Thank you for taking the time to read my blog post. I am an undergraduate student at Ithaca College majoring in Business Administration with a double concentration in sport management and marketing with a minor in entrepreneurship. I have relevant course work on the topic of investing with classes such as Personal Finance, Business Finance, Fun with Investments, and Financial Accounting. In addition, I was a member of Core Trading Consultants last Fall and have done a significant amount of my own research on investing, trading, and personal finance. I wrote this post with as little fiscal jargon as possible, with an easy to read style of writing.
I meet many students who have a good chunk of money in their savings account. That money is just sitting there, slowly losing value. It is losing purchasing power every day it sits in there due to inflation. The average inflation rate in the last 30 years has been around 2.5% annually. If you start your college career with $1,000 in your savings account what you could have bought with $1,000 costs $1,025 a year later. You're effectively behind by $25 due to inflation. By the end of your college career that money will have lost roughly $77 dollars in purchasing power depending on the returns for your savings account which is usually 0.03% APY. If the inflation rate exceeds the interest earned on a savings or checking account, which it always does, then the investor is losing money.
So I ask college students, why not use your money to make more money? If you know nothing about trading or investing, learn! The internet has tens of thousands of videos, blogs, articles, and courses on investing and trading for beginners that are free and ready to be used. This includes Essex Trading where educational blog posts have been posted on technical analysis, fundamental analysis, and more. If you are a college student who has a savings account, use some of that money and invest it. But first, you need to establish your goals, evaluate where you are financially, and then develop a plan to meet those goals.
Let us create an example. Kate, a sophomore in college, has $2,000 in her savings account. She wants her personal equity to increase until she graduates college. She plans on paying back her student loans as quickly as possible once she graduates. Kate has a part-time job over the summer for three months where she earns $900 a month. She puts $300 of that away each month and has $1,800 ($600 x 3 months) of money left over by summers end. This is allocated towards car loan payments, insurance payments, spending money and college payments during the school year until next summer where she does this all over again.
After graduation on this track, she will have that original $2,000 plus the saved $1,800 ($900 x two summers) from two summers of work. This totals $3,800.
However, what if Kate invested that saved money into a brokerage account, where she could easily withdraw all the funds when she wants to start paying off college? If she takes half her savings of $1000, plus all her summer job money from each summer, she would end with $2,800. If she invested all of that into the S&P 500, which historically has produced a 10% return annually, she would have $3,100. When she takes this out and combines it with the savings left in her account, she has $4,100 to her name versus the $3,800 if she didn't invest.
Future value (FV), periodic payment (PMT), interest rate (I/Y), number of compounding periods (N), and PV (Present Value) can be calculated to determine each other's values.
n = 2 I/Y = 10 PV = 1,000 PMT = 900
If you are a college student who is in a financially safe position. I would recommend taking an amount out you feel comfortable with, knowing if you invest in a low-risk stock market index like the S&P 500, you will most likely see a return of around 10% after a year. Why have your money lose value in a savings account when it could be working to make money for you?
~ Keegan Santasiere
Essex's Trading Quote of the Day (QotD)
"The best way to build your future is to create it."
~ Abraham Lincoln