During the early stages of the pandemic, most of my days were spent buried underneath mounds of pillows and plush toys as I scrolled endlessly through TikTok. Eventually it dawned on me: The glacial pace of my day made me realize that not only did I have all this time, but I am young and the stock market is crying for my assistance.
I had heard rumors of investing when the stock market was low, which means that the cost of individual shares (money invested into a company) dropped because of outside factors like, I don’t know, an unexpected viral disease.
Like a game of twister, I pressed my left arm into my pillow and my right leg onto the floor, exclaiming “It’s time to do something with my money!” More importantly, it was time to invest in my life.
While it may seem like a strange choice, given that I never carry more than a $5 bill and 35 cents worth of nickels in my wallet, I learned that mutual funds were a good place for me to start.
- What’s a mutual fund?
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A mutual fund is not the same as buying shares in the stock market. In a mutual fund, you purchase multiple shares among different companies with the help of an investment professional, rather than directing your money to one sole business. That way, you lower your investment risk by diversifying your shares among multiple securities, or stocks. Most importantly, you don’t have to be ready to retire with six figures in your bank account. You can start a mutual fund with as little as $500, and automate payments into your fund as you wish.
In a nutshell, a mutual fund puts your money in more than one place, so that it’s not at the mercy of one company’s success.
- So, which mutual fund is right for me?
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An open-end mutual fund allows you to purchase as many shares as you want to buy, whereas a closed-end mutual fund has a fixed number of shares. Simple.
Mutual funds can also be classified into balanced funds, income funds, money market funds and growth funds. Balance funds and income funds are meant to create income, which means you will need to invest more to actually profit from it. These kinds of funds are not ideal for college students, because the only job I’ve ever had was in retail.
A money market fund invests in a variety of short-term debt and growth funds (the one I have) are long term funds that invest in shares.
- Why you should invest now
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Investing at a younger age equates to more money in the long run. If a business is successful in the long run, the value of the business and price of shares generally increase. If you purchase shares at a lower price, you will receive a profit.
As a student without major expenses, outside of an apartment and tuition costs, investing now with less bills to pay is a wise decision. Your securities will have more time to mature, equating to more money in your wallet down the line.
Related: So, How Should I Build Credit & Why Does It Matter?
- Don’t be a scaredy cat
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During a time like this, many people have fearfully pulled back from the stock market, rather than riding the storm (and that’s something I’ve heard numerous times). If you want to be a smart investor, you have to be willing to stay calm during recessions and leave your money right where it is.
- Be prepared to take a risk
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Yes, it’s a risky business. The value of a share you purchased last week, may not be the same today. That number fluctuates based on economic and market factors, and if you sell your share when the market is down, you will lose money. Oftentimes, the market bounces back, and those that fearfully sold their share, lose out. While the risk of owning shares directly or indirectly is the same, mutual funds are spread out among many securities, which will not affect the fund’s overall success. It’s like a cartoon of eggs: If one breaks, you still have 11 more.
It’s not a savings account, where you’re guaranteed a 0.00001% interest rate, but with risk comes opportunity. You can win big as easily as you can lose. There’s a possibility you could lose money, but an informed and educated investor is more likely to perform better and walk away with more.
- Where do I start?
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Now that you’ve learned a little about mutual funds, there are several ways to get started. If you’re concerned about your finances and how much to invest, companies like Sallie Mae can help you fund this next chapter in your life. If you’re interested in seeking a financial advisor or stockbroker, like I did, you will have to pay a load or commission in order for them to offer professional guidance as well as monitor the activity of your shares. The downside is the fees will lower the amount of money you can earn from mutual funds. To escape this, apps like myCAMS mutual fund app and Zerodha coin are commission-free apps that let you invest directly in various mutual funds without an advisor.
While this new step in your life will require more energy than a simple social media scroll, the long-term effects are rewarding. You’ll thank me when you’re rich.