What you should be doing as a college student to capitalize on the stock market crash

Photo via James Smith/Public domain/Wikimedia Commons

As global markets tremble and the U.S. heads into another politically uncertain season, the stock market is reflecting the fear. 

Recent reports of new tariffs, trade wars and shaky economic indicators have sent investors into a frenzy. The S&P 500 had its 5th-largest two-day drop since the 1950s, and the Nasdaq had its worst day since March 16, 2020, according to USA Today and Yahoo Finance.

That being said, as a college student, there are several ways to take advantage of the madness that will inevitably benefit you further down the road.

If you’re in your late teens or early twenties, you’ve got something Wall Street veterans would kill for: time/ When it comes to investing, almost nothing matters more, according to Capital Group. At this age, you have many years to go before retirement, which means the amount of risk you can afford to take is much larger than that of someone who plans on retiring in the next decade. This is referred to as risk tolerance, which varies as time passes.  

Due to this time buffer and your risk tolerance, the stock market's current downward angle should not be a pit of fear in your stomach, but rather a big green flag to capitalize on while market prices are low. 

“If I were a college student at the moment, I would most certainly be investing my Roth IRA into higher risk ETFs,” says Lee Wakeman, a visiting professor in finance at Ohio University, “you’ve got better things to do with your mind and money than invest in and out of the market all day, so get yourself a well diversified, risky portfolio.” 

A Roth IRA  (Roth Individual Retirement Account) is a retirement account where you put in money you've already paid taxes on and it grows tax-free, meaning you don’t pay any taxes when you take it out in retirement, unlike other accounts of a similar purpose. It’s a smart choice for young people because the earlier you start, the more your money can grow over time according to Charles Schwab. 

An ETF (Exchange Traded Fund) is a bundle of many different investments, like stocks or bonds, that you can buy and sell like normal. It’s a low-cost, easy way to invest in a wide range of companies all at once, which helps spread out risk. If each stock is a piece of a pie, investing in an ETF is comparable to just buying the pie. 

“There is empirical evidence that over long periods of time, the riskier stocks actually perform better,” Wakeman continues, “At your age, I wouldn’t invest in something below a four on Vanguard risk scale.”

Vanguard is an investment company known for its low fees and easy-to-use platform, making it a popular choice for beginners. You can open accounts like Roth IRAs or regular investment accounts there and invest in aforementioned securities like ETFs. 

On Vanguard's website, they provide detailed descriptions of each ETF, as well as how risky it is, making your job as an investor even easier. 

Other popular and trusted brokers that offer the same type of account include Fidelity, Charles Schwab and TD Ameritrade. 

While the key aspect of a risky portfolio is heavily weighted in stocks, there are other securities to diversify your portfolio that are equally as important for optimal growth. Generally, the simplified proportion is as follows: 75% in stocks and the remaining 25% in bonds. 

A bond is a loan you give to a company or the government. They borrow your money and agree to pay it back later with interest. It’s usually less risky than stocks, balancing out the remaining part of your portfolio. As we get older and grow closer to retirement, the amount of bonds in your portfolio starts to increase, to avoid the consequences of poor market performance. 

Using a Roth IRA calculator, a 20-year-old who follows these rules and contributes just $10 a week would have, on average, $137,160 by the time they retire. However, that is only $10 a week, bump those numbers up and factor in a steady income post graduation and you will not be disappointed. 

This concept also applies to regular investment accounts if you already have a Roth IRA and want to take your investing to the next level. These accounts let you access your profits whenever you want without needing to wait until age 65, like with retirement accounts.

In market situations like what we see now, buying while prices are low or “buying the dip” can be a great strategy, especially when you have time on your side. However, if watching stock tickers makes your stomach turn, there’s another approach known as Dollar-Cost Averaging. 

This strategy involves investing a fixed amount regularly, no matter what the market is doing. It could be just 15 extra bucks from your paycheck or the money you chose not to buy a coffee with this morning. Over time, your investments will average out leading to optimal, steady growth, according to Investor.gov 

In short, don’t let market headlines scare you into inaction. The future might look uncertain, but your financial foundation doesn’t have to be. Start small, stay consistent and let time do the heavy lifting.