Making Your Money Work For You

Professional Investment Advice for Students


When it comes to investing, starting early gives investors an enormous advantage —  time. Based off the average annual return of for a 401(k) in last forty years, a student who invested $1,000 today would see their funds increase to $45,000 in forty years. Comparatively, a young person invested the same $1,000 dollars, but only let the investment grow for thirty years, would only end up with $17,000.

In order to gain investment advice from a professional, El Diablo contacted Robert Sage, the Vice President of Client Services and Relationship Management at T. Rowe Price, an investment firm headquartered in Baltimore, Maryland. Sage heads a group that interacts with different companies who utilize T. Rowe Price to offer retirement plans for their employees.

If a high school student wanted to invest $2,000 earned from a summer job, what would you suggest?

It depends. It depends on what the investor wants to use that money for. And that’s true whether you made $2,000 dollars over the summer or have been saving the money for ten years. What you want to use that money for dictates how you should invest it. In your scenario, if someone saves $2,000 to make a down payment for a car in the next six months than they have a pretty short time horizon. What you are going to want to do is invest relatively conservatively. A certificate of deposit with a bank for example will protect the principle so you are not going to lose any of that $2,000 to inflation and maybe it will pay you a nice little bit of interest so six months from now when you go to buy that car you will still have $2,000 dollars plus change. Mutual funds are another type of conservative investments.

What about high schoolers who are looking to invest for further down the road?

If you have $2,000 and you’re interested in saving it for 10 -15 years down the road, then you can afford to be, and it’s prudent to be, a little more aggressive and make the money work a little bit harder for you. In that instance you would want a blend of conservative and more aggressive investments —  maybe something like 30% stocks and 70% bonds. T. Rowe Price is a mutual fund company, we’re and asset management company, so I tend to go first to mutual funds —  particularly the low cost variety. You can buy mutual funds that are designed to have a blend of stocks and bonds that range from conservative to aggressive. I would say, investing in a single stock can be pretty risky. While you stand to make a good chunk of change over the short term, you also stand to lose it.

What are benefits of investing early?

Perhaps the biggest advantages is that it can teach you a lot of good habits. One is setting aside a certain amount of money to invest and getting into the habit of doing that. In fact there are some advantages of investing regularly over investing in one big chunk. Dollar cost averaging is the idea is that over time if you buy little amounts of one security, you will be better off than saving up for a year and making one purchase at the end of the year.

How do you suggest high schoolers educate themselves about markets and investing?

The sooner you start paying attention to how those markets work the more educated you’ll become. I’m a fan of the Ravens, I live in Baltimore, I love the Ravens. I drafted Demaryius Thomas this year for my fantasy football league. Most of the time I could not care less what the Broncos do, but I’m paying attention to what they do this year because I care how Demaryius Thomas does. It’s the same thing with the finance market, you have an invested interested because you’re investing in stocks, bonds, ETFs or something along those lines.

Any last words of wisdom for high school students looking to invest?

Start saving early, you have the power of time and compounding on your side. Get into the habit of investing now so you will not find yourself walking in as a rookie at thirty or forty years old. In the $2,000 examples, the sooner you your money to work, work the harder it will work for you over time.


The Lingo: Investment & Stock Trading

401(k) – A retirement saving account that allows workers to invest a piece of their paycheck before taxes

Inflation – The rate at which the price for general items and services increases over time

Certificate of Deposit – A savings certificate with a specific interest rate and maturity date. For example, an investor could purchase a certificate of deposit with an interest rate of 2% compounded annually, and a term of two years. If the initial deposit was $1,000, the investor would have $1,104 at the end of two years.

Stock: A share of a company

Bond: A debt investment where the investor loans money to a entity for a defined period of time and collects interest

Dollar Cost Averaging: An investment technique of buying a fixed dollar amount of a particular dollar amount on a fixed schedule.

Compounding: The process where the value of the investment increases exponentially because both the initial capital and interest collect interest over time