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A CFP says ETFs are one of the best investments for college students and young people— here's why

CFP Katelyn Bombardiere recommends young people invest in ETFs for two important reasons.

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It's never too early to start taking steps to improve your finances, especially if you're a college student or a recent graduate with an entry-level job.

Many financial experts recommend starting to invest as early as you can because the sooner you begin, the more time your money has to grow and the less you'll need to contribute. For example, a 25-year-old needs to invest just $240 a month at a 9% yearly return to have $1 million by age 65; but if they wait just five years to start investing at age 30, they'll need to invest $370 a month.

There are many types of investments out there that cater to a variety of needs, but certified financial planner Katelyn Bombardiere says that ETFs are one of the best investments for college students and young professionals.

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An ETF (exchange traded fund) is like a bucket that holds a collection of securities like stocks and bonds. You can invest in an ETF in the same way that you would invest in a stock — by purchasing a share through a brokerage. But unlike stocks, when you purchases a share of an ETF, your money is spread across different investments rather than just one company. 

Bombardiere recommends ETFs as an investment for younger people for two great reasons: They don't cost as much to own as some other assets like mutual funds, and they provide diversification.

"People get caught up in making money fast rather than focusing on ETFs, which aren't sexy, but they are well-diversified and low-cost," she says.

Low cost means more of your money will be going toward growing your wealth, rather than pay a fee for investing in the fund. You can figure out how much it costs to own an ETF by looking at the expense ratio. This number is usually expressed as a decimal and represents how much you'll pay for every $10,000 you invest in the ETF.

The other factor that makes ETFs so appealing — diversification — should be an important part of any investor's wealth-building strategy. When you diversify your portfolio, you're spreading out your risk rather than betting all your money on one stock that could end up tanking.

"ETFs are great for students and young professionals who don't have a ton of money to put into a bunch of different investments," Bombardiere explains. "If they only have $100, and they invest it in one stock and it tanks, it's not good. So it's best to do an ETF that gives them more exposure to a bunch of different stocks."  

That's not to say that you shouldn't invest in stocks at all — rather, they should be a portion of your overall investment portfolio.

"People want to try to pick the next Amazon or the next Tesla, and that's nearly impossible," Bombardiere says. "People dedicate their entire careers to doing this. ETFs are best if you just set it and forget it and let your money work for you."

Getting started

One big misconception about investing is that you need to already have a lot of money to get started. However, starting small is more beneficial than not investing at all. In fact, starting out with small amounts of money – like $5 or $10 – as a beginner can help you get better acquainted with how the market works. Then, over time you can invest more and grow your portfolio.

"Starting is better than not starting," Bombardiere says. "Invest with $10 or $20 a month. And as you come into more money and increase your budget, you can increase your contributions."

You might also consider using an app that makes it easier than ever to invest small, non-intimidating amounts. Acorns, for example, allows users to invest the "spare change" they accrue when making everyday purchases like coffee, textbooks and clothing — purchases they were going to have to make anyway. This way, they're basically investing on autopilot. (Disclosure: NBCUniversal and Comcast are investors in Acorns.)

Other apps like Robinhood allow you to invest in fractional shares — a portion of a stock's share based on the amount of money you want to invest rather than the number of shares you want to purchase — with as little as $1. Fractional shares can be instrumental if you can't yet afford a full share of a stock but still want to get some skin in the game.

Bottom line

ETFs can be an appealing investment option for college students and young people early in their careers because of their diversification and low cost. It's also important to remember that you don't need to already have a lot of money before you begin investing. You can start with what you can comfortably afford and work your way up from there.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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