Students may benefit from investing in the stock market

Photo shows outside of a large tan building with three american flags waving in front
The New York Stock Exchange is seen in Lower Manhattan on Wednesday, May 31, 2017. (Richard B. Levine/Sipa USA/TNS)

Students are recommended to invest in long-term investments at an early age to have a chance of a decent life when they retire, said finance department chair and professor Zhong-guo Zhou.

Professor in finance Vicentiu Covrig said students should not invest large amounts of money in one stock, but instead do neutral funds and to invest in multiple stocks creating a diverse portfolio.

Zhou gives an example, which he tells to his students, that if they are in their 20s, he or she does not need to invest much money a month. If they cut back on entertainment expenses, save around $100 a month between their 20 and 30s, and invest that money in the S&P 500 index fund, a type of neutral fund, by retirement they could have saved $700,000 or $800,000 in their portfolio, assuming they have not touched the money.

“Clearly the key, the most important factor that affects long term investments is that you start investing early,” Covrig said. “In our classes, my class, we show different case studies and examples that if you start early and you invest for long term, like three years or four years if you’re in your early 20s even if you save a little amount in time, it will truly make a difference.”

S&P 500 index is a collection of 500 strong-standing companies in the United States like Amazon and Apple that has an average risk and a low annual management fee, which is why it is popular among investors, said Zhou.

Zhou also said that in the last 80 years the return on investments has been between 10 to 12 percent per year, which is a much higher than the average CD rate.

Before investing, Covrig said students should research the stock market as much as possible. Going to websites or books which can easily explain the subject are ways he recommends students to learn about it. Although he does not have specific websites or books in mind to recommend, he does say that they are easy to find online.

Covrig recommends the same as Zhou, but said that students should not have to pay for professionals especially CSUN students who have access to their finance professors who can teach them how to invest.

“You don’t need to take a finance class or to be a professional to really understand it and learn about it,” Covrig said.

For those who are interested in beginning, Zhou recommends finding a reputable brokerage firm through the internet to invest in the stock market as long as they have low or no fund charges and you do not pay up front. Banks also have brokers, but might only offer their type of neutral fund.

Zhou said students in their 30s who have a good income and extra money could take some more risks that result in a risk-return relationship, which means a higher return from a greater risk. Zhou stress only do invest if the investor has knowledge in the stock market. If they are between their 50s and 60s, they should not take any more significant risk because the income tends to be less.

“Remember there is a risk. You will see a lot of risks in the stock market, up and down, but overall don’t panic overall the average return will be somewhere around 10 percent for one year it may be high it may be low but don’t panic, that’s the market,” Zhou said.