Can you be a graduate student and a smart investor at the same time? Without a doubt — YES! Your tactics will need to be different than someone who is fully employed, but you can certainly be a smart investor while pursuing an advanced degree. Read on to learn how to balance being a college student and plan your finances for the future.
Be Conservative With Your Investments
While you’re attending graduate school, it’s not the time to be taking a lot of risks with your money.
Your investment approach needs to be on the conservative side. There are several reasons for this recommendation:
- As a student, you probably aren’t earning much money, at least not on a full-time basis.
- You undoubtedly have school-related expenses, some which are pretty high.
- You certainly don’t want to take a major hit to your portfolio while you’re in school.
Unless you are employed on a full-time basis (which would be one heck of a juggling act with graduate school), you’re not in a position to cover major losses in your portfolio. Any major losses you take will likely have to wait until graduation to cover, when you have a full-time job.
While attending school, your school-related expenses will be your largest obligation. You will not have extra money to invest, let alone to cover investment losses or mistakes.
On a tactical level, for now you need to avoid individual stocks. Your best bet will be to stay with mutual funds and exchange-traded funds. So you won’t have the burden of portfolio management. Those funds should be invested in some fairly conservative vehicles such as; income funds, growth and income funds and blue-chip funds.
Your Studies Are the Primary Focus
We just touched on maintaining conservative investments managed by professionals within funds, but apart from minimizing potential losses you will not be able to easily recover from, you want to implement this strategy to free yourself up to focus on your studies.
You will only be in graduate school for a couple of years, so you want to make it count to the greatest degree possible. If you’re tied up managing your investments, or worse, fretting over potential losses, your school concentration will be broken. If that happens, you will be dealing with two negative results from your investing activities; investment losses AND potential academic failure.
Take this seriously, our minds are never very far from our finances. That means you will need to maintain your investments in the lowest maintenance, lowest risk portfolio possible. This will insulate your education from your investments — which is a necessary arrangement for anyone who is trying to attain an important degree.
Leverage Being an Investor With Limited Means
One of the advantages you have in the dual role of investor and graduate student, is that you will develop an appreciation for being an investor of limited means. This is similar to a retiree who relies on their investments because of a lack of substantial earned income, or a person of modest income who inherits a substantial amount of money. In a real way, your experience now will prepare you for such situations in the future.
This isn’t just a matter of managing your investments conservatively but also of living your life in a similar way. You have an investment portfolio but you want to live in such a way that you don’t need to constantly drain it in order to survive. It will be a bit of the balancing act — surviving graduate school with limited resources and at the same time not tapping your investment portfolio in order to do it.
That’s a real talent — but if you can master it, you’ll be prepared to manage your investments for the rest of your life. Once again, it’s a matter of separating your investments from your primary activity, which is graduate school.
Finance Majors Only: Start Testing the Waters
If you are majoring in finance, you may want to use this time as an opportunity to test some of the investment theories you’re learning in school. You could allocate 10% (or no more than 20%) of your portfolio to this endeavor. The point is to apply what you learn in a real-world setting without putting too much of your money at serious risk.
This is a sort of backdoor version of earn-and-learn, it can be the most effective education you ever get. This will be even more true because it will be your own capital that you’ll be risking while testing the theories you’re learning as a graduate student.
Of course, this will add a layer of additional risk to your investments, which is why you should keep it to a minority position in your portfolio.
It’s a matter of reaching the proper balance of security and risk. As an investor, that is an application you will use throughout your life. Getting familiar with it now will be valuable training for the rest of your life.
What other advice do you have for a graduate student who wants to start investing?