As a young person, you probably have a lot of people in your life emphasizing the fact that you need to start investing. However, you may also be confused as to what the rush is. If you are in college, or just started a full-time job you probably don’t have very much money and the idea of giving some of it away and keeping it there for the next several years might feel unreasonable. The truth is that you will have to forfeit the possibility of spending that money on something now, but if it is available to you there are lots of benefits to starting your investment portfolio
Why is it important to start young?
One of the biggest benefits of investing at a young age is the amount of time your money will have to generate wealth. Even if money is tight, having time ahead of you as a young person is a huge advantage, and the sooner you start the better it is going to be. Compounding investing means that you can reinvest what the original investment earns, meaning that as you make money you have more and more opportunities to increase your profit. If the interest rate is 5 per cent, a $10,000 investment at the age of 20 years old would grow to be over $70,000 by the time you reach 60 years old.
Because you have all of this time, you are also able to take more risks than someone who is looking to make a more short-term profit. The stock market has a lot of ups and downs, but with all of the time ahead of you, you can afford to withstand the downs in order to profit from the highs. You also have more time to learn and make mistakes, you’ll be able to afford to have some failures because you have the time ahead of you to recover from it.
There are lots of reasons to get into investing at any age, but the benefits you will have as a young person make it worth it. Saving for retirement is just one of many reasons you should get involved in investing your money. Here are some tips for starting your investment portfolio as a young person.
Pay off debt first
As a young person you may have accumulated a bit of credit card debt, or still have student loans to pay off. It is important to pay these things off first especially if they are a significant amount. Investing is a great way to ensure you have money for the future, but if you are struggling to pay off the debt you should do this first. Instead of buying shares for an investment portfolio, pay off your loans so that when you are ready to invest you will be doing so with a clean slate. This way, you are only working towards increasing your wealth.
Before embarking on any project involving money, you need to identify what your goals are. Knowing what you are saving for will help you determine where to invest. Maybe you want to set yourself up for retirement, or you want to be able to buy a home in 10 years.
Your goals will determine what kinds of investments you make because some of them cannot be accessed until after a certain time period. If you are investing with the intention of utilizing that money in 10 years, you want to choose investment options that do not have restrictions beyond that time period. Even if you are investing mostly for something that you want sooner, having at least one long-term investment is always a good idea.
Roni Davis is a writer, blogger, and legal assistant operating out of the greater Philadelphia area. She writes for a worker’s compensation lawyer in Mount Laurel.