![Grad Student Etiquette [by Jorge Cham, PhDComics]](http://www.getmoneyenergy.com/wp-content/uploads/2009/09/phdGradStudentEtiquette.gif "Grad Student Etiquette [by Jorge Cham, PhDComics]")
Dear Graduate Student, have you started your retirement savings plans yet? Do you have a portfolio of growth stocks and ETFs in place yet? Do you have a plan in place to contribute to these investment savings regularly? If so, perfect. Then you should probably be reading up on whether to invest in gold bullion or gold stocks/ETFs.
But I’m assuming that even if you have a Roth IRA or RRSP/TFSA started with the best of intentions, you have probably let it languish as you focused on more pressing expenses such as grad school applications and conference trips. Many of you probably have no investments at all - I don’t blame you, considering how underpaid we are as a group. And if numbers/research isn’t your thing, you’ll have even less motivation for putting the necessary time in to get it right.
But I want to tell you that you should be investing, and that it can be easy. Much, much easier than your own research.
People come to graduate school for all kinds of reasons, and this post can’t address all of you, although it will still apply to most of you. This post is primarily intended for graduate students who have come to grad school directly out of their undergraduate programs and, although you may have had a string of part-time jobs, you’ve never dedicated your 9-5, 40+ hours/week working hours to someone else’s watch in exchange for a salary. That’s only a certain percentage of grad students, although I’d say it’s the majority in arts and sciences programs. Students in professional and/or terminal degrees such as the MBA, LLB/JD, M.P.P or MD will be in quite a different financial situation, many of them having worked in the marketplace for a couple of years or more prior to entering their program.
The Costs Of Applying To Graduate School
5 Major Reasons You Should Think About Getting Started On Your Investments Before You’ve Finished Your Thesis
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By far the biggest, most simple reason – which applies to everyone – and you already know it:
1. Time is on your side with investing, which means you want to get started as soon as possible. You can’t grow up anywhere in the U.S. or Canada without having been inundated at some point about the powers of compound interest and investments – I won’t bore you with that. But there are other ways time works to your financial benefit, too. If you own stocks, you’ll experience stock splits and increased room for growth. If you own dividend stocks long enough, dividends can rise and have their own compounding effect over time. And the longer you’re in the market, the more chance you’ll have to experience stock market upswings and periods of major growth.
2. Opportunity cost. This is definitely the next huge reason, and I’m sure you’ve already experienced its pain. Taking two or ten years out for graduate school means you’re already behind peers working salaried jobs and enjoying the benefits of employers matching their retirement savings contributions. The point is never to keep up with the Joneses, of course, but to realize that graduate school puts you in a uniquely depressed financial position. There’s no nobility in saying that “you’re not in it for the money.” Face it – you have to take care of yourself, and when you have children, if you don’t already, you’ll need to take care of your family, too. Is it really fair to assume you’ll land a posh tenure-track job and the money will somehow take care of itself?
Make Sure You Set Aside Extra Cash For Your Thesis
3. You’re already familiar with some degree of frugality. So just push it and make room for some investments, too. You’re already used to skrimping and, if not saving, you’re at least used to not making huge purchases you can’t afford. Practice being even more frugal now. This is arguably one of the top 3-4 financial skills you can learn in life. Plus, when you budget closely, you might have more money than you think. If you can squeeze another $50/month out somewhere, you can start investing that – or at least put it into a high-interest savings account.
4. There are very easy, low-cost (sometimes no-cost) ways to get started investing. For the price of a small commission fee (unless you’re in Canada, where most discount brokerage fees are much higher unless you start out with a certain minimum balance), you can get started in low-cost index investing. Throw $100 into a broad-market ETF like Vanguard’s Total World Stock ETF (VT) that only has a management expense ration of 0.3%. Or skip the commission fees altogether and put that $100 into a dividend reinvestment plan of some global company like Pepsi or Johnson and Johnson.
5. You probably picked up a credit card at an even younger age – why shouldn’t you also be started on your investments already? And even if you argue that maybe you shouldn’t have got that credit card so early (or at all), you could hardly disagree that you’re going to need some savings. Conventional financial wisdom tends to agree it’s a good thing to start building your credit at an early age, so that you’ll have a good score by the time you need to apply for a car loan or mortgage. Do you really think it’s better to go into debt than to start building your investment profile? (I realize debt doesn’t follow necessarily from using a credit card, but face it, it will in most cases) If it’s a good idea to already have a credit card or two under the pretext that you’re building up a credit score, I argue that it’s at least as important to also get some kind of start on your future savings and investment portfolio.
6. What happens if it doesn’t work out? I know this won’t happen to *you*, but not everyone finishes their grad programs. For one reason or another, others decide to leave and pursue something else, or they are forced to. You don’t want to be stuck three or four years out and have nothing to show financially for it. Don’t just dig a deeper hole for yourself. Pick up the slack while you’re still ahead.
Grad school is a huge demand on your time, energy, money and other resources. You may think you can’t spare any more of this for financial considerations like investments. But don’t think that you’re “holier-than-thou” and the money will somehow follow you like a magnet as soon as you have the degree in hand. It pays to start your portfolio now, and read up on whatever basics of personal finance and investing you’re missing. It’s understandable that you might not have started as an undergrad, but now you’re as much a part of the working world as your salaried friends. And that means you need to get your own financial house in order.
Thinking about whether grad school is right for you?
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{ 6 comments… read them below or add one }
Time is one of the most important things. We started a Roth IRA a few years ago. Even though we were struggling students, we thought it was important. We put in what we could, and set up a regular transfer from our checking account. We can afford to put in more now, but the habit was started shortly after we married. And we’ll soon open another one in my husband’s name. And we’re not even 30 yet.
That’s great – getting it started is so important, and getting the habit started is part of that. Once you learn how, and all the other basics, it can become just a matter of habit and you don’t have to think about it! I started just by saving $25 from each pay before I had enough to meet the minimum to get an RRSP started, way back when.
I remember one of the first things we were taught in finance class was that if you saved $2k per year for 5 years when you were 22, and never made another contribution, then you would have more money at retirement than someone who started at age 27 and saved $2k per year every year until retirement, assuming the same rate of return.
Nice tips! As for me I started investing when I had my first job at the age of 22. I did not go to graduate school though.
The earlier we start our financial education and put it into action, the less time we need to devote and the less money we need to save. As they say: “The Early Bird Catches The Worm”
@MillionaireActs – good job. I also started at around the age of 22, although I wasn’t bringing in all that much and wasn’t investing all that much. But every bit helps. If you bought a stock yielding 4% that year, and held onto it, taking all the dividends as cash, your effective “yield” would rise by another 4% each year, so that after ten years you would be making an effective 40% yield on your original stock purchase. That’s why it can pay to invest as much as possible up front. And that’s not even factoring in all the possible dividend increases that investment might have seen on the way!
I just wish I thought of that while I was still taking my MBA … no remorse though…great article.