As COVID-19 has spread in the U.S., the stock market has become extraordinarily volatile where high risks may offer high rewards. 

The stock market has plunged, prompting the Federal Reserve to drop its benchmark interest rate to zero and launch a new round of quantitative easing as well as a slew of other steps to save the economy. This past February, the Dow Jones Industrial Average, an index of the 30 largest companies on the U.S. stock exchange, fell over 3,500 points, officially setting the record for the worst week for stocks since the 2008 financial crisis. As Wall Street is at its wit’s end, should college students take this as an opportunity to invest? 

Most college students are not too familiar with the workings of the stock market. According to a 2018 Gallup poll, most young Americans hold back when it comes to investing. Only 37 percent of those younger than 35 invest in the stock market. In another survey of those between the ages of 18 to 25, only 18 percent are investing. Even when they do invest, they tend to stray away from the stock market and instead direct their funds toward a savings account. 

As to why there is hesitancy from younger people to invest in the stock market, researchers point to the effect of witnessing the shock and struggle during the 2008 financial crisis. Many young Americans are more risk-averse when it comes to trusting their money with other sources due to fears of making the same mistakes. Whatever the issue may be, college students are especially wary of investing in stocks. However, when asking students at UC San Diego, some are more than happy to share their expertise and experiences.

“Yeah,” Earl Warren College senior Justin Lee said. “I invest in ETFs and am looking into other stuff.” 

ETFs, or exchange-traded funds, are funds traded on stock exchanges, much like your average stock. An ETF holds assets such as stocks, commodities, or bonds and is more flexible, such that you can trade whenever you want and often at lower fees. They are typically considered safer since they contain a preselected collection of stocks or bonds that can balance out to minimize losses. 

Lee started his interest in investing in high school, noting that he would have invested in Bitcoin at the time if he had “had the money.” Bitcoin, or BTC, is the dominatingly popular digital currency that’s cornering the cryptocurrency market. It was valued at a $20,000 record high in December 2018. But BTC is infamous for its volatility, and it often swings thousands of dollars in either direction in a single day. 

“My parents gave me an allowance back then, but I didn’t know as much then as I do now,” Lee said.

Younger Americans are still understandably hesitant to start investments. After all, even if making plans for long-term earnings sounds tempting, not all debts are created equal. When students are racking up loans as high as $30,000 per year, the short-term rewards of the stock market when you are in your twenties are most likely not enough by the time the grace period expires for that subsidized loan. Or perhaps that interest that has been building up since the first year of college might be too high for that fraudulent 44-cents-per-share penny stock to cover. If you are leaning toward the safe side for a beginner portfolio, then you are most likely not going to be making thousands in your first two business days.

Apart from racking up long-term debt, many college students are also eligible for opening credit card accounts that can create instant outstanding payments. CNBC reports that over a third of college students in the U.S. already have credit card debt. Banks offer attractive benefits and cash back for things like good grades and fair credit scores during the first year in college. Such deals can lure students who may eat out more than they can keep tabs on, or who are so heavyweight that one or two drinks at the bar don’t suffice for the night — that is, if you are old enough, of course. For individuals who are inexperienced with fiscal responsibility, it can be very easy to lose track of spending.

Essentials like gas, textbooks, housing, and groceries are also reasons students get credit cards. It’s a great option for students who don’t carry cash on hand. But by the time they realize it, they have racked up credit card debt into the hundreds or even thousands. Some debts are just too immediate for investments to handle.

When asked if they were ever interested in investing in stocks to help with earnings, a majority of students replied it’s just simply not an option.

“No,” Sixth College junior Tina Tran said, very matter-of-fact and paired with an incredulous look. “I don’t have expendable funds. I think for most people who do invest, especially so early, it just depends on their environment and their upbringing. They can spend their parents’ money; they have friends who also invest. It’s just not something that is required and definitely not something I can just do as a hobby when I have other debt to pay off.”

Many potential student investors share Tran’s sentiment, and the research supports it. According to a 2016 Harris Poll survey asking young Americans why they do not invest, 40 percent of respondents stated money as the top barrier. 34 percent noted that they hadn’t felt educated enough about it to know how, while 13 percent said student debt was the reason they haven’t invested.

However costly it may be, if you are thinking of investing in the stock market, then it is often recommended to do so as soon as you can. Investment is like good wine that pays off with age. With steady annual return rates and a long life to live, small change can add up to huge amounts years down the road.

For those who decide to take the plunge into the stock market, many companies have made it easier and more accessible with apps. New brokers like the pioneering free-trading app Robinhood act as free “no commissions” brokers for those new to trading. While this feature may be attractive for a weary investor, it sacrifices many standards for brokerage that make it unsustainable for active traders or investors.

However you start, it is imperative to understand what you are getting into. You may have heard that Clorox stock is booming due to new and urgent health care needs. Facebook is also experiencing dramatically more user traffic since all its posted content takes up everyone’s down time, but there is a lot more to it than just popularity.

Academic studies broadly agree that the best returns in the long run are achieved by highly diversified stock funds that have low management fees and emphasize value over growth. Growth stocks represent companies that have demonstrated better-than-average gains in earnings in recent years and that are expected to continue delivering high levels of profit growth, although with a tendency to be riskier. Value stocks tend to be more affordable and less risky, as they have already proven an ability to generate profits. But even the rewards in this market are not always guaranteed. In short, growth investors seek companies that offer strong earnings growth while value investors seek stocks that appear undervalued in the marketplace.

Being a part of the Wall Street scene can seem very appealing, especially for young people with the social pressure to prove themselves as capable adults, but this does not always lead to investing. There are sophisticated barriers to starting a well-studied portfolio that actually pays off. Financial advisors have critiqued the market itself for becoming more of an “elite club” where those who don’t have their own savings have difficulty getting into investing. 

In his analysis for Advisor Perspectives, economist and Chief Portfolio Strategist Lance Roberts argued “Despite Central Bank’s best efforts globally to stoke economic growth by pushing asset prices higher, the effect has been entirely consumed by those with actual savings, and discretionary income, available to invest.” 

According to Roberts, monetary policies have over time merely increased the wealth of the wealthy and have not been quite enough to stimulate the entire economy to benefit those with lower income. With the government stepping in due to changes from COVID-19, not much has changed according to studies. The government’s $2 trillion economic stimulus package offers financial aid for individuals and industries struggling due to the pandemic. However, it also permits wealthy investors to use losses generated by real estate to minimize their taxes on profits from things like investments in the stock market. The cost from the offset taxes is estimated to be $170 billion.

This is not to say there is any shame or sure sign of disadvantages to investing while young or investing at all. Investing is a valuable and fiscally responsible decision in aiding one’s future. However, with the market as volatile as it’s ever been and where not even illegal insider trading can help with the losses, no one can say where the market is going to go or who will come out as winners. So if you are not very risk-inclined to establish a particularly aggressive portfolio, especially during such inordinate times, it might be best to save your money for a rainy day. Or for a pandemic. Whichever.

All names under alias due to the personal and private nature of financial investment. 

Art by Yui Kita for The UCSD Guardian.