Students, You Do Have Enough Money to Invest

Students, You Do Have Enough Money to Invest

NEW YORK (MainStreet) — If you ask any great investor the "secret" to getting rich, you will often hear conflicting advice. However, they will all tend to agree on one thing – the earlier you start, the better.

Investing as early as high school or college can massively increase your savings and standard of living later on in life. But, as it is often said, "If it was easy, everyone would be doing it."

The most difficult part of starting an investment portfolio as a student is finding the money. You may have enough money for one or two stocks, but very few students are in a position where they can create a properly diversified portfolio. Even if a student has $1,000, in order to diversify you'll have to spread the money thinly over five or so stocks. At this point, assuming your broker charges around $10 per trade, your investments will have to rise 20% just to break even! There is a better way.

Creating a properly diversified portfolio requires a decent amount of capital—generally a few thousand dollars. Since students often do not have this capital, we must use leverage to increase the amount of stock we "control." To achieve this leverage, we purchase options, instead of regular stocks. An option is a contract between you (the buyer) and a seller that allows you to buy or sell a specific security at a certain price, in a certain window of time.

Here is an example of a diversified portfolio using only traditional stock:

Company | Share Price (close 9/11) | Shares | Total

Morgan Stanley| 28.25 | 7 | 197.75
BP | 42.29 |5 | 211.45
Sprint | 6.50 |30 | 195
Pfizer | 28.67 | 7 | 200.69
Wendy's | 8.25 |24 | 198
_________________________ 1,002.89