secret because many people don't realize how great it is). It's not a scheme, and I'll get nothing out of telling you to do this. This strategy is called Dividend Reinvestment Programs, or DRIPs.

What is a DRIP?

Unlike regular stocks, which you buy on the stock market at "market value," you buy DRIPs directly from the company, usually at a slightly discounted price. What's special about them is they're not just worth what you paid for them; they are also worth the dividend return that the company offers.

So, let's say you bought fifty shares of Company A for $9 a piece and held onto them for one years. That's $450 you put in, and the company will give you back a percentage of that quarterly, regardless of what the stock is doing (up, down, whatever). That percentage is sometimes something like 4% (and sometimes much higher). And the reason it's a reinvestment program is that they use that 4% each quarter to buy more of the same stock, so it compounds over time.

Let's say the stock stays at $9 all year (unrealistic, but I want to take that variable out of the picture). Four times a year, the company gives you 4% of what you invested and uses it to buy more of their shares.

  • January: $450
  • March: $450 x 1.04 = $468
  • June: $468 x 1.04 = $486.72
  • September: $486.72 x 1.04 = $506.19
  • December: $506.19 x 1.04 = $525.43

So you've made $75 without doing anything!

Is That All?

No! That’s only the beginning; it gets so much better. Remember how we assumed the stock would stay at $9? Well, you’re not going to buy a stock that stays at the price you bought it; you’re going to buy a stock that grows! Let’s say that, in a year, the stock goes from $9 to $12. That $525 was assuming it was at $9, but at $12 it becomes $700!

But I Don't Have $450 to Start!

Well, I’ve been leaving something out until now. See, because it’s a reinvestment program, they want you to constantly be putting in money. This enhances the compounding effect for you, and it gives them more money to put into their cash flow.

But you don’t have to put in $450 each time or anything. Let’s say, instead, you set aside $25 a month. I bet you can probably do that, even if you have to skip a coffee once a week or something. So you start out giving them just $25 to buy the discounted shares, and then the program takes $25 out of your checking account every month to buy more shares at whatever price they are then.

Before you know it, you have $450 worth of shares because of the dividends they’re paying and the $25 you’re putting in every month!

Don't put all your eggs in one basket! (Photo by Steve Woods)
Don't put all your eggs in one basket! (Photo by Steve Woods)

That's It?

That’s pretty much it. You can set up that program with a company or two ($12/month to one and $13/month to the other, if you like), and pretty much forget about it. You keep an eye on the stock, of course, but a slight dip or two shouldn’t have you worrying at all. You’re in this for the long-haul.

The next step, now that you know about this, is to research a company. That’s sort of the tough part if you don’t know what to look for. The easiest way to start is to think about where the world will be in twenty years when you need this money (think of the sum by then!!)… What company that exists now will still be doing well? Wireless companies? Computer companies? Energy companies? Do you like the way your cell phone provider works or the way your laptop manufacturer markets its products? That’s a great launching point for some further research.

See how their stock is doing (just look at the chart and see if it’s generally going up or down), and make sure that they offer dividends. See what plans they have for the future (are they betting all their money on the idea that oil on this planet is unlimited? red flag!), including products they plan to release and general company attitude. Think China will be big in ten years? Invest in a company that thinks that, too.

When choosing stocks, be careful not to “put all your eggs in one basket”. If you’re going to invest in two DRIP companies, for example, don’t invest in two companies in real estate because the real estate market could go to hell (and it has, incidentally). Invest in one energy company and one real estate company, and that gives you a bit better spread. Even better if you can invest in three and throw in a pharmaceutical company or something.

Join HubPages!

You can write a "hub" like this and make money from the advertisements! Just join the HubPages community (it only takes a few seconds), and start writing about whatever moves you. It's that simple!

How Risky Is This?

Since you’re investing over a long period of time, you want to invest in low-risk companies (not a company that’s just starting out, for example) that are well-run and will be around in ten or twenty years.

And because the company is returning 3-16% in dividends, you will only lose money if that company’s stock drops more than that percentage in the ten years you own the stock.

Also, because it’s a long-term investment, the taxes are not income taxes and will be less of a percentage than if you were doing day-trading.

But the economy can be highly unpredictable, so you never want all of your money in one place. Use DRIPs as an entry point for learning more about the stock market. If you like it, you can do some day-trading, too. If not, you can still invest in DRIPs and then invest the rest of your money in other ways (real estate, for example).

To build wealth over the long-term (and to still always have access to it, unlike with a 401k), DRIPs are an excellent way for college students to invest their money.

More by this Author


Comments 34 comments

Jon 8 years ago

For a college student who knows nothing about investing I found this pretty easy to understand. Now I am only slighty terrified by the thought of investing which is an improvement.


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

Glad to know you understood it, Jon! The only way to get over the terror is to learn as much as you can. :)


quensday profile image

quensday 8 years ago from New York

Thanks for the heads up! Great hub :D


john c 8 years ago

i got everything ....but do all companies offer this discounted rates ...like even ones listed in the exchange ...


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

The companies in the exchange are the very ones I'm talking about, John! Don't hesitate to look into it, and the book that I mention at the beginning of my hub is a great one for explaining all the details.


Ajay 8 years ago

I think its fantastic that your giving students the insight on how to invest and that it actually is possible to do so! Well done on you. And yes, anybody strapped can pretty much get into investment as the author has said. I have a website for beginners on investing at http://www.howtoinveststock.net if you want to check it out for some good tips.

Thanks for great info, keep up the good work.

Ajay


Justin Williams 8 years ago

This sounds good but where do you go to see about these types of opportunities? What is a list of exchange?


helenathegreat profile image

helenathegreat 8 years ago from Manhattan Author

Thanks for the comment, Ajay.

Justin, the best thing for you to do as your next step is to buy a book. It will explain all the details that I couldn't cover in this hub (where to buy, how to choose a good stock) and can act as a handbook. In such a turbulent economy, you need to make sure you have all the information before you hand your money over to anyone!


Clara Ghomes profile image

Clara Ghomes 7 years ago

Woah incredibly nice lens!full of excellent information.I am very impressed and happy that you took the time to write out a very clear and un-biased review.


Twin XL 7 years ago

This was really helpful, thanks! I'm not as confused about investing. College and future yes, Investing...no. lol


stocknequities 7 years ago

Great articles Helen. I am a college student and have been investing since high school. Check out my hub if you get a chance you may find it interesting.

Thanks! http://hubpages.com/hub/stocknequities


Jennifer Bhala profile image

Jennifer Bhala 7 years ago from Upstate New York

There is a way to actually have and use your own personal banking system where you are the Saver, the Borrower, the Banker and the Bank Owner. Read my two latest hubs on the Wall Street Alternative to find out how. Young people should definitely start doing this but older can also. I am 51 and starting mine. I know of 65 years olds just starting out also.


supra forex 7 years ago

great tips


Zee RIz profile image

Zee RIz 7 years ago from Doha - Qatar

Hi dear... I would like to know this system applicable only in USA or any part of the world.. I'm in Qatar and how can I apply such a system in our local market. Could you please tell me in detail.


MistHaven profile image

MistHaven 7 years ago from New Jersey

Ah man, I wish I read this Hub when I was still in college! I might have some more money now, lol. But thanks for putting dividend paying stocks into perspective for me, now I'm not so hesitant to get started.


solarcaptain profile image

solarcaptain 7 years ago from california

hi,

It's been awhile since stocks returned 9% as an average, but if you can root out the high payers that are also drips that's great. Also, other than foreign stocks, I have been looking for 16% return in the U.S. for a long time. Mostly I stick with stocks I know very well and that have out-performed the market over the years. I wrote a blog just today about my predicting the rise in stocks since March(up over 60%) How about Diedrick Coffee, up over 6000 screaming percent? Apple, over 300% and I shares India up over 100%. Your article is well written and researched and offers good insight into investing for a college student or a new investor. At one time or another other the last 20 years-ok 24 years, since leaving grad school I have tried a lot of different ways to profit from the market.

Drips are good and you don't have to risk your money too much. Some years even a 16% return is fantastic. I might even make that much this year myself. thanks for the hub. I enjoyed it very much. Next time a student asks, I,ll suggest your blog.


helenathegreat profile image

helenathegreat 7 years ago from Manhattan Author

Thank you for the comprehensive response, solarcaptain! Always good to hear confirmation from more experienced investors that I'm on the right track.


cheetah groups 6 years ago

great help


Neil Ashworth profile image

Neil Ashworth 6 years ago from United Kingdom

Good hub.


Gochela spokes 6 years ago

thumbs up 4 this hub!!,i grasped sumthing,the problem is i wonder if i could find good companies in Botswana?


Saurabh Rayakwar 6 years ago

Thank you for the information but I have a query that I am studying in B.Tech college in India. Do I have the possibility of investing and if YES then please mention where and how can I invest?

Thank you please reply soon....reply awaited !!!!


helenathegreat profile image

helenathegreat 6 years ago from Manhattan Author

Hi Saurabh (and everyone else who asked about investing internationally),

I'm not an international trading expert, but I know that I own stock in companies who are based overseas (Brazil, for example). When you are researching, find out if the company even offers a DRIP (not every company does, and some don't offer dividends at all). That's your first order of business, and from there you can find out if you can participate in the DRIP if you're living in another country.

With all the digital technology, participating in DRIPs is easier now than it ever has been.


forlan profile image

forlan 6 years ago

when the company bankrupt. Is they still pay our money in DRIP. Would you please to explain it?


SethMemVegas profile image

SethMemVegas 6 years ago

Wow, found this on Google. Good job, I am thinking about investing.


saiyagirl 6 years ago

Extremely helpful information!

I am a student searching for investment opportunities. Are oil companies good to invest in? And do they offer DRIPs?


MC 6 years ago

How liquid are DRIPs?


Minhaj 6 years ago

its a great topic i did not looked this typoe of essay in books

thanks

for this


David 5 years ago

I'm really not a big fan of people who only tell the upside of investing. You're giving everyone this great story about how they can make a huge return in one year (at least that's what your story implied), which can be true, but you NEED to show the risk.

Yes, I do agree that everyone should invest in the stock market, though if you're only planning on investing for one year I recommend a high-yield savings account. This is because the stock market can very easily go down in the short-term, which you failed to mention. Also, the assumption that this stock will raise in price from $9 to $12 is very lofty. That is a 33% growth in one year. That is very rare.

Just make sure everyone knows what they're getting into


sam 5 years ago

great info ...just going to research more about it!!thanks..


Philip Walls 5 years ago

You actually make it seem really easy together with your presentation however I to find this topic to be actually something which I believe I'd by no means understand. It sort of feels too complex and extremely wide for me. I am taking a look ahead to your next post, I'll attempt to get the hang of it!


Kay 5 years ago

Hello, Helena! This is great. Thank you for helping me with your writing. I was wondering...my situation will involve $120K of debt when I finish school. If I were to use DRIP as a way to build money as I am in school, do you think it would make a dent in my student loan repayment? Or is this not the type of return I would get?


Justin 5 years ago

Dear Helena,

This may sound redundant and foolish, but how do you exactly obtain money from your investments? Does the bank or whatever program you may be in for stocks deposit the amount of profit earned from stocks into your checking account? Or is it required to do this manually? For example, if I sold my stocks (I do not know if this is the proper terminology); is the amount of money I sold the stocks for the amount of profit I earned dependent upon how much it went up?

Thank you so much.


tsering 4 years ago

i can spent only 1000 rupee as maximum.is there any chance that i will get a DRIP from any company within this much amount


Reena 4 years ago

I was wondering if my parents would allow me to buy stock

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working