Students have many financial options with stocks, bonds, CDs

Katie Greenwald

Money for nothing.

That’s how some college students see the stock market.

But there’s no such thing as free money. The cost of making millions from stocks is losing it all in a moment’s notice.

But that’s a risk young people can afford to take because they can make up for it, said Kathryn Wilson, an economics professor at Kent State.

“You’ve got lots of time to ride out the risk,” she said. “But you have to think about it — are you ready to take the loss?”

One way to manage loss is for investors to only invest what they can afford to risk losing, according to The Motley Fool Investment Guide by David and Tom Gardner.

The book says not to invest anything in the stock market that cannot be left untouched for at least five years but preferably a lifetime.

Someone who takes risks in the stock market will have a greater chance for high returns than someone who doesn’t, Wilson said.

She said college is the time to take risks because any losses made then will be redeemable with 40 years of work.

The Market’s Condition

But there’s no reason to take unnecessary risks.

Ways investors avoid foolish risk when buying stocks include doing research on companies they plan to invest in, managing their own account if they have the time and ability and not becoming too attached to any one stock.

Another way to manage loss is to pool stocks together, as in a mutual fund. When grouped together, the risk inherent with stocks subsides, according to The Motley Fool Investment Guide.

Mutual funds are collections of stocks in several companies owned by several investors.

Mutual funds are safer than stocks standing alone, but they underperform in the market.

The Standard and Poor’s 500 Stock Index measures how well the market is doing by tracking industrial, financial, transportation and utility stocks. It shows the average growth rate of stocks is 10.5 percent a year.

That means the money invested in stocks grows 10.5 percent per year of the investment. Mutual funds, however, only have a 7 percent growth rate, according to the investment guide.

Contact financial reporter Katie Greenwald at [email protected].