A look that could be described as mild terror flashes across the face of Marist College senior Connor Norton when he is asked what he knows about the stock market. Knowing that he has only a few months until graduation, said Norton, has made him realize how unprepared he is for certain “grown-up” concepts. “I don’t feel confident at all,” he said, looking abashed, “I’ve never had any training in investments. I wish I had been taught how to interpret trends, or what type of industries perform certain ways…It’s hard to even talk about it now because I don’t know enough about what I’m saying.”
Connor is not alone in his worry. A nationwide survey conducted by Inceptia in 2012 showed that 89 percent of first-year college students who responded scored in the “C” range or below on a basic financial literacy test.
“We aren’t learning these things in school—or anywhere,” said Marist College senior Odessa Turner-Blanker. “Even small things like the ability to finance your car. For example, when you hear that the Dow is really down today, some people understand that means they can’t apply for a car loan this week, and other people don’t have a clue what that means or how it affects them.”
Understanding the basics is, as with most concepts, the first step in the learning process. To begin your financial education in the stock market you must:
1. Get started:
Brian Haughey, the director of the investment center at Marist College and a professor of finance, believes it is important that a person begin participating in smart investment at an early age. Haughey gives this analogy: If a 23-year-old begins investing now, and puts about $5,000 per year into stock investments until he or she is 65 years old, and if the market earns them about 15 percent over that time-span, that person will have accumulated about $8 million in stock by the time they retire. On the other hand, if that person were to wait until they are 28 years old to invest, they will need to invest twice as much money per year, about $10,000, to accumulate the same amount.
To begin, you must create a brokerage account. Visit a brokerage website–Haughey recommends interactivebrokers.com–then apply and create an account. You’ll need to have some money to start with, a few thousand dollars is smart, but as little as $500 is fine, too.
2. Realize how investments will affect you:
“When you start your first job,” said LaRocco, “if the company has a 401k or some other investment plan, they will ask where you want your money to go. If you don’t know, you’ll be at a disadvantage.” LaRocco explains that the company might provide you with a list of investment options, from which you can pick what works for you.
3. Know what will work for you:
Philip LaRocco, a professor of accounting and management at Marist College, recommends that college students, and all beginners, invest with a mutual fund. This type of investment vehicle gives the advantage of investing in thousands of stocks at once, which means that if one company you have invested in loses money you have others to keep you afloat. LaRocco suggests that students look to invest in growth funds, because they have the time to see their investments grow over the next several years. He suggests that students visit a site such as morningstar.com, where investors can research their fund options against a five-star rating system. “You have to look at them often though,” warns Larocco, “because they can change at any time.” In the case of the rating dropping significantly, it would be smart to switch your investment to another firm.
4. Play by the rules:
Haughey warns that the markets are not “efficient,” as many people believe. Rather than eschewing previous market trends, as some academics suggest, you should observe and learn from them. “The trend is your friend,” Haughey said, “Until it ends.” Beginners would be wise to research market trends in order to find potentially successful investments.
5. Be smart about market tops and bottoms:
The previous suggestion has its limitations, and Haughey believes that smart investors should be wary of stocks that seem to be doing exceptionally well, because once the peak is reached there is nowhere to go but down. Alternatively, be mindful that when the lowest point is reached, the opposite is true and the price must go up. To emphasize this Haughey quotes Baron Rothschild, who suggested to “Buy when there’s blood in the streets.”
6. Educate yourself:
Finally, and most importantly, students must educate themselves if they want to be financially successful. For Marist College students, there are several on-campus options. The student investment club meets on Thursdays at 6:30 p.m., and is open to the entire student body. Members discuss the latest financial trends and ideas—this is great way to increase your own financial awareness in a fun group setting. For juniors and seniors with a business major, the Marist Greystone equity fund is a three-credit class option where students will get real-life experience in stock market investment.
Additionally, Professors Haughey and LaRocco teach a financial literacy class together. This class is open to all students twice a semester, runs for eight weeks, and is worth one credit.