The standard advice to students about investing is to wait: wait until you have a real job, wait until you have more money, wait until the timing is right. That advice is expensive. Starting at 20 with $50 a month produces a larger retirement account than starting at 30 with $200 a month, and this is not a close comparison. The math is that skewed by time.
Here is the actual numbers comparison. $50 per month starting at age 20, invested at a 10% average annual return, grows to approximately $379,000 by age 65. Total amount invested: $27,000. Starting the same habit a decade later at age 30 with $200 per month produces roughly $452,000 by age 65. Total amount invested: $84,000. The late starter invested three times as much money and ended up ahead by only 19%. One more decade of delay, starting at 40 with $200 a month? About $152,000 at 65, despite investing $60,000.
Time is not a minor factor. It is the dominant factor.
Before You Open a Brokerage Account
Investing with no cash buffer is a setup for selling at the worst time. If your car needs a repair or your laptop breaks and your only accessible money is in an investment account, you will sell investments, possibly during a market dip, to cover the expense. That locks in losses and teaches you to associate investing with financial pain.
Before investing anything: build a cash buffer of at least $500. This is not a full emergency fund. It is a minimum shock absorber. A high-yield savings account at Marcus by Goldman Sachs, SoFi, or Ally Bank currently pays around 4-4.5% on cash and has no minimums.
Once you have $500 in cash, you are ready to start investing with the rest.
The Two Account Types Students Should Know
Most guides throw a dozen account types at beginners. Two actually matter for students.
Roth IRA
The Roth IRA is built for exactly the situation students are in: low current income, high expected future income. Here is how it works. You invest after-tax dollars now, while your income is low and your tax bracket is likely 12% or lower. The money grows tax-free for decades. In retirement, you withdraw everything, including all the gains, without paying a single dollar in taxes.
The requirement that catches students: you need earned income to contribute. Earned income means wages from a job, self-employment income, or freelance work. Scholarship money, gifts from parents, and student loans do not count. You can contribute up to your earned income or $7,000 (the 2025 limit), whichever is lower.
So if you earn $4,000 from a part-time job over the year, you can contribute up to $4,000 to a Roth IRA. If you earn $9,000, you can contribute up to the $7,000 limit.
Taxable Brokerage Account
No earned income requirement. No contribution limits. No tax advantages. This is a plain investment account where you buy and sell investments and pay taxes on gains. For students without earned income, this is the only option. For students with earned income, maxing the Roth IRA before touching a brokerage account makes sense in most cases.
Where to Open an Account: The Two Best Options for Students
| Broker | Account Minimum | Fractional Shares | Roth IRA Available | Best Feature for Students |
|---|---|---|---|---|
| Fidelity | $0 | Yes ($1 minimum) | Yes | FZROX: 0% expense ratio fund, no minimums |
| Charles Schwab | $0 | Yes ($5 minimum) | Yes | Schwab Intelligent Portfolios (automated, no fee) |
| Vanguard | $0 for ETFs | Yes | Yes | Original low-cost index funds, strong long-term reputation |
| Robinhood | $0 | Yes | Yes (Robinhood Gold only) | Friendly UI, but culture encourages active trading |
Fidelity is the practical winner for most students. Zero minimums, fractional shares with a $1 minimum purchase, and the FZROX fund carries a 0.00% expense ratio, meaning Fidelity charges you nothing to hold it. That is genuinely unusual and genuinely good.
What to Actually Buy: One Fund Is Enough
The decision that trips most beginners is what to invest in. The honest answer: one diversified fund is completely sufficient for years, possibly decades. The obsession with "optimal" portfolio construction at the beginning is mostly a distraction from the actual work, which is consistently contributing.
Three funds worth knowing about:
- FZROX (Fidelity Zero Total Market Index): 0% expense ratio. Available only at Fidelity. Holds essentially all US-listed stocks. This is the lowest-cost option in existence.
- VTI (Vanguard Total Stock Market ETF): 0.03% expense ratio. Available anywhere. Tracks the same broad US market. Standard choice for Vanguard and Schwab users.
- VTTSX (Vanguard Target Retirement 2065 Fund): A single fund that holds stocks, bonds, and international stocks in appropriate allocations, and automatically shifts toward more conservative holdings as the target date approaches. Expense ratio 0.08%. Perfect for someone who wants a single decision and nothing else to manage.
If picking a target-date fund: choose the year closest to when you expect to turn 65. For a 20-year-old today, that is roughly 2070. The exact year matters less than just choosing one and starting.
The $50 a Month Plan in Practice
Here is a concrete, step-by-step plan that works at a $50 monthly budget:
- Open a Roth IRA at Fidelity (takes about 10 minutes online).
- Link your checking account.
- Set up an automatic transfer of $50 on the same day each month, ideally your payday.
- Purchase FZROX or VTI with available cash (Fidelity auto-invests if you set it up).
- Done. Check it quarterly at most.
That entire process takes about 30 minutes the first time. After that, it is automatic. This is the entire plan. There is no step 6 that involves researching individual stocks or watching market news. The only work required after setup is not canceling the automatic transfer when money feels tight.
What Not to Do as a Student Investor
The mistakes at this stage are specific and common enough to name directly.
Buying individual stocks before you have built an emergency fund is the most common one. There is a reason most individual stock picks underperform the index over time, and that reason does not disappear because you did a lot of research. The research feels productive. The outcome is often not.
Options trading is another one. Options are derivatives that require predicting not just whether a stock goes up or down, but when, and by how much. Brokerage apps have made them accessible, but accessible and appropriate are different things. More than 90% of retail options trades are unprofitable. This is not a controversial claim; it is well-documented in academic research.
Investing tuition money is an obvious one, but worth saying: money you will need in the next 12 months should not be in the stock market. Short-term volatility is real. The market dropped 34% between February and March 2020. If your tuition payment was in VTI that month, you had a problem.
Finding $50: Specific Budget Adjustments
For students who genuinely feel they cannot find $50 a month, here are the places to look. Not lectures about coffee. Actual specific items:
- Most students pay for 3-5 streaming services. Rotating through one at a time saves $15-30 per month.
- Buying used textbooks or renting them instead of buying new saves an average of $200 per semester, which is $33 per month.
- Switching a phone plan to Mint Mobile, Visible, or US Mobile saves an average of $40-60 per month versus major carriers.
- Campus food plans often include money that goes unused. Many universities allow partial buydown. Check your balance before the semester ends.
None of these require dramatic lifestyle changes. They require one-time decisions that pay off every month automatically.
The Student Tax Advantage
Students are often in the 12% or lower marginal tax bracket, sometimes even below the standard deduction threshold and paying 0% federal income tax. This is a significant advantage for Roth IRA contributions that most students do not recognize.
Every dollar you put into a Roth IRA while earning low income is a dollar you never pay higher-bracket taxes on, ever. When your income rises to $90,000 or $120,000 and your bracket climbs to 22% or 24%, the money you contributed at 12% continues growing tax-free. You effectively locked in the lower tax rate on that investment permanently.
This is not a loophole. It is exactly how Roth accounts are designed to work. The design is intentionally favorable to young, low-income earners.
What Part-Time Income Can Actually Become
A part-time job paying $12 an hour for 15 hours a week generates approximately $9,360 a year. After taxes at the 12% bracket with the standard deduction, most of that income is tax-free anyway. Redirecting $200 a month from that income into a Roth IRA invested in VTI produces the following outcomes at a 10% average return:
| Starting Age | Monthly Amount | Value at 65 | Total Contributed |
|---|---|---|---|
| Age 19 (freshman year) | $200/mo | $1,930,000 | $110,400 |
| Age 22 (post-grad) | $200/mo | $1,436,000 | $103,200 |
| Age 25 (established job) | $200/mo | $1,068,000 | $96,000 |
| Age 30 (delayed start) | $200/mo | $638,000 | $84,000 |
Starting at 19 versus 30 on the same $200 a month produces a $1.3 million difference at retirement. This is not an argument for working more hours in college. It is a data point on why the amount contributed matters less than when it starts. Three years of part-time investing during college could be worth more than a decade of investing in your 30s.
For students who cannot maintain $200 a month, even $50 a month starting at 19 grows to roughly $480,000 by 65. The habit of consistent contribution, started during college and never stopped, is worth far more than any single financial decision you will make in your 20s.
FAQ
Can I open a Roth IRA if I only have a part-time job paying $8,000 a year?
Yes. You can contribute up to your total earned income, which in this case would be $8,000, but the annual cap is $7,000 in 2025. So you could contribute up to $7,000. Even if you only contribute $50 a month, your eligibility is not affected by the small amount. The requirement is that you have at least some earned income.
What happens to my Roth IRA contributions if I need the money for an emergency?
Your original contributions (not earnings) can be withdrawn at any time, for any reason, without taxes or penalties. This is one of the Roth IRA's underrated features. If you contribute $1,200 to a Roth IRA and it grows to $1,400, you can withdraw the original $1,200 freely. The $200 in earnings would face taxes and a 10% penalty if withdrawn before age 59.5.
Is $50 a month even worth it? It feels like too small an amount to matter.
$50 a month from age 20 to age 65 at a 10% return produces roughly $379,000. If that is not convincing, consider this: the habit of consistent investing matters more than the amount at the start. People who begin at $50 tend to increase contributions when they can. People who wait until they can afford $500 often never start.
Should I pay off my student loans before investing?
It depends on the interest rate. Federal student loans typically carry rates between 5% and 8%. The stock market historically returns about 10% per year. If your loan rate is under 6%, investing while making minimum payments is a reasonable approach. Above 8%, consider aggressive loan payoff first. Between 6-8% is genuinely a judgment call, and either approach is defensible.
