What Is It?
Using an online brokerage or bank you buy a portion of a publicly traded company (stocks) for a certain price plus fees. You can sell it at any time, and if you sell it for more than what you paid for it then you make a profit.
How Does It Work?
You setup your account through an online brokerage. Typically the easiest way is through your bank. Next you transfer some initial money to start buying and selling stocks. Using the brokerage’s website or apps, you find stocks you want to buy and it will list the price they are currently trading for. If you want to buy them you put in an order to by X number of those stocks at Y price. Once the system finds someone who wants to sell at those price it automatically makes the transaction and transfers those virtual stocks into your online portfolio. At any time you can do the same process to sell your stocks.
Why Isn’t This Recommended For Students?
The first reason is the amount of money you need to invest. Invest more and you can make (or lose) more. Since there are transaction fees for every buy/sell order you would want to invest at least $5,000-$10,000 to make a decent return. As a student you likely don’t have that money sitting around.
The second and more important reason is that this is very risky. Stocks don’t just move up. They are very volatile, sometimes moving up or down 10 (or more) in a month and this catches even experts off guard. For example, in December of 2018 the stock market dropped the most in any December since the Great Depression. If you needed access to that money then you would be forced to sell the stocks at a substantial loss. As a sobering thought, last year was a record for number of energy focused hedge funds that closed down as they were losing too much money.
If you were settled into a good paying job and had some extra money to play with and could afford to lose some money then I would recommend this approach. As a student I highly recommend avoiding this.
Categories: Not Recommended