PART FOUR OF A FIVE-PART SERIESCollege students wanting to put a foot through the door of the stock market might find it easier than they thought.
The first step is to determine the amount of money a person has to invest and the risk it carries, Terry Zivney, maxon distinguished professor of finance and insurance, said.
"Some people get really nervous when the market goes down a little bit," he said. "Other people can just put those things out of their mind. Most younger people are more tolerant of risk than their grandparents might be. Determine how much risk you can stomach before you embark."
Zivney said investors need to keep two types of risk in mind: systematic and unsystematic. Systematic risk, which is unavoidable, is broader and usually applies to the entire stock market or economy, he said. Unsystematic risk applies to specific stocks or industries.
It is a good idea to buy stocks from several companies in order to decrease risk, Zivney said.
"Own a diverse portfolio to eliminate the risk," he said. "Own a number of stocks, but if you have a limited amount of money, it's difficult to go out and buy a lot of stocks from different companies."
Mutual funds are the best option for new investors, he said.
"Mutual funds are the first investment step I would recommend," he said. "They're diverse, require relatively small amounts of money and [are] professionally managed."
Freshman Andrew Williams is preparing to invest in mutual funds because he feels more comfortable with them, he said. Not only will he have a friend manage his portfolio, but mutual funds will save him time and money, he said.
"I think before you buy a stock you have to do extensive research and it's a higher risk," Williams said. "I don't have as much capital as older people; I don't get any attention. I'll feel like I have more control with a mutual fund."
Williams' investments will make him more money for when he retires, he said.
"I don't think social security will be around when I retire," Williams said. "It'll be nice to have a nest egg when I retire. I can make some gambles with my investments. The time to do it is when you're young."
There are thousands of types of mutual funds, but the best one for college students to invest in is index funds, which invest in an entire market index such as the Standard & Poor's 500 or Dow Jones, Zivney said.
Senior Noah Waller invests in index funds because it is the best way for young investors to diversify stocks, he said. He owns stock in all the S&P 500 companies, which decreases risk, he said.
"Since I'm diversified it doesn't matter on what I'm invested in," he said. "With the index fund you're in every sector, every industry. That's how I keep myself diversified."
Waller also invests in penny stocks, which are stocks that sell for less than $1 a share, but because of the current market condition he prefers index funds, he said.
"What I really like about the stock market is that with a very little amount of money you can invest in index funds," Waller said. "I don't like individual stocks because the market is really volatile right now."
Students interested in investing in the stock market should plan to budget money for savings, take a small course or workshop and use investment tools online to learn how to invest successfully, Waller said.
"Definitely start playing around with an online platform," he said. "It's the easiest and it'll help you learn how the market actually works. As long as you know some of the basics, you should know what to do."
Mutual funds are the wisest choice for beginning investors, but for long-term investors, funds have the same number of financial benefits and drawbacks as personally owning and managing stocks, Zivney said.
"As an investor in an individual company you get to vote in the company's operation," he said. "A mutual fund doesn't let you do those things, but most people don't care about that."
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