In the last several years, we’ve seen an explosion of “fintech,” aka financial technology. One of those new areas is “microinvesting;” there’s never been a better time to be a beginning investor with only a small amount of cash flow available to invest. No longer must you have thousands of dollars to open an investment account or millions of dollars to receive professional investment advice. While of course it is preferable to invest a large amount of money each month for your retirement or other investing goals, sometimes that’s simply not possible. Often it’s not possible for graduate students and postdocs, yet these groups are just as intensely interested in investing as anyone else – more so, I’d wager. This post details how to start investing with just five dollars per month (or whatever amount of money you can spare right now).

Why It’s Beneficial to Invest Just Five Dollars per Month

Thanks to the power of compound interest, a small amount of money given a long amount of time can turn into a large amount of money. That means that any amount of money you can put away when you are younger is going to make a significant difference to your wealth in retirement. It’s much, much, much better to invest $5/month than $0/month when you have decades to let it grow.

Now, you’re not going to fund your entire retirement with just a few dollars per month. But starting small is perfectly acceptable when your income is suppressed during your PhD training or you are otherwise in a financially challenging circumstance. Get started now with whatever amount you can, and increase your savings rate when your income increases and/or expenses decrease.

For example, if you contributed $5/month to an investment account over 5 years and received an 8% average annual rate of return, you’d end that time period with $367. Leave that $367 invested with an 8% rate of return for 50 years, and your ending balance is just shy of $20,000. I won’t sugar-coat it: That amount of money isn’t going to get you too far in your old age. But it is $20k better than taking no action.

Further reading:

• Why You Should Invest During Graduate School
• Whether You Save during Grad School Can Have a $1,000,000 Effect on Your Retirement
• Compound Interest

In addition to the money itself, I see two compelling reasons to start investing even with only five dollars per month:

1) Committing to an investment plan creates a habit and changes your self-identity. If you invest five dollars per month, you become an “investor.” It’s part of who you are. The positive financial habit of committing to a monthly savings rate is a very powerful one to cultivate early on in life.

2) Once you get started, it’s easy to increase. The biggest hurdle is going from investing $0/month to $5/month, not from $5/month to $100/month. If you self-identify as an investor, you are naturally going to look for ways to increase your rate of investment. When you complete your training and move into a better-paid position, you will be ready and raring to save more each month, and you’ll already have the infrastructure in place. You’ll only be a few clicks away from investing serious money each month instead of having to wrestle with all the decisions and setting everything up at the same time that you’re dealing with a job transition.

Why It’s Challenging to Invest Just Five Dollars per Month

Until a few years ago, the only way to invest a small amount of money each month and be well-diversified was to use a mutual fund. Unfortunately, to open a brokerage account in which you could buy mutual funds usually took at least $1,000 if not several thousand dollars. Even the brokerage firms that waived their minimum balances usually required an ongoing investment commitment on the order of $50 or $100/month. That barrier can seem prohibitively high to some people; instead of saving up cash for months or years to meet the minimum balance, I imagine many people gave up on the idea of investing.

Further reading: Brokerage and IRA Account Minimums

Now, however, several investing platforms use fractional ETF shares to solve this issue. The platform buys whole shares of ETFs but sells fractions to its users. In this way, a user can purchase one or more ETFs in whatever increments she likes, and there is often no minimum balance required to open the account.

(I have only included in my list below microinvesting platforms that use ETFs. Robinhood is another investing platform that I ran across many times while researching this article because it is a fee-free platform. However, it is designed for investing in individual stocks. You have to invest a lot of money to create a diversified stock portfolio through buying individual stocks. You can buy ETFs through Robinhood but not fractional shares, so that is not compatible with investing just $5 per month. I’ve decided to exclude Robinhood from my list below because it inherently encourages active investing. Of course, if that’s your preferred investing strategy and/or you have a larger amount of money to invest, Robinhood is well worth considering.)

The Best Platforms For Investing Just Five Dollars per Month

I reviewed a number of fintech microinvesting platforms for this article, though I do not claim that it is comprehensive. I am not a customer/don’t have a relationship with any of these platforms, so I’ve drawn this information from the company websites and reviews rather than personal experience or communications.

Acorns

Acorns is probably the best-known microinvesting platform. Its concept is to round up each of your purchases to the next whole dollar and invest the change. You can also set up a recurring investment.

Fee structure: $1/month for under $5,000 (free for students for 4 years) + ETF expense ratios
IRA option: Coming “early 2018”
Portfolio creation: Suggests a portfolio of ETFs after receiving user input

WiseBanyan

WiseBanyan calls itself the “first free financial advisor.” (They earn money through upselling products and services to their clients.) The service asks you a few questions and uses Modern Portfolio Theory to construct a passive portfolio appropriate for you.

Fee structure: Only the expense ratios of the underlying funds
IRA option: Yes
Portfolio creation: Uses low-fee index ETFs according to Modern Portfolio Theory after you input data for its investor profile

Stash

Stash allows the user to choose among low-cost ETFs to create her own portfolio. The expense ratios on the ETFs are low, and Stash can recommend certain “themed” combinations of ETFs.

Fee structure: $1/month + ETF expense ratios
IRA option: In beta ($2/mo)
Portfolio creation: The user creates his own portfolio from among 40 pre-selected ETFs

Clink

Clink bills itself as more a savings app than an investing app. There is no minimum investment, but if you want to use the scheduler the minimum is $1/day. Clink invests your money in Vanguard ETFs according to Modern Portfolio Theory (a passive strategy).

Fee structure: $1/mo when balance is under $5,000 + ETF expense ratios
IRA option: No
Portfolio creation: Combines your risk tolerance with Modern Portfolio Theory to create an asset allocation of six Vanguard ETFs

In addition to these companies that are explicitly designed for microinvesting, you could also consider other brokerage firms that have wider array of financial services that includes microinvesting. For example, Betterment is a roboadvisor and has no account size minimums. If you do have a lump sum available to invest, though only $5 per month on an ongoing basis to contribute, you could consider other traditional low-cost brokerage firms like Vanguard, Fidelity, or Charles Schwab (and look around for one that will waive its minimum).

What Are the Downsides to Using a Microinvesting Platform?

The microinvesting platforms I listed above are providing a great service to a previously underserved population, and they are to be commended for that. But in order to make it possible, they have engaged in several trade-offs that wouldn’t be necessary with larger investment balances.

1) The Investment Choices Are Severely Limited

The platforms diversify your money into ETFs, but they offer only a small number of ETFs, and I suspect only a few ultimate combinations of those ETFs depending on the user’s input. This is not necessarily a bad thing. If you simply want a generally appropriate asset allocation and are not too concerned with the exact underlying funds used or the exact percentages, having those limited choices might even be advantageous. But if you want to design your own asset allocation or choose among the other thousands of funds possible, you probably won’t be too happy with these platforms.

2) The Fees Are Sky-High

There are two types of fees typically associated with owning investments. The first is due to the cost owning and transacting the investments themselves. When we are talking about an ETF, this fee is called the expense ratio and is expressed as a percentage of your investment balance. Each of the four platforms above have this fee, and it is typically quite low, approximately 0.1%. If you ever see an expense ratio that is around 1%, this is considered high and a red flag that the fund is actively managed.

The second type of fee is for administering the plan or platform itself. For reference, a full-service fee-only human financial advisor charges approximately 1%.

Three of the microinvesting platforms in my list above charge at least a $1 per month fee of the second kind. That doesn’t sound like a lot of money in absolute terms, but the whole reason we’re talking about microinvesting is because small amounts of money are worth paying attention to. If you are investing just five dollars per month, a one dollar per month fee is a staggering 20% of your savings rate. This kind of fee absolutely cripples your investing efforts. I would not be at all surprised if you lost money overall almost every year if you were investing just five dollars per month because the long-term average annual return of the stock market is approximately 10%.

Of course, you can mitigate this problem by using WiseBanyan or another platform that doesn’t charge a fee (e.g., if you are a student and can have the fee waived) or by investing more money each month.

3) They May Not Offer an IRA

Only one of the above platforms currently offers an IRA investing option to all its users. While it is great to invest outside of an IRA, if you are saving for retirement using an IRA is optimal. Plus, your IRA contribution room disappears every year. If you use a microinvesting platform for a few years as a means to save enough to open an IRA with a larger lump sum, keep in mind that your contribution room disappears with each year. It would be better to contribute to an IRA all along instead of doing it in one lump sum at the end because it would use up so much of your contribution room in the last year.

Further reading:

• Everything You Need to Know about Roth IRAs in Graduate School
• Why the Roth IRA is the Ideal Long-Term Savings Vehicle for a Grad Student
• Fellowship Recipients Can Save for Retirement Outside an IRA
• Roth vs. Traditional

4) You May Develop a Sense of Complacency

I’m trying to thread a needle here: I want to encourage you to invest any small amount of money you can right now while emphasizing that to reach financial independence or retire someday $5 per month is not nearly a high enough investing rate long-term.

If investing just five dollars per month is truly all you can do right now, go for it. But do not allow yourself to think you can keep your savings rate that low when your financial circumstances change. I want you to jump that rate up by about two orders of magnitude as soon as you are able!

Doing something is better than doing nothing, but over time you must move from doing something to doing the best thing or the sufficient thing.

Further listening: Ask Dave: Micro-Investing Apps?

How to Invest When You Have More Money

As of now, I do not think that microinvesting platforms are on par with other brokerage firms and investing platforms that require lump sums to open accounts or higher ongoing investment rates. It’s fine to start out investing with a microinvesting platform, depending on your goals, but as soon as you are able, I think you should switch to a brokerage firm that offers a wider array of investments, lower fees, and IRAs. All of the advantages of the microinvesting platforms (aside from the zero minimums) – low-cost ETF investing, asset allocation recommendations – can be found at a brokerage like Vanguard, Fidelity, or Charles Schwab. Plus, start-ups like these fin tech platforms often change their business models or fold, so even if you like your solution right now it might not be around forever.

When you do make that switch, be sure to choose a diversified, passive, low-cost strategy appropriate to your goals. And increase your savings rate!

If I were in a position to invest only five dollars per month, among the microinvesting platforms I looked at I would sign up for WiseBanyan. Because it doesn’t charge a platform fee on top of the ETF expense ratings and it offers IRAs, I think it gives you the best chance at actually readying you to invest for the long-term. But you also have to consider that it uses a freemium model, which has not yet been proven sustainable in the financial sector.

Just as useful as knowing what to do with respect to investing is knowing what not to do. In fact, some of the core investing principles that I teach involve pitfalls to avoid: don’t pay high fees, don’t jump in and out of the market, don’t delay, etc. This article details 11 common investor behaviors and choices that are detrimental. Don’t make these investing mistakes!

Wait to Get Started

There’s a common aphorism on investing: “It’s not timing the market, it’s time in the market.” We’ll get to market timing as an investing mistake later in this post; for now focus on the time in the market.

Once you are financially and mentally ready to invest, get in the game! Do not wait on the sidelines for months or years on end! On average, waiting means you’ll miss out on gains. The math of the power of compound interest show you just how damaging it is to miss out on even a year of returns.

Remember my example showing how the investments you make just during graduate school can translate to $1,000,000 in retirement? Instead, let’s say that you invested over your final four years of grad school instead of five. Your ending balance drops by $225,000!

Further reading:

• Are You Ready to Invest Your Grad Student Stipend?
• Whether You Save During Grad School Can Have a $1,000,000 Effect on Your Retirement

And on that note, one particular mistake that might cause you to wait to get started is that you…

Get Stuck in Analysis Paralysis

I’ve made this mistake more than once with my investments! Investing is an intimidating subject to approach for a novice. But investing isn’t complicated! (Some people like to make it (seem) complicated, but that isn’t better than a simple approach.) I’ll boil it down for a long-term goal like retirement: Buy a stock index fund and hold it until you need the money in retirement.

OK maybe you want a little more detail on that, but you don’t need much more before you get started! Really, you can learn all you need to know about investing in a couple hours. (If you’re super interested, keep going, of course, but you don’t have to.) After that, just start! You can refine and improve your strategy along the way if you want to as you learn more.

Think You (or Your Broker) Knows Better than the Market

Think you can beat the market or place your money with the person who can? Think again. After costs are taken into account, in a given year the vast majority of both individual investors and professional fund managers fail to even match the returns of the broad market sector they’re invested in. And to beat it year after year after year? Vanishingly rare.

The Efficient Market Hypothesis (EMH) states that it’s impossible to beat the market because share prices always account for all known information about each investment. There are no market inefficiencies to exploit through market timing or precise selection of individual investments.

The EMH is a theory and up for debate, but there is little evidence that contradicts it. Even the most well-known investor in our time to consistently beat the market, Warren Buffet, recommends the S&P 500 index fund, which simply tries to represent the market sector of large-capitalization stocks (source).

This is good news for those prone to the previous mistakes: there is little analysis needed to invest in index funds, and therefore you can skip the paralysis and jump right in.

Save Too Little

According to the EMH, you can’t control your investment outcome; the best you can do is match your (sub-)asset class of choice. What you can dial in are costs (more on that later) and your savings rate.

Given a certain rate of return on your investments, what’s the best way to double the amount of money you have in retirement? Save twice as much. Your savings rate is a linear scaling factor in the math of compound interest.

If your goal is to fund your retirement/become financially independent, you need to build up a very large nest egg. It takes decades to save what you need and to allow compound interest to work its magic. So in addition to starting early, save at a very healthy clip: 10% of your gross income is a great goal if you start in your 20s, more if you start in your 30s.

Bonus: The higher your savings rate, the smaller your goal savings amount. If you want to reach financial independence, you should save up approximately 25 times your yearly living expenses (following the 4% safe withdrawal rate). The more you reduce your living expenses, the smaller the nest egg is that you require to retire and the faster you’re able to save up to reach it. For example (given certain assumptions), increasing your retirement savings rate from 15 to 20% means that you can reach financial independence 6 years sooner. Jumping your savings rate up to 30% shaves an additional 9 years.

Further reading: The Shockingly Simple Math Behind Early Retirement

I know a retirement savings rate of 10-15% a big ask while you’re in grad school or a postdoc. If starting early and saving only a little have to play off against each other, start early with whatever rate you can. Just know that you’ll need to jump it up when your income increases.

Get Sucked in by Gimmicky Fintech

One of the great advances in personal finance in the last several years is the explosion of “fintech” or financial technology. Fintech has enabled small investors to access some services and benefits that were only previously available to higher net worth investors because financial advisors have been able to scale their services.

These fintech platforms are now heavily advertising to their new potential clients, i.e., you. While more choices for regular people with respect to investing is a good thing, this heavy advertising environment for the new technology has perhaps crowded out the choices that were and are still available for those same investors, which may in fact be the more appropriate.

For example, the rise of microinvesting platforms that enable people to invest as little as a few dollars per month might give the impression that 1) those platforms are the only ones available for beginning investors or 2) it is sufficient to invest only a few dollars per month. Believing either of those premises is detrimental to the investor.

Another example is roboadvising services. Roboadvisors are a lower-cost, lower-touch substitute for full-service human financial advisors. While they might represent a less expensive but sufficient alternative for a person who would otherwise use a financial advisor, they are a more expensive (i.e., possibly wasteful) alternative for someone who could manage his own investments just fine (the DIY approach) if he knew it was an option. (It’s an option! An easy one! Your brokerage firm will almost certainly make an asset allocation recommendation to you for free if that’s all you’re looking for.)

Pay Too Much or Too Little Attention

On the spectrum of how much attention you should pay to your investments, there is a wide range of what is appropriate. Only the extremes will get you into trouble.

You don’t need to pay a whole lot of attention to your long-term investments. If it stresses you out to see your balance fluctuate daily due to a choppy stock market – and especially if paying that close attention will cause you to try to time the market – force yourself to tune out. You don’t need to check your account balances or investment news daily.

On the other hand, you shouldn’t go years between check-ins, either. You do need to make sure that your investments are doing basically what you expected they would and that they are still appropriate for your goals. A quarterly check-in is sufficient for long-term investments.

Time the Market

One of the gravest investing mistakes that I’ve already hinted at is market timing, which is when you attempt to jump in or out of a market at just the right time to make a killing or avoid a staggering loss.

Guess what? It’s a super ineffective strategy, way worse than just staying invested or steadily adding to your investments. This again relates to the EMH. Any insight you might think you have about an impending skyrocketing or plummeting of the market has already occurred to a zillion other people and been priced in.

You might think you’re buying low and selling high or being fearful when others are greedy and greedy when others are fearful, but most of the time you’re probably just doing yourself a disservice. Besides, even if you guess right once and get out at the right time or in at the right time, you have to be right again to get back in/out!

Be Undiversified

One of the core tenants of modern portfolio theory is diversification. This means that instead of owning one investment of a type, e.g., one stock, you should own a collection of that type of investment. It’s the basic principle of not putting all your eggs in one basket. You never know which stock is going to be a huge winner and which will go to zero. Instead of picking only one or a handful, own a few tens or a few hundreds and spread out the risk.

One of the sneaky ways to become undiversified is through employer stock that you are given or able to purchase at a discount. If you have a high percentage of your portfolio (e.g., > 10%) tied up in employer stock, then not only is your job at risk if the company falters but much of your savings as well!

Pay Too Much in Fees

Fees, just like taxes, are a drag on your rate of return on investment. Instead of getting a 8% average annual rate of return, for example, fees or taxes might knock you down to 7.5, 7, or even 6%! That makes an enormous difference over the decades – to the tune of hundreds of thousands of dollars!

If we use tax-advantaged retirement accounts to avoid taxes on our retirement savings, doesn’t it also make sense that we should minimize our fees?

Sure, it would be worthwhile to pay higher fees if you actually got better investment returns, but, after accounting for fees, approximately 80% of actively managed funds underperform similar passively managed funds.

The way that you can keep an eye on fees is through a fund’s expense ratio. That’s a single number that expresses the all-in costs of owning the fund in terms of a percentage. A very high-fee fund will have an expense ratio of 1% or even higher, whereas a low-fee fund would have an expense ratio of a couple tenths of a percent or even below 0.1%.

Mix Investing with Insurance

A very expensive investing mistake is to mix investing with insurance though a whole life or universal life insurance policy. The selling point is that you build up money in an investment product as you pay your insurance premiums.

However, what you might not realize as you are being pitched such a product is that your premiums are several times or even an order of magnitude higher than they would be for the same amount of term life insurance, and the investment product doesn’t give you great returns, either.

It’s much less expensive to buy term life insurance (the same sort you have on your car – expiring after a set length of time) and invest the rest of the money you would have spent on the premium on your own. It’s very likely that you’ll end up with more money after decades of using that method.

After all, you don’t actually need life insurance for your whole life – just until you reach financial independence. And that day will come a lot faster if you don’t mix insurance with investing.

Basically, the only people who recommend mixing investing with insurance are those who sell that kind of product. Speaking of which…

Blindly Take the Recommendation of Someone Earning a Commission

I’ve met a few graduate students with no need for life insurance at all who own whole/universal life insurance policies. And it was easy for me to correctly guess why: a family or friend had started selling those products.

There are three types of financial advisers, differentiated by how they are paid.

With two of them, it’s transparent how they are paid. One type charges you straight up for their time and will help you create a financial plan. The other type charges you a percentage of your portfolio to manage your money for you. These two types are usually held to a fiduciary standard, which means they are ethically bound to give you the best financial advice for your situation.

The kind that will meet with you for free is likely to make their money through commissions on the products they sell you. They are not fiduciaries. That’s not to say that they will behave unethically, just that they are not required to be objective in their recommendations. They are permitted to pitch you the product that earns them the highest commission as long as it’s “suitable.” And that’s how a grad student with no need for life insurance ends up with a whole/universal life policy.

The caution against blindly taking the advice of someone earning a commission applies to more than just financial advisors. Affiliate advertising is incredibly widespread right now. You may learn about a product from a content creator (e.g., website, podcast) whom you respect. It’s quite likely that the person will earn money if you buy it through their link/promo code. (I used to be an affiliate myself for a few products through a prior website.) Again, earning a commission doesn’t necessarily mean the person is pushing a bad product or is behaving unethically, but you just have to recognize that it is a form of advertising and you should be a savvy consumer. It’s very difficult to claim to be completely objective when there is a commission in the line.

Graduate school is a financially challenging time even if you are fully funded. Your stipend isn’t intended to do much more than pay your basic living expenses. You are likely young and relatively inexperienced with managing money, especially for long-term goals. You’re short on time to learn about financial best practices, and you may even be suffering from analysis paralysis. Investing may be either the furthest thing from your mind or yet another item languishing on your “To Do” list.

I believe that if you fully understood the benefits of investing right now, you would be chomping at the bit to get started. If you have the means, investing for the long term is one of the best possible uses for your money during graduate school. Of course you should cover your basic living expenses and live a little, but you can simultaneously begin building your lifetime wealth. It’s worth starting to invest during graduate school even if you can only put away a small amount or a small percentage of your income. Your status as a graduate student is even an investing advantage in some ways!

Below are four reason why you should start investing for the long term during grad school.

The Time Value of Money

In investing, time matters a ton. There are three key components to increasing your wealth: how much money you invest, what you invest in (i.e., the return you get), and for how long you invest. The first and third are the most important, believe it or not, because they are the most under your control.

Compound interest, or the time value of money, is the magic element that makes investing so powerful. Well, it’s not magic, it’s math – exponential growth. Here’s how compound interest works: Assume that your invested money gives a modest return each year. In your first year, your money grows by that return. In your second year, your money grows again, plus you get growth on last year’s growth. In the third year, you get growth, growth on growth, and growth on growth on growth. This continues (on average) for the entire period you are invested. Growth on growth ad infinitum!

One of the most powerful actions you can take for your net worth is to get the compound interest clock ticking for you as early as possible. Say, for example, that you need to invest regularly over 40 years to fund your retirement. Would you rather start that clock right now or wait until you’re done with your training?

You might think that starting to invest during graduate school is a big sacrifice that won’t amount to much because you won’t be able to save nearly as much now as you will on your future Real Job salary. This is a dire misconception!

Let’s take Tom as an example graduate student. Tom receives a $30,000/year stipend and invests 10% of it every month throughout his five years in graduate school. Over those five years, he contributes $15,000. Given an 8% average annual rate of return (very reasonable for a long-term investment), at the end of graduate school Tom’s account balance has grown to $18,353.49. If we leave that sum of money alone to continue to compound at 8% (no additional contributions), the balance grows tremendously. After 40 years, it has become $398,720.79! That’s an extra $400,000 for Tom’s retirement that he wouldn’t have had if he hadn’t started investing during graduate school.

Ingraining Positive Saving Habits

Incorporating regular long-term investing into how you manage your money during graduate school creates a powerful habit. Not only are you experiencing the benefit of compounding interest on the money you invest during graduate school, but you have created a habit of investing that will carry forward throughout your whole life. In fact, by doing so you have changed your identity to that of an investor!

Investing during graduate school is a sacrifice, of course. But to be honest, it’s going to be a sacrifice at whatever point in your life you start to invest. People always think that it’s going to be easier to start saving later, when x, y, and z in their life has changed; this mindset is not unique to graduate students. Yes, in a few years you’ll have a Real Job’s salary, which will make saving easier, but perhaps you’ll also experience other life changes like having a family or want to pursue other financial goals like buying a home, which will add financial constraints.

If you start investing during the objectively difficult period of graduate school, you’ll always be able to say, “I was able to save during graduate school, so of course I can continue to save now.”

Tax Advantages

Another big argument in favor of starting to invest during grad school is the tax advantages. In this case, having a low income actually works in your favor! (And not because of the Saver’s Credit.)

Graduate students with taxable compensation are eligible to contribute to an individual retirement arrangement (IRA). An IRA is a wonderful vehicle for anyone with the goal of saving for retirement. The big upside to using an IRA (or 401(k), 403(b), etc.) is that your money won’t be taxed while it’s growing inside the IRA. If your money were invested outside the IRA, the yearly taxes would essentially erode your rate of return and lower your balances.

When you open an IRA, you have the option to make it a traditional IRA or a Roth IRA. With a traditional IRA, you take a tax deduction on the money you contribute and pay ordinary income tax on the IRA distributions in your retirement. With a Roth IRA, you pay your full tax on the money you contribute and the distributions are tax-free.

For the typical young graduate student in the 15% (or lower) marginal tax bracket who expects a much higher income post-graduation, a Roth IRA is a fantastic choice. You pay your 15% income tax on the money you contribute to your Roth IRA, and that money is never subject to income tax again! It’s a great idea to add to a Roth IRA when you’re in a low tax bracket like while in graduate school. If you do have a higher income after graduation and a higher marginal tax bracket, you’ll either pay a higher tax rate to contribute to a Roth IRA or switch to a traditional IRA. When you consider that some people contribute to Roth IRAs when they are in much higher tax brackets, a 15% tax rate seems like a deal!

Even if you do not have taxable compensation, your low tax bracket is still an advantage for long-term investments. If you are in the 15% tax bracket, you have 0% federal tax on long-term capital gains and qualified dividends. This means that investing outside an IRA is not such a terrible fate because of your low tax bracket as long as you use a tax-efficient investing strategy such as index fund investing.

Further Reading: Fellowship Recipients Can Save for Retirement Outside an IRA; How Fellowship Recipients Can Save for Retirement (video)

Post-Graduation Flexibility

If nothing else, having money increases your options. Exiting graduate school with savings and investments gives you more flexibility when it comes to financially motivated decisions like where to work and how to live. If you already have a nest egg compounding in your corner, you can consider the lower-paying job that fulfills your passion or the high cost-of-living city that you love. You are no longer hamstrung into maximizing your salary and minimizing your lifestyle so that you can compensate for the opportunity cost of your graduate training.

Further reading: What We Did in Graduate School to Enable Our Risky Career Decisions

I hope that considering all the benefits of investing has motivated you to start investing or increase your contributions during grad school! It’s amazing to graduate with not only a degree but also sure financial footing.