4 Simple Rules for Young Investors
October 13, 2020 | Joyce Ibrahim
Financial planning can be overwhelming, especially when you don’t know where to start. Young investors are often deterred by financial concepts they don’t fully grasp or technical terms that sound foreign to them. Fortunately, with all the valuable resources and learning tools you have at your fingertips, it’s easy to overcome these minor obstacles.
If you’ve made the sound decision to start investing in your 20s, it pays to remember these few basic rules:
- Invest with a purpose and a plan
Before you begin investing, it’s important to outline your financial goals and how to best reach them. This is an opportunity to get a closer look at your priorities, but also your capabilities. Identify your short-term and long-term goals and investing strategy. This will then help you have a better idea of what assets to choose, and at what contribution rate and frequency.
While wealth-building is the main motivation, it would be impossible to achieve without learning how to budget. To have money to invest, you need to have money saved. By drawing up a well-defined investing strategy, you’ll also learn to live on less and consistently earmark regular sums for your specific goals.
You can turn your attention to short-term goals at first, such as investing six months of living expenses into an emergency fund.
- Diversify your portfolio
Diversification is among the most important concepts to learn when investing in your 20s. Build a portfolio that includes all kinds of assets ranging from high risk, medium risk, to low risk. The medium and low-risk assets will compensate for those that are higher-risk. You can avoid major setbacks by investing in low-risk stocks with regular dividends, stocks with long-term growth potential, and a few stocks with higher risk potential but better returns.
If you want your portfolio to cover a broader market spectrum, index funds could be a good place to start.
- Take the risk if it’s reasonable
When you’re investing in your 20s, you want to ensure that you’re making the most out of the limited funds you have at your disposal, therefore you’ll tend to avoid risk. But if one of your financial goals is to build wealth beyond a safety net, stocks may prove to be more rewarding than a savings account in the long run. However, investing into stocks means you’ll probably see drops in the market in the short term. Stocks are long-term commitments with higher risks and better yields, but they’re not the investment to make with money you might urgently need in five to ten years.
- Get advice on managing your money
There’s a great deal of self-learning you have to be willing to do to get started on your investment journey. The good news is that with a little internet research you can learn all about assets, investment opportunities, and trends.
The better news is that you don’t have to start from scratch. A financial advisor can work with you to understand your financial situation, help you outline your goals and how well they fit with your needs. What you lack in financial knowledge and expertise, a financial advisor can provide, helping you overcome your investing inhibitions and make well-informed financial decisions.
Looking for the right investment opportunities to get started? Learn more about our Youth Investment Plan here.
You can get in touch with Brakket Invest on firstname.lastname@example.org