“The best time to plant a tree was ten years ago; the second best time is now,” - Confucius.
To paraphrase, the best time to start investing was ten years ago; the second best time is now.
However, most young professionals overlook this since ‘Carpe Diem’ and ‘YOLO’ seem to be the phrases to live by. Even if you feel like you don’t have enough money yet, don’t wait until you’re older.
Your 20s are the prime age to start investing. You have fewer responsibilities and more disposable income. Read on to discover more benefits of investing early, mistakes to avoid, potential assets to invest in, and more! But first, let’s define investing.
It is the act of putting your money into assets in the hopes of earning a return. When you invest, you're essentially betting that the value of your investment will go up over time. There are many different types of investments, but they all share one common goal: to grow your money.
Before we look at the different assets you can invest in, let’s first look at the fundamentals of investing.
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Although there's no “right” way to invest, you need to know some fundamental principles and concepts before investing. These basic principles include:
Investing without a plan is like driving without a direction. You may eventually get to your destination, but it will be much harder and take much longer. Having a plan gives you a roadmap to follow and helps you stay disciplined when things get tough.
Don't put all your eggs in one basket. Diversification helps to mitigate risk because your portfolio won't rely solely on one type of investment. It also improves returns.
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Investing is a long-term game, and successful investors are those who stay disciplined. This means sticking to your investment plan even when the markets are volatile, and there are tempting opportunities to make quick profits.
Investing is not a get-rich-quick scheme. It takes time, patience, and discipline to be successful. Be realistic about your investment returns, and don't expect to make a fortune overnight.
Successful investors are patient. This means sticking to your investment plan and not selling when the markets are down. Over time, the market tends to go up, so if you're patient, you're likely to see your investment grow.
Many fees are associated with investing, including commissions, taxes, and management fees. The less you have to pay in fees; the more your investment will grow your wealth.
If you're unsure where to start or how to implement an investment strategy, seek professional advice. A financial advisor can help you develop a plan tailored to your unique circumstances and goals.
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There are many different investments, each with risks and rewards. If you are thinking of investing, here are potential assets to invest in:
The best asset you can invest in is yourself. Take time to learn and grow in your career. You can improve your career prospects and earnings potential by furthering your education or gaining more skills. If you're unsure where to start, consider taking online courses on sites such as Udemy or Alexa.
Investing in yourself also means investing in your health and well-being. So set aside money in your healthcare fund because some illnesses strike without warning.
Stocks are a type of investment that gives you ownership of a company. As the company grows and becomes more profitable, the value of your stocks will increase. However, if the company does poorly, the stock price will go down, and you could lose money.
Bonds are loans that you make to a company or government. In exchange for your loan, the borrower agrees to pay you interest over the bond's life. If the company or government makes a profit, you will receive interest payments plus the loan's principle. If they make losses, you could lose your money.
That means setting aside money for retirement and other goals like buying a home, starting a family, or vacationing. You’ll need to set up a savings account to cater to such needs.
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These are a type of investment that allows you to pool your money with other investors. The fund is then invested in various assets, such as stocks, bonds, and real estate. However, you need to be aware of the degree of risk involved.
Money Market funds are similar to mutual funds, but your money is invested in low-risk investments such as treasury bills and government bonds. But since the risk is low, you also get low returns.
REITs are regulated investment vehicles that allow you to own shares in real estate assets. Investing in REITs is ideal if you want to invest in real estate but don’t have enough initial capital to own real estate. Like mutual funds and money market funds, you earn dividends and capital gains at the end of every financial year.
An emergency fund is a great way to prepare for the unexpected financially. You never know when you might need money for an unexpected expense, such as a medical bill or funeral expenses. If you have an emergency fund, you can rest assured that you have money set aside for such expenses.
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Investing when still young is not something that most professionals do. This is a huge mistake because investing early in your career has many benefits. Perhaps the most obvious benefit is that you have more time for your investment to grow. The earlier you start investing, the more time your money has to compound and grow. This is especially true if you start investing in your 20s or 30s.
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Another benefit of investing early in your career is that you can take more risks. When you're young, you have more time to recover from any losses you may incur. You also have a longer time horizon to take advantage of market opportunities.
Investing early in your career can also help you build good financial habits. If you start investing early and make it a habit, you're more likely to continue investing throughout your life. This can help you reach your financial goals, whether saving for retirement or building a nest egg.
Finally, investing early in your career can give you a head start on your future. If you start investing now, you'll be ahead of the game when it comes to retirement planning or other financial goals.
When young and new to investing, mistakes are inevitable and they can have severe consequences. Avoiding the following investing mistakes will help improve your chances of being a successful investor.
When investing, you should always diversify your portfolio. Diversification spreads investment risk so that all your eggs don’t break.
For instance, if all your investment is in agriculture, what will you do in case of a bad season? What if all your top-performing shares drop in value? In short, if you fail to diversify, you can suffer huge losses.
“ A fool with a plan is better than a genius without a plan” — T. Boone Pickens.
When you fail to plan, you plan to fail. Thus, you must have a clear plan and strategy before investing.
Once you have invested, it is important to monitor your investments closely. This will help you to see how your investments are performing. As such, you’ll know whether to make any changes or not.
When starting, you should only invest a small amount of money. As you become more experienced, you can increase your investment amount. You should never invest more money than you can afford to lose.
Investing isn't something you should do blindly. You should always do your due diligence. Look at the company’s financial statements, read analyst reports, and talk to other investors.
Investing early in your career can give you a major advantage in compounding returns and building wealth over time. That said, it's also important to follow some basic principles and avoid common mistakes to make the most of your investments. Doing so can set you up for a bright financial future.