WS Chronicle

By Algenon Cash

Most college students are spending their summer interning for a large corporation, studying abroad, or possibly just hanging out at the beach with friends.  But for the more savvy students looking to get a jump on their colleagues, now may be a great time to focus on investing.

If you happen to be one of those students who has been interested in creating an investment portfolio, then here are five tips to help you get started:

1. Read, read, and read – Subscribing to investment journals, trade magazines, and online articles are all great ways to jump start your investment education.  I was required to pass a securities exam when I initially became a wealth banker, which created a foundation of knowledge, but most of the skills that I gained came through self-study and independent reading.  Publications such as the Wall Street Journal, Investor’s Business Daily or even the Economist can help you gain a solid understanding how the capital markets operate.  Most books are inexpensive or may even be free at your local library.  Not to mention there are dozens of online sites that provide resources at no cost.

2. Pay off your credit card debt – It’s virtually impossible to build a quality investment portfolio when you owe money to credit card companies and banks.  Those debts will suck away the power of your money to grow.  So I always encourage amateur investors to initially focus on retiring as much debt as possible before you enter the market.  Try to remember when you pay off debt that provides a guaranteed return on your money.  For example, paying off a $1,000 credit card balance with a 15 percent interest rate is equivalent to netting 15 percent returns – or $150 – since you would avoid paying future interest on that card. In this case, it’s probably worth it to pay off the credit card in full, because getting a guaranteed return of 15 percent is a pretty good deal.

3. Buy your first investment – Most investors may select to use an online discount brokerage, where you can execute trades automatically through a computerized trading system. Others select a traditional brokerage, which offers one-on-one advice and a wide range of services.  The best path is completely a function of your own knowledge and experience.  Traditional brokerages often have fairly high minimum investment amounts, so an online brokerage may provide an option with a lower hurdle.  Keep in mind that you can also buy stock directly from a company with no middleman involved, which may save you money upfront and boost your overall returns.  If you’re a new investor, then never borrow money to invest.

4. Diversify your investments – New investors must be careful about market risk and never place your entire savings in one or a handful of stocks.  Think about the market crash in 2008 when the Dow Jones Industrial average collapsed when it loss 54 percent of its value in 17 months – small investors got wiped out.  New and smaller investors need to spread your capital across a broad range of assets and market sectors, which can reduce risk while boosting overall returns.

5. Start immediately – Young investors have a considerable advantage – time.  Simply investing small amounts of money over a long period of time can lead to significant returns.  Compound interest means the interest you earn each year on your investments is added to your principal – so the balance grows at an increasing rate.  For example, let’s say you start with $1,000 to invest, add $100 per month to your investments for 40 years, and earn 8 percent interest on average annually. In 40 years, you’ll have more than $332,000 saved. However, invest for 30 years instead, and you’ll have nearly half that amount – $146,000.

Contact me with questions, ideas, and general feedback – good luck!

Algenon Cash is a nationally recognized speaker and the managing director of Wharton Gladden & Company, an investment banking firm. Reach him at acash@algenoncash.com