When you’re young, you want money and you want it fast. You want your independence and are fed up of driving your 15 year-old used car, riding your bike or taking the bus. You’ve started college (or are about to finish) and would rather live in your own place, rented or otherwise, than in dorms. You may even be planning to marry your high school sweetheart and have kids someday. On top of that, you need to think about providing for yourself towards the end of life, i.e. retirement.
That’s when your thoughts might turn to investing. There are right ways and wrong ways to invest. Here’s how to place yourself on the path to successful investing early on.
Read About Investment
This may seem obvious, but you’ll be surprised how many people actually watch Wall Street or Boiler Room and then rush straight out to buy or sell shares, thinking they can do it all in the same slick style as the protagonists… and failing miserably because they don’t know the slightest thing about investing. Studying portfolio management and investing strategies before you put your cash in the hands of the broker, fund manager or even the bank can save you money, as you may be able to avoid certain fees.
Start As Early As Possible
Starting to invest early is all about making the most of the years of (fruitful) investing ahead. The sooner you begin investing, the sooner you can reinvest the returns, making more money each time by building on increasingly growing initial capital. Besides, if you’re serious about making smart investments, then this will be a long-term project, not a short-term, get-rich-quick scheme.
Of course, the other thing is that time is on your side. It’s not too late to recover and learn from your mistakes. In contrast, the older you start, the more money you must invest to make it worthwhile, which can be risky, especially if you’re investing to cover your retirement (which in that case, you should also read up on 401K withdrawal rules). Meanwhile, when you start young, you can take your time.
One of the greatest misconceptions about successful investing is that it’s a rich person’s game. It isn’t: it’s a game that can make a person rich over time. There are all kinds of investment opportunities out there, catering for the average individual through to the incredibly wealthy, and you don’t have to be rolling in cash before you can start to invest.
The trick is to invest small amounts and gradually invest more as your returns (and your experience) grow. One type of investment in which this is possible is a mutual fund, as it is called in the United States, or a unit trust – the U.K. equivalent – offered by companies such as Interactive Investor, allowing investors to invest affordable sums to buy units as part of a collective investment.
Follow Stock Markets Closely
Some suggest that if you have to keep your eye on the stock market constantly, your investment is too risky and that you should diversify your investment — which is the golden rule of investing, anyway — or opt for one with a lower potential return and risk profile. That way you can relax and let your money do more of the work for you, rather than sweating over the stock exchange.
That’s sound advice. However, by not following them closely, you could be missing out on potential investment opportunities. As we’ve seen above, investing is about good timing as well as good financial sense, so you should always stay informed. Continuously do your research and be there with the capital if a suitable opportunity presents itself.
Read All The Fine Print
When considering potential returns, be aware that a percentage or flat fee will be earned by active fund managers, brokerages, trading platforms, and other investment professionals. That’s unless you choose to invest in an opportunity in which the management fees are lower, such as an indexed fund or an exchange-traded fund (ETF). Always be sure what you are buying into and the risks and fees associated with any transaction.
Don’t Just Leave It To The Experts
A bit of expert guidance is always handy, but don’t just let them do whatever they feel like with your investment. Be in the know. Otherwise, they’ll soon rack up fees and commissions that will cut into your gains. Stockbrokers, for instance, offer three different types of service: dealing only, advisory, and discretionary, the latter giving the broker free reign to buy and sell as they wish without consulting the client, while the advisory service provides guidance but lets you have the final say in whether to buy or sell. And of course, the prices between services differ.
In the investment world, knowledge isn’t just power but a chance to make and save big dollars. As a young person you have the investment world at your fingertips, and the sooner you step into it, the rosier you can make your financial future. Free your mind of misconceptions, fill it with investment smarts, and then plan what you wish to do with the returns – apart from reinvest, of course.