Here’s what they don’t teach you at school: how to put your money to work. All they say is that there’s this linear path you should follow: go to college, get a degree, find a prestigious job, and move up the career ladder until retirement.
Yet, when it comes to building wealth, that’s not the whole story. It leaves out what you should do with your savings. Spoiler alert: the answer’s not “put them under a mattress.”
You can grow your savings by investing that money and whatever returns you gain later on. But which assets should you choose?
Let’s make a case for the tech industry stocks and for getting started while you’re still in college.
First, a Word of Caution: Always Do Your Research
The reality of tech stocks is, not all of them are Apple, Netflix, or Facebook. Most tech companies are either startups or young companies that haven’t even turned a profit yet. Plus, even tech giants can be replaced: think about what happened to BlackBerry and Nokia.
So, unless you invest in FANGMAN (Facebook, Apple, NVIDIA, Google, Microsoft, Amazon, and Netflix), you’ll need to do thorough research. While investing is never risk-free, it can help you minimize the possibility of losing your hard-earned money.
Of course, due diligence takes time. In fact, it’s akin to a part-time job. So, you’ll need to reflect on your priorities and act on them. That can mean reducing your academic workload by hiring a professional paper writer from WritePaper.com, for example. You can also work on this during boring lectures (wink-wink).
Reason #1. Tech Industry Is Booming
While practically every other industry took a nosedive during the COVID-19 pandemic, tech was the exception to the rule. The pandemic only accelerated technology adoption across the board.
Case in point: Zoom. Its year-on-year customer growth reached a whopping 354% in the first quarter of FY2021.
What’s more, the tech companies that have the right secret sauce to corner the market are synonymous with higher-than-average growth. Think about it: Google was founded in 1998, Amazon – in 1994. And over just a bit more than two decades, they grew into multinational conglomerates with revenues of $182.5 billion and $386 billion (2020), respectively.
Reason #2. Tech Stocks Have a High ROI
Tech companies’ outstanding performance during this digital surge was reflected in the ROI of their stocks, too. Apple, Amazon, and Alphabet (Google) saw gains of around 80%, 70%, and 30% in 2020, respectively. For comparison, the average ROI in other sectors of the stock market is a-not-so-amazing 10%.
But the pandemic only sped up the existing trends. Tech stocks have always brought higher ROI to investors.
For example, NASDAQ-100 has always beat S&P 500 over the past decade by 2.5x on average. Why? The former consists mostly of tech companies, while the latter includes only a quarter of them.
Reason #3. The Earlier You Start, the Better
Why invest in tech stocks should be a no-brainer by now. But why do it while you’re still in college? Wouldn’t it be safer to wait until you graduate and get a job?
Not exactly. That is, it wouldn’t make that much difference in terms of safety. Where it does make a difference is in the potential earnings. And this is where time is of the essence because of two simple words: compound interest.
Here’s what it means in practice. Let’s say you have $1,000 to invest. Imagine that you start when you’re 18, earn 10% in returns every year (stock market average), and put the returns to work, too. By the time you’re 40, you’ll have around $8,100.
How much will you have by that time if you start at 25? Only around $4,180 – just a half of what you could’ve had.
Reason #4. You’ll Learn a Lot from Experience
Like many other skills, you can’t become a pro in investing only from reading books or watching YouTube tutorials. You need to get your hands dirty – and a lot of what you’ll learn will be by trial and error.
Apart from just investment skills, you’ll have no other choice but to build solid financial habits, like tracking expenses, in the process. They are invaluable: they’ll help you build a safety net for yourself and ensure you won’t be ruined by a surprise bill or student loan debt.
Reason #5. It Can Help You Pay Off Your Student Loans
Speaking of student loans, most websites will tell you, “get rid of all debt before investing.” But that’s easier said than done if you have a student loan. And, in reality, it’s not 100% necessary.
What you need to take care of is minimizing your interest through restructuring. Then, the returns you earn won’t be eaten away by the interest on your debts.
The neat part is that you’ll have a head start to pay off your student loans if you invest wisely while in college. That means you’ll have to pay less in interest, which brings down the whole amount you’ll have to give away.
3 Tips on Choosing the Right Stocks
What if you can’t afford to buy Amazon’s shares? Or you simply don’t want to buy fractional shares for FANGMAN companies? Then, these three tips will help you find the right tech stocks.
- Understand the company’s product. As Warren Buffet once put it, “Never invest in a business you cannot understand.” Not following this piece of advice is what led to the dot-com bubble bursting in the early 2000s.
- Analyze price-to-earnings or revenue growth metrics. Price-to-earnings works only for established tech giants. Think Apple and Google, for example. Revenue growth works better for innovative startups or young companies.
- Remember: overvaluation is rampant. Every company presents their product as the new Facebook or YouTube – so, it ends up overvalued. Don’t rely solely on valuations. Instead, analyze the product, its target audience, and competitors to see if it can actually take off.
A Final Piece of Advice
Remember to start small and play it safe. Don’t try to beat the market by betting all of your money on a “one-of-a-kind game-changer.” Instead, consider low-risk investments like exchange-traded, mutual, or index funds.
Investing is a long-term commitment, and it can be boring or even discouraging at first. But if you stick with it, you’ll see your savings grow, at first steadily, and then – faster and faster as you accumulate wealth.