The stock market is crashing. This is a great time for college students to invest.
Wall Street in New York City. (Photo via Ramy Majouji)
Views expressed in opinion columns are the author’s own.
The fear of a coronavirus pandemic has caused the stock market to plunge into correction territory. Last week, the Dow Jones Industrial average, an index of the 30 largest companies on the U.S. stock exchange, fell over 3,500 points. It was the worst week for stocks since the 2008 financial crisis. Coronavirus is a growing concern for investors who fear supply chain disruptions and travel cutbacks caused by the disease will lead to slowing economic growth, and in turn lower profits for companies. But, as Wall Street panics, college students should take the downturn as an opportunity to invest.
While coronavirus represents uncertainty for investors, it is the perfect investing opportunity for college students who have the time to wait out the negative economics of coronavirus. Given that investments can grow exponentially and that stock prices tend to rise over the long run, time is perhaps the greatest asset an investor can have.
But, according to a 2016 survey, only 18 percent of Americans between the ages of 18 and 25 invest their money in the stock market. Even though research shows that between 70 percent and 80 percent of college students work, many young adults let their money sit in a bank account rather than investing, which yields comparatively less profit. Now, with stock prices nose-diving and investing apps such as Robinhood and E-Trade making it easier than ever to enter the market, college students should look into investing their money in stocks.
When it comes to investing, starting early can make all the difference. However, students don’t always feel financially competent enough to invest, or just don’t know how to start. But in investing, the simplest approach is often times the most successful. While investing in individual stocks may seem appealing, data shows putting your money into a diversified index fund is the best way to maximize gains and minimize exposure to risk. Many financial advisers recommend young adults start their investment portfolio by buying an exchange-traded fund or mutual fund of a market index such as the S&P 500 — a bundle of the 500 most valuable U.S. companies weighed by value. Investing in a market index allows you to invest in a wide variety of companies from a diverse range of sectors without the risk that comes with buying stock in a single company.
And with the power of compound interest, even a small investment in an index fund can lead to huge returns. Compound interest is the concept of earning interest on previous interest, causing your initial investment to grow exponentially. Legendary investor Warren Buffett credits compound interest as the most powerful factor behind his investing success, and it is often said Albert Einstein called it the eighth wonder of the world. With compound interest, a $5,000 initial investment with a $5,000 annual contribution at a 10 percent yearly return would be worth almost $1,000,000 in 30 years.
Investing in the stock market is making a bet on America’s future. While coronavirus is a frightening public health crisis, eventually it will pass. And in the long run, stock prices will rise again as they always have. America has been through the Great Depression, two world wars and 9/11, yet the American economy has always persevered and the market has always bounced back. Rather than expressing apathy towards the stock market or viewing coronavirus as reason not to buy stocks, students should take full advantage of falling stock prices and invest for their future.
David Gordon is a sophomore government and politics and operations management and business analytics major. He can be reached at email@example.com.