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Money Matters: Investing for students

A Q&A with W. P. Carey lecturer Debra Radway

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"Many of these young millennials said they didn't have enough money, lacked investing knowledge or thought it was too risky." Illustration published on Tuesday, Nov. 19, 2019.           

According to CNBC, investing from an early age often leads to increased wealth, an earlier retirement and more financial security down the road.

But the financial information website Bankrate found that less than 25% of adults between the ages of 18 and 25 had any money invested in the stock market in 2015. Many of these young millennials said they didn't have enough money, lacked investing knowledge or thought it was too risky.

Regardless of the reason young millennials aren't investing, W. P. Carey School of Business lecturer Debra Radway is here to help ASU students get a head start on their financial savings. Radway is a certified financial planner and advisor for Radway Advisory Services.  

Q: How early in life should a person start investing?

A: Good financial habits start early. I encourage parents to give children as young as 10 an allowance and an incentive to save a portion of their money. Saving is a habit just like spending.  

When kids are younger, their investing usually is focused on money market accounts, savings accounts or certificates of deposit. As they get into high school, they can begin buying an individual stock of a company whose product they enjoy as a way to begin to understand stock ownership.

Q: What are some benefits to investing while still in college?

A: If you can manage small amounts of money you can usually eventually learn how to manage bigger amounts.  

The key to investing in college is making sure you understand what your financial goals are and match the investments to those goals. If you have a short term goal like wanting to buy a car or a house after college, you want to use investments that are appropriate for short term goals, like saving accounts, money market accounts and certificate of deposits. 

Investments in the stock market or company equity are suited for money you don't need to use for five years or more. 

Q: For students looking to invest, how do you recommend they find a trading service?

A: I would recommend that students use a trading service focused on self directed investors.  There are so many to choose from like Fidelity, Charles Schwab, TD Ameritrade, Vanguard and Robinhood.

 I would always look at the fees that are charged based on the size of your account. 

Q: What percentage of a student’s income or savings should they aim to invest?

A: I would recommend investing a minimum of 10%, because good saving and investing practices are a habit.

Q: How should students identify which stocks they want to invest in?

A: If a student has a desire to learn about investing in individual common stock they should look to the products and services that they buy and like as a starting point. Then they need to consider if the company's stock is trading at a fair value.

Q: What is the maximum a student should invest in a single common stock?

A: You should not put more than 10% of your money to invest in a single common stock.

Q: What are some options for students besides individual common stocks?

A: Most students will not have the time, interest or aptitude to invest in individual stocks. They should consider letting someone else do that work. When they invest in a mutual fund or ETF, someone else is selecting the stocks or bonds for the investment.

Q: How should students find the right mutual fund or ETF for them?

A: Students should educate themselves on the different categories of investments and the risks associated with them. There is a big difference in the riskiness of investing in large company U.S. based funds, small company U.S. based funds, companies in emerging markets, corporate bonds, junk bonds, etc. 

Vanguard, Fidelity and Charles Schwab have a lot of information online that explains how to structure a portfolio given your goals and risk tolerance. 

Q: After students buy into their stocks, mutual funds or ETFs, is it worth it to try to time the stock market and sell high, or should students let their money sit?

A: Everyone thinks they can time it and get out at the high and buy in at the low. I have been investing for over 30 years and my perspective is it is impossible to get both decisions right. You might be able to time the top some of the time, but then you have to be willing to buy in again when everyone is fearful. 

Q: What would you tell students worried about losing their hard-earned money in a crash or recession?

The stock market goes up and down. In a recession, prices can go down as much as 20 to 40%. In a bull market, prices can double or triple. 

Investing in the stock market is for money that you have for long term goals. Over longer periods, like 10 to 20 years, the investments have historically gone up.  

Most of the students are in their twenties and will be investing a bit each month or year. If the market goes down, you are buying more at lower levels. Pick a reasonable asset allocation and invest each month and although there are no guarantees, if you stick with it you should have a nice nest egg 30 years from now.

Editor's Note: This interview was edited for clarity and brevity.

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