5 Tips For Young Investors Just Starting Out
One can make the argument that young people today are more aware than ever about the need to invest. Investment services are advertised constantly, new methods of financial management are now accessible in the form of mobile apps, and struggling economies across the western world are emphasising the need for financial responsibility. Thus, a lot of young people beginning their professional lives are conscious of the fact that they need to manage their income with an eye toward the future.
The trouble is that understanding the need isn’t the same as understanding the process. While a lot of young professionals want to put their money to work, those who haven’t specifically studied economics or investment may not know how to go about it. If this description fits you or someone you know, some of these tips may help to get you started.
1. Get Started As Soon As Possible
It’s a simple fact that investments take time to pay off, and that means that you stand to make more money the more time you allow. You’re never too young to start putting away a small amount monthly, even if it’s just £20 or so at a time. In fact, even if the amount is too small to actually put into a portfolio, you should begin setting it aside to build up a fund that you can then invest as soon as you’re able to. It’s often easy to put off investing until you feel you have some disposable income, but in the long run this is counterintuitive. Starting now is the first step toward success.
2. Know Your Goals & Tendencies
It’s fairly common advice to set goals before investing, as in what you’re saving for and how much you’re realistically hoping to gain. But it’s also important to understand your own trading personality, and to figure this out before you start. This means knowing not only what your financial goals are, but how you’re going to be able to manage your portfolio. For example, are you intending to be more of a day trader or long-term investor? Will you be hands-on, or will you trust your accounts to be left alone for stretches of time? Most busy young professionals will probably be less hands-on, but either way it’s important to recognise your situation so that you can design your portfolio accordingly.
3. Consider Investing In A Joint Fund
As stated, most busy young professionals probably don’t have the time to be particularly hands-on with their portfolios. Additionally, conducting your own transactions in the stock market can be expensive, as each trade comes with a fee. For these reasons, a lot of beginners find it’s better to invest through a collective fund in which a professional fund manager makes the actual trades. Fees are cheaper because you’re sharing them with many other investors buying into the fund, and the nature of the portfolio is also more responsible, as the fund manager will be able to diversify investments. Generally this option carries less potential for a lucky, lucrative profit, but more hope of steady and reliable gains.
4. Leave Emotion Out Of It
If you spend some time researching tips for beginner investors, you’ll likely find this idea all over the place—and that’s because it’s simply that important. Whether you put your money into a fund of some kind or elect to manage your own portfolio, you’ll almost certainly be tempted at some point to make a decision based on emotion. That might just mean withdrawing your money if you experience an unexpected loss. It might also mean investing in a company because you like it personally, rather than because it appears poised to succeed. Whatever the case, emotion should always be left out of trading, because it skews analysis and causes hasty and often improper decisions. This is important to learn early on.
5. Determine Your Risk Tolerance
Leaving emotion out of it is easier said than done for a lot of young investors, but one effective way to ensure you do so is by determining your risk tolerance before you begin investing. Risk tolerance refers to how much you’re willing to potentially lose in the pursuit of an ultimate gain, and the level of risk you’re willing to tolerate will dictate how you feel about your investments before you even make them. Generally, you should never own an asset which keeps you from sleeping due to worry, not only because it’s stressful but because it will lead you to emotional decisions. Try to stay within your comfort zone, even if it feels conservative. As you get more comfortable as an investor, you may find you’re more open to risk.
When you’ve addressed all of these ideas, and decided on a fund or service through which you want to invest, you’re ready to put your money to work. From that point on it becomes all about the specifics, and your ability to stay educated and diligent regarding your assets.