Student Credit & Money Management Services - Iowa Memorial Union: The University of Iowa

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Student Credit and Money Management Services

Saving and Investing / Investment Basics

Long-term investing is the only way most Americans can afford college for their children and decent retirements for themselves.

Why? One word: Compounding. When you invest, you (ideally) make a profit. To compound your investment, all you do is let profits accumulate and grow in your account. Do that for thirty or forty years, and you end up with a pretty good pile.

Want it in numbers?

30 years of tucking $1000/yr into your mattress: $30,000 (and a lumpy mattress).
30 years of investing $1000/yr at 8% per year: $113,283

Try it out for yourself with the calculator at Kiplinger.com.

Educate yourself

Convinced? Good. At bottom, stocks and bonds are simple. You're either betting a company will make money and hand you a share of the profits (stocks), or you're lending money to a company or government and betting they'll pay you back with interest (bonds).

Yes, you can skip the homework, and hand your money over to someone else to invest -- but doing that caught millions of people off-guard in the 2000 tech bust. College funds vanished; near-retirement people now find themselves working at Walmart instead of relaxing in that oceanfront condo. Maybe you're familiar with the pain yourself, as you work two jobs and still have to take out school loans. The take-home lesson? Take the time to understand how investments work, and understand your own investments. If you don't understand an investment, stay away.

Starting simple

You can get a feel for the lingo of business and investing by reading the magazines and newspapers: The Wall Street Journal, the Financial Times, Barrons, Money, Fortune, etc. Eventually, though, you'll want a solid education in investing basics.

Tuition: Your current investment

You can get ready to invest by taking classes in these areas:

Economics: How do economies work? What affects interest rates, inflation, currencies, business costs, employment, and merchandise prices? What does "bad economic news" mean for the companies whose stock you might buy?

Finance: How do investments work? How do you analyze an investment? Where do you get started if you want to invest money? How do banking and money work?

Accounting: Is the company actually making a profit? How much does it owe, and can it carry the debt load? What's it spending money on? Does it have cash on hand for taking advantage of new opportunities? Is it selling more or less than last year? How does current tax law affect the business?

Political science, law, and history classes can also be useful, since business is affected by governments, laws, wars, and cultural tastes.

Is formal coursework necessary? No. If you can read and do basic arithmetic, you can read on your own and learn to invest prudently.

Don't procrastinate

This should be all the encouragement you need to start early.