Prepare to enter your Wolf of Wall Street era. Graphic by Eleanor Angelly. 

JOHN DUNN | OPINION COLUMNIST | jcdunn@butler.edu 

Philosophy and finance do not appear, on the surface, to be two disciplines that are closely intertwined. However, every Butler student will soon be put in a position where the two disciplines will clash in dramatic fashion — regardless of major. 

The majority of Butler students have at most four years — pharmacy students notwithstanding — before they enter the workforce, at which point they will have to analyze their personal philosophies and financial realities to begin making decisions that will impact the rest of their lives. 

Should you buy a house? When do you want to have kids? Do you want to have kids at all? The answers to all of these questions impact how recent college graduates spend their — let’s face it — relatively low entry-level salaries. 

Having a real source of income for the first time is an exhilarating feeling; there is so much to buy! However, a recent graduate’s first purchase should be quite boring — stocks. 

Before you sigh and move on to the next article, writing me off as a typical business nepo baby, I want you to understand how important investing in the first few years after college is. So, here is a scenario for you to consider.

If a college graduate started working at 22, started saving $1000 per year at 27, and then retired at 67, their investment savings account balance would be just under $500k, assuming 10% annual growth. If that same person invested $1000 per year starting at 22 instead of 27, thus adding 5 more years for their account to grow, their account balance would be just under $800k. 

For those keeping track at home, that is a difference of a little over $300k despite only depositing an additional $5k for five additional years. The difference in ending account balance becomes even more pronounced as you increase the amount of money annually put towards the portfolio at the beginning.  

Before moving on, let’s rewind and answer a critically important question. What is investing, and why do people do it? It is generally understood that having some savings, generally between a few hundred to a few thousand dollars, is ideal. Such savings accounts typically have a very low interest rate, around one percent, and money does not normally stay in the savings account for very long as expenses arise.

Investment savings are a different proposition altogether. It is not optimal to have surplus money sitting in a savings account that is making one percent interest. Due to inflation, money in a standard bank savings account will be worth less next year than it is right now. The solution is to put surplus money into an investment savings account. 

In an investment account, rather than the money sitting in the account, a person invests in stocks or other assets that will appreciate in value over time rather than depreciate. Owning a stock, which is a fractional piece of ownership of a company, entitles the investor to receive a proportional share of companies net profits. Additionally, if the company increases in value over time, the investor is able to share their stock for more than they purchased it. 

Junior criminology-psychology major Ben Pytel, much like the majority of Butler’s student body, does not have an investment account but has vague plans to make one in the future.

“I would love to have an investment account in the future … but would probably want to start it [when I am] 25, 26, or even maybe 27,” Pytel said. “I want to have an established job and some comfortability in my life [before] I can afford to play around with a couple thousand dollars.” 

By investing for the long term and maintaining a diversified portfolio, investors can significantly limit risks posed by short-term loss. Graphic by John Dunn. 

Pytel’s reasoning is strong. It seems prudent to get one’s finances in order and establish a financial base before building an investment portfolio. Pytel also explained two further factors preventing him from starting an investment account: he doesn’t know how to invest and he must first pay back student loans. Both of these factors influence many other college students as well. However, subscribing to this disciplined and seemingly financially responsible line of thinking is, in reality, potentially a million-dollar error. 

The average increase in value of all the stocks traded on the New York Stock Exchange, the platform on which most American stocks are traded, is 10% annually. That brings us to the final key concept which underpins this whole article: compounding interest. If someone invests 10k into an investment portfolio — a term referring to the combination of all their different investments — returning 10% annually, they would make 6k in the first five years. If they continued to invest the same money for 40 years, they would make just under 200k in the final five years. 

 This exponential growth, referred to as compounding interest, means that each extra year added to the life of an investment portfolio is extremely valuable and provides increasingly large returns in the long run. 

Opening an investment account is very easy. Download a brokerage app, answer a few questions, connect it to your bank, and you are ready to go. Some brokerage apps include Charles Schwab, E-Trade or Robin Hood. 

Unfortunately, while opening an account is easy, knowing what to invest in isn’t. 

Steve Dolvin, professor of financial investments in the Lacy School of Business, actually wrote a book on how to learn about investing.

“[Your instinct] is to get out of debt as quickly as you can, and rightly so,” Dolvin said. “But the reality is, the returns you earn on retirement [savings] and the compounding that occurs are so important in the early years that the [investment] returns in the long term should more than offset extra loan interest.” 

In general, that means any extra funds put into an investment will make you way more money in the long run than money saved by paying back student loans early. That is not to say that college students should entirely forsake their student loan debts to make it big in the stock market. Instead, the takeaway is that the contributions toward paying off student loans in excess of the scheduled payment plan could ultimately yield more in the long run if invested.  

“Even if it’s just $100 or $200 per month, you want to start [investing] as soon as you can,” Dolvin said. “Be patient and be consistent. The general rule is … when you are young, every $200 per month you invest over 40 years is worth a million dollars when you retire, assuming average stock market returns.” 

Associate professor of finance Bryan Foltice has made it his goal to give Butler students — both within and outside of the Lacy School of Business — the resources they need to get started on building a portfolio. He is part of a team of Butler staff members working to put together a series of events intended to help students prepare for their financial future. 

“[Our] program is called Money Strong,” Foltice said. “Students are able to get their hands on budgeting [tools], investing strategies or other ideas that prompt next steps. So, by the time they graduate, [investing] is not a totally new world that no one has prepared them for … A lot of [the solution] is just coming to the table and to have a conversation about money in the first place. Many people don’t like to do it.” 

Money Strong is a multi-faceted series that explains how to build a solid financial foundation both during and after college. The program covers how to make a budget, how to manage and pay back student loans and how to make sound long-term investment decisions. 

For example, students learn that you should try to invest five to 10% of annual earnings, or that you can invest in life cycle funds which allocate money for the investor and are designed to reflect their stage of life. And, if you need another reason to attend a Money Strong event, each one of the three events is worth a BCR credit.

Another unique resource available to Butler students is the ability to schedule one-on-one meetings on the Money Strong website. During these meetings, Butler financial staff members and Butler students on a financial advisor track help students plan out what their financial future will look like. 

Overall, there can be so many things to purchase once that first paycheck is received. The prudent course of action is, however, not to fall into the trap of thinking that you have to spend all of your money to be happy. 

Going to the park with friends is free, your 2001 Corolla still works as well as that new Jeep and really, the view from the stadium nosebleeds is not that much worse than sitting in the middle of the arena for four times more. Being in your 20s means you are living in the easiest period of life to have fun without needing to spend a lot of money. 

By saving and investing at the very beginning of your career you can set yourself up for financial success and long-term stability. An early retirement and the option to pursue new passions become very real possibilities. Investing early allows you to set up your kids or close family for success or to be philanthropic. 

Ultimately, making an investment portfolio right out of college will help you learn that money doesn’t buy happiness, but it sure helps.