Why investing early is important for millennials
Andy Roberts
Like most people, there was probably a time where you once considered investing in the stock market or in other types of assets. However, given how complex and saturated the market is with a multiplicity of available investment opportunities, you also probably gave up on this venture. Even just browsing for reliable information and investment tips can become a cumbersome process. For beginner investors, usually millennials, some of the most common questions are: “Where do I even begin,” or “What kind of investment portfolio should I strive for?” Despite these questions being quite simplistic in nature, answering them is more convoluted than it appears.
As briefly mentioned before, the level of difficulty involved in the act of investing requires years of experience to the extent that any random individual is not equipped to make the proper investment decisions alone. Though having money is a necessary prerequisite for obtaining assets, stocks, or investments, money alone does not guarantee success in the market. As a result, we have developed a comprehensive list of useful tips on where to start if you are interested in investing in the market.
This may seem like an absolute no-brainer, but it is important to familiarize yourself with the types of investments available and the terminology that is required to understand how the market works at the most basic level. A great place to start is a website called Investopedia. Over at Investopedia, you will find a wide array of materials and resources that will aid you in your understanding of stocks. There is even an entire dictionary that explains every single term from A to Z.
In addition, they have a consolidated list of investor guides that explain a multiplicity of topics not limited to real estate, retirement, insurance, ETFs, bonds, taxes, mutual funds, and stocks. This website will provide you with the necessary tools to begin your journey to understanding market fundamentals. Other useful resources include RealClearMarkets, Investing for Dummies, the Little Book series, and “The Intelligent Investor.”
Under the assumption that you have already covered these materials to a fine extent, meaning that you understand some of the most basic concepts involved in investing, it’s time to move forward to learning some key behavioral principles that you should adopt when ready to invest. As said, even though you might have an unending amount of money to pour into the market, you must understand the market and how it works. In addition, you must be well versed in the act of investing itself, given that it is an entirely different dimension in itself.
First of all, draw out a timeline in which you delineate the time that you want to invest your money. This step is highly important because the length of time that you want to keep your funds in the stock market is closely linked to the type of stock/asset/investment available. You wouldn’t, for example, throw money into a stock that has an extended rate of return if you wanted to withdraw this investment for potential gain if you needed the money in a few years.
According to MoneyCrashers.com, the three major determinants of your investment profile growth is based on the (1) amount of money you spend, (2) the amount of net annual earnings on your capital, and (3) the number of years or period of your investment. Thus, it is highly important to draw out a long-term plan to ensure that you invest wisely and effectively.
MoneyCrashers also identifies what they call “Risk Tolerance.” As succinctly as possible, risk tolerance is “how you feel about risk” and the level of risk that you deem acceptable when engaging in a variety of behavior. This factor in investing is perhaps one of the most underrated ones given the fact that it is not typically thought of as a component of the stock market. However, it is one of those hidden bits of knowledge that any potential investor should be aware it. Knowing you level of risk tolerance will help you make the right decisions and avoid placing yourself in unfavorable positions. Being too unsure of your decisions will inevitably generate anxiety which will them obfuscate your own personal judgment which then causes poor investment decisions.
Getting into the nitty-gritty of it all, let’s have a look at some of the most reliable or profitable investment opportunities. Index funds, for example, are identified by money.usnews.com as having “several advantages over actively managed funds.” They mention that they are generally less expensive, have low turnover, and have better performance over the long run. This is particularly a good choice for people are have a lower risk tolerance and who are less willing to lose, perhaps, a substantial amount of capital in the market.
The same website also recommends that you use the earnings from your dividends and reinvest them into the marketplace. Reinvesting your dividends is a safe option to generate more capital and will maximize your chances of increasing profit. One study showed that if a person would’ve invested $10,000 dollars in Coca-Cola in 1962, in 2012 they would have gained around $500,000. On the other hand, if they would’ve invested these dividends back into the market, it would’ve been worth well over $1.7 million.
While this is but some of the advice that you should take into consideration when you are contemplating investing, one of the most invaluable pieces of advice is to invest as early as possible. It is definitely possible to retire at a more reasonable age compared to when most people retire. All you have to do is to begin investing portions of your monthly income into stable investments, be it stocks or properties. Most people do not begin investing until the latter half of their life if they even do begin to invest. By investing at an earlier age, you will generate more revenue which will ultimately make your life much easier by the time you retire. As a matter of fact, you may even be able to retire earlier than anticipated.
As said, investing can be a tricky practice. However, with the right tools and the right resources, it is definitely possible to have some success in the marketplace. As confusing and complex as investing may seem, it will never become any easier so long as you avoid taking the leap of faith and beginning the long, arduous process of making the first step towards investment.