Investing is often the last thing in young people’s minds. Most still have student loans, entry-level jobs and salaries, and a lack of knowledge or experience with wealth management. Having yet another way to exhaust their income is not a priority.
But if you think about it, age is actually the advantage of a 20-something professional. Being a young investor means you can take on more risk without seriously damaging your future. With technology at your fingertips, you can try to make sense of unlimited tools of the trade and adjust to the learning curve a little bit better. More importantly, you have time on your side. It’s the secret to earning more interest on interest, or compound interest, which applies to many financial services like a 401(k) plan for retirement.
However, investing your hard-earned money can be daunting, especially if you’re a first-timer. There’s no shame in this though, as most young people don’t have the time (or interest) to learn the ins and outs of the investment world. Doing research may not be enough to answer all your questions, so getting a financial advisor is the wisest move you can make when planning for your future.
A financial advisor can provide professional insights to help you make the best investment decisions that suit your lifestyle. If you already have an existing portfolio, your advisor can assess your assets based on your long-term goals. Handing over your financial matters to an expert allows you to get on the right financial track without further adding to the hustle and bustle of life in your 20s.
While there are so many things to save up for when you’re in your 20s, it’s actually much easier to ramp up your savings at this stage in your life. Even a small starting capital can grow and build wealth by the time you’re ready to retire. Who knows, the money you invest now could buy you a nice house in a few decades? The only thing you need to do now is to actually explore your options and start investing. Take a look at some ways you can grow your funds:
High-yield savings account
A high-yield savings account is not technically an investment product — at least not in a sense that it can grow your wealth exponentially. Regardless, a high-yield savings account will help you build a habit for saving. You need consistency as an investor if you want to seriously grow your money. And with a high-yield savings account, you get better interest rates than traditional savings accounts. The average interest rate for the latter is 0.05% compared to 1.70% interest rates for high yield accounts. It varies, of course, and you need to be selective with which account you end up choosing.
Stocks and bonds
Learning how to invest in stocks, bonds, and other securities doesn’t have to be so overwhelming. It’s never been easier to open a brokerage account and start investing or trading. Plus, you can use tools to test how a security performs in the market before you actually invest in it.
As a younger investor, you need to start learning how to diversify your portfolio. Don’t overinvest in one stock, or in different stocks in the same sector, or in just stocks and nothing else. Try investing a little bit at a time instead of going all in. Investing in securities shouldn’t be treated as a gamble but as a calculated risk using the wealth of information available.
CFDs
One way to manage risk with securities is to trade contract for differences, more commonly known as a CFD. Basically, it’s a contract between you and a broker based on a prediction you have on how the price of an asset will move. This limits your risk because you’re not actually investing in the stock, just betting on its price movement.
And with trading stock CFDs, you can also use predefined stop and limit orders. These are essentially risk management tools that automatically close your trading position to limit the size of your loss. These are available with other CFDs too, like CFDs for cryptocurrencies such as Bitcoin or Ether. The minimum requirement for trading capital is small, making CFDs more accessible to novice investors with limited funds.
Robo-advisors
But if you want to take a more hands-off approach to wealth building than trading, investing with robo-advisors can be a good option. These are automated tools that manage your investment portfolio. Using your information, financial standing, risk tolerance and goals, robo-advisors create a viable approach for your investment. These are essentially risk management tools that automatically close your trading position to limit the size of your loss.
Final Takeaway
Investing during the prime years of your life just might be the most important decision you’ll make as a young adult. If you play your cards right, it could be your key to securing a comfortable life beyond adulthood. Remember, real financial freedom starts with smart investments — in yourself, in knowledge about how money moves, and in the expert advice of professionals who can improve your financial literacy.
