How Investing in Short-Term Stocks Can Help You Save for College

Whether you plan to attend college in the fall or still have a few years of high school left, you and your parents have probably discussed how to fund your education. One route to college savings that both parents and students tend to overlook is short-term stocks. Before we explore specific investment opportunities, we think it would be helpful to explain how stocks work.

What Does It Mean to Purchase Stock?

The term stock refers to purchasing an ownership percentage in a company. Business owners list their companies on the stock market to help raise funds. It is important to understand that the value of a stock goes up and down daily and that you have no guarantee of earning a profit. However, you can sell stocks from companies that are not performing well in favor of businesses with higher earnings.

Financial advisors typically recommend spreading funds out among several stocks, regardless of the size of the investment. Taking this approach helps to protect you or your parents from significant losses that could occur from buying the stocks of only one or two companies. Companies refer to people who own stock as shareholders because they receive a share of business profits related to the amount of their investment.

Investing in Stock as a College Student

Before you turn 18, you will have to rely on your parents to purchase stocks to put towards your future college expenses. Just keep in mind that not all parents want to take on the risk or the full responsibility of paying for college. You can invest in stocks yourself once you become a legal adult, even if you are still in high school.

A big misconception about stocks is that you need to be wealthy to invest in them. The reality is that anyone can start investing, and those who are wealthy today may have become that way by investing in stocks.

When you only have a small amount saved to go towards investing, consider putting it in an index fund to start. Another option is to subscribe to a dividend reinvestment plan, known as DRIP. Hundreds of major corporations offer DRIP options that do not require much money, experience, or effort by new investors.

By the time you own one share of stock from a DRIP, you can buy additional shares from the company directly or an agent representing it. You do not need to pay fees to a broker to do it for you.

The attractive thing about stocks is they pay dividends that eventually earn dividends of their own. As a college student who may not have a lot of extra money, that means you can earn income without having to continually reinvest in a DRIP. Sitting on the money for one school year could provide you with a jump-start on paying fees for the next school year.

Do you want to learn more about using stocks to pay for college or explore other alternatives? You and your parents are welcome to contact us to request a consultation today. We proudly serve families in New Hampshire and Maine.