How to Invest in Stocks As a Student With a Low Budget

By Contributing Writer

Overview

Even students with low budgets can start investing in stocks to help meet their long-term financial goals. Students can choose to invest in individual stocks if they're willing to take on the extra research (and possibly the extra risk) required, or they can choose mutual funds or Exchange Traded Funds that invest in a variety of stocks for them. In either case, students should make sure that they're paying the lowest brokerage fees possible to make the most of their limited investment budget.

Step 1

Consider what type of account you'd like to invest in. You may want a regular account, an educational savings account or an individual retirement account (IRA), depending on your goals, your investment time frame and the potential tax benefits. For example, a Roth IRA won't give you a tax deduction now, but it will allow the money to grow tax-free, which can be quite useful if you're in a higher tax bracket later in life than when you're a student.
Step 2

Decide if you want to invest in individual stocks or in funds. As a student, a mutual fund can simplify investing and give you a more diverse portfolio for a limited amount of money. However, you may want individual stocks if there are particular companies you want to invest in or if you want more control over your investments. You can also choose to invest in Exchange Traded Funds (ETFs), which invest in a variety of stocks like a mutual fund, but buy and sell like a stock.

Step 3

Choose a discount broker or mutual fund company that requires only a small amount of money to open an account. For example, ShareBuilder, linked below, allows students to open accounts with no minimum opening balance. Make sure the company also charges little to no maintenance or low balance fees.
Step 4

Find out how much the broker charges to buy and sell stocks or how much the expense ratio is for mutual funds. Make sure the funds are no-load (free from sales commissions). Keep in mind that investing money in individual stocks or ETFs generally requires a brokerage fee every time you buy, while investing in mutual funds generally does not.
Step 5

Find out if you can buy individual stocks in small amounts. Many brokers charge extra fees if you only buy a few shares, while companies like ShareBuilder allow you buy stocks in dollar amounts, rather than by share price, which means you can get started with a small amount of money.
Step 6

Research the stocks, mutual funds or ETFs you might want to invest in carefully to make sure they meet your risk tolerance and your investment goals. You can use a free online site such as the Motley Fool, linked below, or you may be able to use the public library to access a subscription stock research resource such as Value Line.

Skill: Moderately Challenging
Ingredients:
Internet access
Discount stock broker or investment firm
Tip: You may want to consider signing up for an automatic investment plan that lets you transfer money to your investment account every month or every paycheck. This makes it easier for you to continue investing, and you may even lower the minimum amount the broker or mutual fund company will let you invest. Alternatively, you can put your money in a bank account until you have enough funds to invest, particularly if you're paying a fee every time you buy a stock.
Warning:
Make sure you understand all the terms of opening an account and the risks involved before investing in stocks, mutual funds or ETFs. Stocks and mutual funds are not federally insured and may lose value over the short or long term.

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