Why Invest While In College?

“The most powerful force in the universe is compound interest”

-Albert Einstein

Most college students don't realize how powerful and effective investing in your late teens and early twenties can be. Old Albert there wasn't exaggerating when he described compound interest. Compounding interest is when you re-invest the profits of your savings back into your savings, so that your money grows exponentially. Invest it and forget it, if you will.

You might try to rationalize not saving because you don't have a well-paying job. The numbers, however, throw out that excuse. To give you an idea of how, if today you invest $1 in a decent mutual fund that averages 10% growth per year, in 50 years you'd have about $117.39! If you work for 6 dollars an hour and invest $2 of that per year, you'd have to make about $200 per hour when you're 50 to invest the same amount! Saving when you're still young is worth it.

It's definitely not too early to look into an IRA, or Individual Retirement Account. Especially considering that either 1. Social Security will go bankrupt before we retire or 2. Taxes will skyrocket to pay for social security by the time we retire, having enough money saved to retire will be critical. IRAs are very useful because the IRS doesn't touch IRAs until you retire!

You may be thinking, "Man, I work a full time job and go to school, and still just manage to get by. How am I supposed to invest?" Remember, you don't have to invest large lump sums, just a small steady stream over time. For instance, you might order Chinese once every week or so. My usual order is pork lo-mien and egg foo young (it'll last me a couple of meals!). The pork lo mien from Jing-Li's is about $6. A package of ramen runs about 25 cents. If for that one meal I enjoy my egg foo young but substitute ramen for the soft noodles, I could invest $5 of the savings. If I did this every week for one year, not counting interest, I'd have about $250 saved!

While $250 again might not seem like a lot, having a little money in the bank goes a LONG way to reducing the stress and anxiety of living paycheck to paycheck. If you were to put that money into an IRA however, it would be worth about $30,000 when you retire! That's more than your first year's salary after college, I'll bet. With a little investing, your sacrifice of lo mien could grow into an entire year's salary.