7 Tips for Young Investors
With sufficient resources and suitable skills, time is an investor's best friend. Theoretically, the more time you have, the more you will make. That is why it is never too early to start preparing financially for your future. A great way to start this preparation is by investing your money in the right places.
Investing is a great way to build savings for the future. It is not only an excellent strategy for young investors to accumulate wealth, but it can also be used to supplement their income, save for a house, and/or pay for education.
A young investor has numerous investing alternatives. They can open a savings account, purchase common stock, real estate, stock mutual funds, and short-term Certificate of Deposits. Each option will have its own set of advantages and disadvantages, depending on the investor's goals.
Regardless of what you decide to invest in, there are some universal tips that can allow you to make smarter decisions. This article will bring you these useful tips so you can start investing as soon as you can.
It will ultimately depend on your personal preferences and how you wish to spend and save your money. Regardless, always do your due diligence and make sure your financial needs are being met.
1. Begin to Invest as Early as Possible
The earlier you begin investing in your life, the fewer financial hardships you will have later. For example, expenditures for your spouse and children, mortgages, and so on will arrive later in your life. To make the period they arrive easier, you can make a regular monthly payment into a specific investment during your youth. With time, these investments will accumulate and grow, allowing you to afford the pricier lifestyle you will probably endure later in life.
Investing early also lets you take advantage of interest compounding, allowing you to invest in high-risk, high-reward types of investments, such as risky stocks or cryptocurrencies. Since you have to wait for the fluctuations of these volatile markets, you will be able to enjoy the better returns this type of investments offers.
2. Learn With the Process
It's crucial that you are knowledgeable about the market and the business you're investing in. There are many shady investments available, as well as not worthy ones. Trying to understand the market and the specifics of the investment you want to make is vital. Be aware of the costs you might have when deciding on a particular investment. Be sure you also understand the risks involved in the investment of your choice, so you can be prepared for them.
However, we can’t understand everything and sometimes we make mistakes. If you make a bad investment and lose some money, don’t freak out, that is why you are starting young. Learn from the experience, understand what went wrong and how you could avoid this. Then, next time, use this learning to make a smarter decision. If you are not very great with investments or have been looking forward to investing in an industry you don’t know much about, consider hiring a professional that can assist you. There are many investment advisers that can help you make the right choice. Since you are still young, you can learn more from your experiences and understand better the type of investment you are interested in.
3. Learn How to Save More and Spend Less
To be an investor, you need money. To have money, you need to build savings. To build savings you need to earn more than you spend. So, to be an investor from a young age, you need to get used to the idea of saving more and spending less.
Most financial specialists agree that this advice is probably one of the most important ones when it comes to investing. Think about it. Let’s say you got lucky with an investment that grew with an interest rate of 100% in a year. That’s great! But the thing is that you only had $200 to put into it. You made some good money; you now have $400. But can you imagine if you managed to save more and had more money invested in it? So, picking the right investment is great, but having money to actually go for it is beyond essential. Thus, preserve part of your wealth rather than spending it all.
4. Diversify Your Portfolio
Diversifying your portfolio entails maintaining a portfolio that is made up of a variety of assets, ranging from high risk to medium risk to low risk. By doing this, your overall earnings will be higher - and safer - than a sole asset portfolio.
Usually, the higher the risk, the higher the returns. Thus, it’s normal that you want to take some risks in order to receive higher earnings. But obviously, high-risk investments are not the safest and they offer attractive returns because there is a higher chance you won’t make any money from it. That is why creating a diversified portfolio is a great financial strategy. The low and medium-risk assets compensate for the high-risk investment. Like this, you will have room for some investments to go wrong and some to earn low-interest rates. In the end, diversified portfolios tend to offer higher returns while keeping your money safer.
5. Identify What Type of Debt Is Worth It
Investing is great and this whole article is saying you should do it. But there is one thing that should be a priority before investing your money: avoiding unnecessary debt. Owing your credit card, electricity provider, or car store is the worst investment you could make. This type of debt doesn’t offer future earnings and can dread your income. Getting read bad debt should always be a priority, especially because they often have higher interest rates than most investment alternatives available.
However, not all debt is bad. Let’s say you take a loan to buy real estate with the purpose of renting or selling it in the future, in order to make some profit out of it. You are getting in debt as a type of investment. Of course, there are risks in it and if the investment does not work out, you will be left with a debt to pay, so make sure you can pay this debt back eventually. However, this type of debt is not the same as the one previously mentioned. It is a type of investment that can potentially bring earnings, not only owning to someone.
6. Understand Taxes and Inflation
Most investors overlook the impact of inflation and taxes on their returns. Your actual returns will be affected by inflation. An investment can seem to offer great earnings, but if the taxes on this specific investment are high, the real returns can drastically drop. The same goes for inflation. Thus, it is vital to understand how the taxes and inflation work in the investment you are choosing to do. There are asset alternatives that have a tax liability or that are tax-deferred accounts. If you want to make sure you are organizing your investments the best way in terms of taxes, consider hiring an accountant or tax professional to help you.
7. Explore New Types of Investments
More experienced investors might suggest you build your portfolio with stocks for high risk, real estate for medium and CDs, and traditional savings accounts for low risk. This might have been the formula for some years. But, what worked for previous generations might not be the best option for you. Not that these types of investments are not good. Is just that, since you are still young, why not experiment a little more with investments while you can? There are many alternative types of investments with different levels of risk that can offer great returns.
As mentioned, diversify your portfolio. Maybe have some money in a more traditional type of investment, and then some in newer or even more experimental assets. Consider buying some cryptocurrencies, listing your real estate on Airbnb, opening a crypto-based savings account on Outlet, or crowdfunding a startup. Of course, be careful with the risks involved in the investment you are aiming for. But also keep in mind that the financial world is always changing and staying in the more traditional types of investments might be a wasted opportunity. Many traditional investments don’t offer the same returns they once used to, and some of these markets are taken by very large investors. New types of investments are less explored and offer greater potential for earning more money.
