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Investing Insight

4 things students need to do to start investing

The earlier you start investing, the better off you're likely to be—in fact, you can start researching right now from your dorm room or apartment. The first thing you'll probably learn is that where you learn about investing and how much money you start with won't necessarily drive your success—instead, your most powerful investment tool tends to be time.

Up your financial game

Imagine two people, Kate and Ishaan. They both invest their money in a portfolio with a 6 percent annual return—a reasonable rate over the long-term. If Kate invests $100 per month starting at age 25 and continues until retirement at 65, she will end up with nearly $200,000.

Meanwhile, imagine Ishaan waits to start investing until he is 35. Even if he makes the same $100 investment until he retires at 65, he will end up with less than $100,000 (nearly cutting his retirement savings in half). In fact, if Ishaan wanted to catch up to Kate by the time they retire, he would have to invest almost $200 each month —just because he waited to get started.

The big difference is that Kate's early start helped her take advantage of compounding. That's where you earn a return on your initial investment, and that return builds over time. So, the lesson is clear: if you're a college student or recent grad, take advantage of the most powerful investment tool you've got.

The above example is for illustrative purposes only and not indicative of any investment. Compounding refers to the process of earning return on principal, the original amount you put into an investment, plus the return that was earned earlier.

Here are four steps you need to get started:

1. Make sure you've got money to invest

As a rule of thumb, you shouldn't start investing until you've got enough money saved to cover three to six months of living expenses, though this varies based on your personal circumstances. And, even after you start investing, save yourself stress and be sure to keep enough in savings to cover unexpected expenses that might pop up.

If you have debt, evaluate whether or not it makes sense to wait to invest until you've paid it down. To do this, compare your potential returns on investments against the interest rate you're paying on loans. For example, credit cards have high interest rates—often higher than the returns you could get from investing. So it would make sense to pay them down before starting to invest. However, other loans, such as student loans, may have lower interest rates. Depending on your personal preference, you could choose to start investing and pay down your lower interest rate debt at the same time.

"No amount is too little to start," says Ted Dimig, Head of Investments for You Invest, J.P. Morgan's online self-directed investing platform. "The advantage that students have today is that new digital platforms have made investing easier than ever before, and you can get started with just a few dollars."

Once you've evaluated these trade-offs, decide how much money you can invest without risking your financial health.

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2. Make a plan for "future you"

The next step is to set some long-term goals. Investing has the power to change your life, so dream big. Think about where you want to be in 20, 30, or 40 years?

Once you've got a goal, begin making investment decisions that are tailored to get you there. As Dimig says, the greatest ally students and recent graduates have is their youth—but only if they put it to good use.

"If I could go back and give my 20-year-old self one piece of advice, it would be to get invested earlier, and to keep going. No matter what goals you have, if you have a long enough time horizon—and enough savings to pay for any short-term surprises—you can take on more risk because you have the time to ride out any market bumps," says Dimig.

3. Develop smart habits—and stick to them

When it comes to investing, consistency is the name of the game. As Kate and Ishaan show, making regular contributions to your portfolio using a continuous or periodic investment plan and giving those investments time to grow are sound strategies for long-term financial growth. While you may not have a significant income now, getting in the practice of saving and investing regularly will make a huge difference when you start making money moves after college.

4. Always know where you stand

To make sure you're on track to realize your goals, regularly check your portfolio online. Not only will it give you a clear understanding of your investment, but it will also remind you of your long-term goals. "If you are young and your circumstances aren't changing much, you only need to check up on your portfolio a couple times a year," explains Dimig. "Check that you have the right amount of risk in your portfolio and that you are contributing regularly. If you need help, there are lots of resources at your fingertips that you can access on your phone or at home."

By following these easy investment tips, you'll give yourself the best chance of building a significant—and potentially life-changing—investment journey.

The information within this document is being provided for informational and educational purposes only. It is not intended to provide specific advice or recommendations for any individual. You should carefully consider your needs and objectives before making any decisions. For specific guidance on how this information should be applied to your situation, you should consult the appropriate financial professional.

Investing involves market risk including the possible loss of the principal amount invested. Asset allocation/diversification does not guarantee a profit or protect against a loss. JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

Any type of continuous or periodic investment plan does not guarantee a profit or protect against a loss. Since such a plan involves continuous investment in securities regardless of fluctuating price levels of such securities, you should consider your financial ability to continue your purchases through periods of low price level.

JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB") offer investment products, which may include bank managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (JPMS), a member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

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© 2019 JPMorgan Chase & Co.

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