You don't have to be a stockbroker or financial planner to become an successful investor while attending college.
From stocks to mutual funds, a first-time investor can easily get lost in the maze of free market terminology.
So what's the difference? And how do I get involved?
According to Bonnie Gentry, a certified financial planner of five years at Scottsdale's Merrill Lynch, there are several differences between stocks and mutual funds.
"With stocks, you (the investor) have ownership in one company," Gentry said. "Mutual funds, on the other hand, provide more diversity and allow you have ownership in several companies."
Some other differences that Gentry mentioned was that mutual funds don't just include the diversity of stock ownership; they allow you to place cash or bonds within that company.
While mutual funds do provide greater diversity and ultimately higher leverage and less risk, ASU assistant professor of finance John Griffin said there is still some risk associated with mutual funds.
"The fallacy of investing in mutual funds is that most people will say 'Oh, since my mutual funds are diversified, I'm safe,'" Griffin said. "These mutual funds invest in the market just like regular stocks, and they've gone down before, as well."
Gentry added that for first-time investors, mutual funds are safer than stocks.
"With stocks, you live and die by that one particular stock," Gentry said. "You want your money spread out in different areas."
Despite the risk, opening your own account can still be as simple as 1-2-3.
There are a number of venues that allow you to open and manage your own account, including Ameritrade and Datek. Both are free of charges when opening an account but have different prices when it comes to trading.
In order to start an account, most companies will require an opening investment of $1,000.
While you can open a regular account and start your investing career right away, most students choose to open an individual retirement account. One benefit to an IRA is the tax-free benefits that come when you sell the assets within your account.
One such student who took on the risk of investing is Sarah Jennings.
The 19-year-old supply chain management senior at ASU started investing at age 18 and said her inspiration to start investing came from reading various books that described the importance of investing and how careful planning and solid long term investments could lead to a lucrative future.
"I read books such as the Millionaire Next Door," Jennings said. "The book spoke of the importance of tax-sheltered investments and making small investments that would pay off in the long run."
Should the scandals surrounding Enron and now Worldcom detract students from entering the market?
Not for Jennings, who said most fears of investing in the market are typically unfounded and have not affected her decision to continue investing.
"It's a slight concern," Jennings said. "One thing I did was check into various reports and the background of each company before investing. The reality is that you have to be willing to take on some risk."
Whether it's stocks or mutual funds, Gentry added that for students who are first-time investors, the best thing to do is attend seminars and read the business section of the paper daily, so as to gauge a better idea of the market.
"You can always go through a mutual fund company by calling them directly, but they won't give you a whole lot of guidance," Gentry said. "There is always brokerage firms, which will provide you with some guidance."
Reach the reporter at tony.ku@asu.edu.
