Unless you hail from a wealthy family, chances are good that you could use a little extra income while attending school. You might work a part-time or work-study job, but you also can supplement your income by investing . By selecting investments that match your situation, you might be able to afford a few extras to make student life more enjoyable.
If you’re a full-time student, it’s reasonable to assume that you’re busy enough with schoolwork to limit the time you can spend researching investments or actively trading. You can earn income by investing in managed accounts, such as mutual funds, that make relatively high dividend and interest payments. High-dividend funds invest in common and preferred stocks that pay above-average dividends. You can earn high interest using funds invested in corporate and junk bonds. Mutual funds do the time-consuming work and free up your time to pursue your studies.
There are mutual funds designed to supplement income. These "income replacement" funds pay monthly distributions that contain a mix of income and return of your original investment. These funds require you to deposit a lump sum, such as a scholarship or a gift from a relative, to work as intended. If you instead want to save a part of the money you're able to earn each month, you can invest in an income-producing mutual fund that has a low minimum required balance. By comparison shopping mutual fund websites, you can narrow your choices to low-fee funds. Funds that charge low fees can save you substantial money over the long haul.
Exchange-traded funds are alternatives to mutual funds. As with a mutual fund, shares in an ETF buy you a piece of an investment portfolio. Many ETFs are index funds, meaning they invest in a set of stocks or bonds that match a particular index, such as the S&P 500. Index ETFs have low fees because a high-priced investment adviser doesn't actively manage the portfolio. You buy and sell ETF shares on the stock exchange rather than through the fund company.
Covered Call Options
Another way to earn investment income is to sell covered calls. These options allow the buyer to purchase 100 shares of an underlying stock for a set price -- the strike price -- on or before an expiration date. When you sell a call, you collect a premium but may have to deliver the underlying shares if the stock price rises above the strike price. A call is "covered" when you already own the underlying shares. You get to keep the premium whether or not you're forced to sell your shares at the strike price. You can lose money if the stock price falls, but the premium you collect helps absorb some of the loss. You also might consider a mutual fund or ETF that earns income through the sale of calls. Like any other investment, you should thoroughly understand option trading before risking your money.
Based in Greenville SC, Eric Bank has been writing business-related articles since 1985. He holds an M.B.A. from New York University and an M.S. in finance from DePaul University. You can see samples of his work at ericbank.com.