Today’s post is by The Wise Budget!
I first started investing in stocks when I was still a college student, a few years ago.
I know, I know. Too risky, right? The stock market is one of the–if not the absolute–most volatile markets out there. People lose and earn money in stocks every single second. This is why personal finance gurus always say that you should always invest only after you’ve built up a sizable emergency fund. Preferably if you already have other savings too, like a retirement fund, for example.
Why invest in the stock market?
While I personally believe in the saying, “never invest what you can’t afford to lose”, I also believe that life’s too short not to take risks. Plus, as a fresh-faced, innocent college student, I also believed that I had absolutely nothing to lose if I invested in stocks. I always thought that if I did lose money in the stock market, I could always earn that money back once I finally get a stable job of my own after I graduate.
Never mind student loans, never mind other expenses! We’re doing this right now, no excuses! If people like Warren Buffet can earn millions from the stock market, we can, too!
Now, before you pull up a new tab and start searching about how you can get rich with the stock market (like 18-year-old me did), keep in mind that you do have to be realistic here. You can get rich from doing stocks, but for most people (like me), it’s just another way to save money for the long-term. Especially if you’re a college student right now, your main priority should still be graduating from college, first and foremost.
Nevertheless, if you’re really interested in investing, here are 3 mistakes that I made as a college student investing in stocks. Hopefully, you can learn something from these and avoid them once you begin investing too!
Mistake #1: Investing for short-term
When I first started investing, I thought I could invest just for a short term.
You know all those stories about people flipping stocks and earning thousands from that? I thought I could do that too.
In my head, it was perfect. I would buy shares from a specific stock, wait for the price to go up, then sell everything. I would then use the money to buy another stock, wait for its price to go up, then sell. Rinse and repeat.
Let me tell you right now: it didn’t work. Not only was I super bad at picking which stocks to buy shares from, I was also very bad at ‘timing the market’. I once sold shares of a stock after waiting just for a couple of months. It wasn’t gaining much, so I thought I should get rid of it. Guess what? Around two or three years after I sold it, the stock price shot up by 300%! It was a penny stock, one of the riskiest stocks to buy. Penny stocks can also give you the biggest returns, as well as the biggest losses.
Investing for the short-term rarely ever works for individuals, especially if you’re not a seasoned investor. If you’re just starting out, it’s probably best to invest for the long-term. Another tip is to invest in blue-chip companies, established companies with a long-standing reputation, and stay on the safe side.
Mistake #2: Investing with my heart
Thinking with your heart and not with your brain is almost always a bad idea, and I’m sure anyone who has ever been in a relationship before can agree with me. When you think with your heart, you tend to forget logic and reason in favor of whatever your heart is telling you. And when that happens, common sense flies out of the window.
When I was much younger, I used to not just think with my heart, but also invest with my heart. I invested in stocks that I ‘feel’ were the right choice, without doing much research about them. My belief was, if my heart said “go”, who was I to say know?
I also held on to some stocks simply because I felt sentimental towards them. Funny, isn’t it? I was a hormonal, emotional teenager who invested in stocks just because, but I couldn’t let them go even if it was the right time (and price)! This led to a handful of lost opportunities over the years, simply because I invested with my heart and not with my brain.
If you’re planning to go into investing yourself, always do prior research before investing in something. More importantly, use your head!
Mistake #3: Not having enough savings
I started investing in stocks with hardly anything left in my savings account.
Yes, I know, Dave Ramsey. I made a mistake. I should have finished my emergency fund first. I should have saved around 3-6 months’ worth of salary first, before delving into something as risky as stocks. Yes, I know that now.
But back then, I didn’t know that. I was earning a good amount of money, at least for a college student, from all my side hustles. I did put aside some cash for my savings, but I put a bigger amount towards my investments. If I could talk to younger me, I would scold her and call her crazy, definitely.
When I was in my second year, I was caught up in an unexpected incident that required me to shell out some money. I won’t get into the grisly details of my accident (just kidding, it wasn’t that bad), but I ended up having to sell some of my shares below my target price because I needed the money immediately. That would never have happened if I actually had an emergency fund.
After that incident, I took a hiatus in investing and focused more on my emergency fund. I didn’t put a cent towards my investments again until I had finished my EF. It’s been years but until now, I don’t touch my EF unless it’s absolutely an emergency.
Those are the 3 mistakes I made as a college student investing in stocks. I have to be clear: I don’t regret a single thing. I don’t regret investing at all. Aside from all the money I made from the dividends throughout the years, I also earned something more valuable: discipline.
If there’s anything that I’m grateful for, it’s all the good financial habits that I’ve learned all these years. Sure, I made mistakes. But I became more knowledgeable, more experienced, and much wiser because of them. That’s something that no amount of money, not even my dividends from the stock market, can ever buy.