Investing At A Young Age Allows You Time To Build A More Diversified Portfolio Helping Manage The Risk
A lot of young people in their thirties are confronted with the reality that it’s time to ‘settle down’ and start being more responsible with their money. At this age, one really starts to feel the pressure of having a good career, owning a house, and affording a comfortable car that fits strollers, toys and yes, kids!
Most of the time, when people realise that the time to ‘settle down’ has arrived, a wave of fear and anxiety overwhelms them. Most of us don’t feel ready, especially from a financial point of view, as often savings are not sufficient enough to cover all the expenses that adult life can demand.
That’s why, investing in your 20s can be very wise for the following reasons:
If you start to invest early, you will have the time to build your investment and to recover from it if things don’t go as planned. If your time horizon is short, you need to be more cautious as short-term results are less predictable than the longer-term ones as they are more influenced by the concept of ‘volatility’, which is the statistical measure of the dispersion of returns for a given security or market.
Having a long-term investment horizon usually brings to more reliable returns: for example, the stock market shows a high level of volatility and it follows the equation greater risks for greater results. In this case, the high level of volatility doesn’t impact much the overall return, as the long-term time frame allows the ups of the stock market to compensate the downs.
The best way to reach success is by understanding the risks ahead of time and then plan how best to minimise them. The more data you can collect about an investment trend and market, the more likely your prediction will be accurate.
Start with analysing the market, the industry and the sector in which the company that interests you operates. Behavioural finance believes that market movements go in the same direction. It’s a positive loop: usually investors keep their money in stocks that are growing and studies have shown that when people invest the market goes up, encouraging even more people to buy.
Pay attention to the companies that are showing a positive level of growth, to the hottest markets and to the investment that are attracting more investors.
Moreover, think about a successful exit strategy, that's purpose is to limit losses. An exit strategy can be executed to exit a non-performing investment or an investment that has met its profit objective. If you start investing early you will have the time to carefully think about all this.
Dealing With Risks
A young person can afford to take on a higher level of risk compared to someone close to retirement. If you have many years of earnings ahead of you, then you can take on more risk and try to build a diversified investment portfolio. Portfolio diversification helps finding the balance between risks and returns, allowing investors to spread their money across different investments and sectors. If something goes wrong you will have the time to redefine your investing activities and learn from your mistakes. Any investment should always be entered into with caution but being agile with investments can help an investor to become less “investment static”.
Less Financial Responsibilities
Another benefit to investing in your twenties is that you start investing before reaching the age where financial responsibilities become a reality. Don’t wait until when everything appears too complicated.
Young investors will face successes and failures and they will learn a lot from both. They have the time to study the markets and to adjust their investment strategies according to the market changes.
A young person has the technical skills to research and invest online. In the last years, technology has met the world of finance and, next to traditional banking channels, automated investing is becoming very important.
Technology is democratising finance as it gives consumers easier and broader access to products and services at a lower cost. A fully online environment, together with a single product offering, like equity crowdfunding platforms, create a simple and transparent investing structure.
The combination of finance with technology is definitely a field where young techy investors can feel comfortable.
Not Only Retirement
One of the most common reasons to invest is to save money for retirement however there are other reasons to start investing. For instance, having an income stream throughout your whole investment life means you could reach financial goals quicker. This includes milestones such as buying a house or car, starting your own business or providing your children with education opportunities.
Aligning Your Passions
Investing also doesn’t have to be all about making a return. Often people invest in companies they are passionate about in order to help them succeed. Equity Crowdfunding can facilitate this as a low cost to entry investment option. From as little as $50, people over 18 can now access exciting investing opportunities that not only have great investment potential but are also aligned to their values.
Young people are often not informed about investment opportunities and their potential benefits. Saving from an early age and adopting a long-term investment strategy that is supported by research can really make a difference to someone’s lifetime earnings. Stop waiting and start getting informed, you won’t regret it!