For students looking to invest their money, the choices can be
endless. Stocks, bonds, mutual funds, exchange traded funds and
Certificates of Deposit are some available options.
Though it may seem daunting at first, students are more likely
to become successful long-term investors if committed to
understanding and following the markets, student investors at UCLA
say.
If one were to take $20 a week and put it into an index fund for
40 years which grew a modest 12 percent, one would have $1
million.
Student investors on campus looking to maximize their returns
may use a variety of U.S. and global macroeconomic trends to
predict market performance. These include the state of inflation,
interest rates and Gross Domestic Product growth.
When evaluating specific companies, student investors say they
examine financial information such as profits, revenues, and
operating costs.
To expand their knowledge, they often read magazines such as
Forbes, newspapers such as the Wall Street Journal and Web sites
such as Yahoo! Finance or MSN Money.
Other students participate in stock market simulations on the
Internet. During the events, contestants can simulate buying and
selling of U.S. securities. The competitions give students a
hands-on experience picking stocks.
Such contests allow students to learn about investing without
risking their own money. Winners of the competitions may receive
prizes and be recognized for their accomplishments.
All student investors will have their own views on how to pick
stocks.
Daniel Osowsky, President of the Undergraduate Investment
Society, looks to the investment philosophy of billionaire Warren
Buffet when choosing stocks. “It’s not a good idea to
follow mass market psychology,” he said. He attributes his
successes as an investor to following “facts and
reasoning.”
For students interested in investing with real money, online
brokerages are a plausible choice. Instead of going through a
traditional broker and losing money to commissions, online
brokerages allow investors to independently choose the stocks and
mutual funds they want to purchase.
Once college students get acquainted with the world of investing
they slowly start to build-up their portfolio and can make
decisions whether to invest in mutual funds or individual
companies.
An investor’s success is based on the risk and return of
his portfolios’ holdings.
For example, technology companies like Cisco have the potential
for high returns but have huge risk, student investors say.
Industrial companies like General Electric have more steady levels
of return with lower risk compared to technology firms, they may
predict.
Benchmarks and indexes are used to measure a portfolio’s
performance. The Dow Jones Industrial average is a compilation of
30 stocks, most of which are industrial. The NASDAQ is a blend of
technology stocks and the S&P 500 is a basket of 500 stocks
representing the entire market.
Though investing can be promising, potentially offering stellar
returns, no investment is guaranteed to grow and past performance
does not guarantee future results.
Dalbar said an investment research firm, from 1984 to 2002, when
the S&P 500 Index grew at an annual rate of 12.2 percent,
individual investors in equity mutual funds saw average returns of
2.6 percent a year, before taxes.
Though the markets will not grow every year and investing is not
easy, having a long-term view is important to being a successful
investor.