October 8, 2020 | AtoZ Markets – It's no secret that the best way to grow your money is through investing, but to the impressionable young investor, it can be overwhelming to navigate it at the start. Most don't know where to begin, and the idea of spending their income on investments is scary.
3 practical tips for young investors
If you happen to dabble on investing for the first time, there are some steps you can take to minimize your errors. Here are some notes to keep in mind:
1# Prioritize savings
There's no denying that the prospect of investing and growing your money is exciting, but before anything else, you need to prioritize your savings. It's vital that you build a financial cushion to soften the blow in the event that your money situation changes, like the loss of a job or an emergency that requires a considerable amount of money. Financial experts recommend keeping at least three to six months of living expenses in cash, so you have enough to cover your basic necessities, including rent, food, utilities, and loan payments.
Of course, it goes without saying that your savings should be stored in a bank that is insured by the government. That way, should the bank fail (something that is now far more likely to happen given the pandemic), your savings will be left untouched (at least to a certain limit), and you would still have access to your hard-earned money.
What then is the second investment tip for young investors?
2# Choose how to invest your money
Diversification is key to a successful investing endeavor but choosing where you put your hard-earned money can be difficult. With today's swath of options, it can be confusing to know where exactly to focus on, which is why there's no overstating how doing research is of the utmost importance. You can always go to a financial advisor to discuss your goals and draft up a plan on how to best spend your money, but hiring one can get rather expensive. Fortunately, there are other inexpensive alternatives that you can explore.
There are online brokerages that you can use to quickly open an account and start trading from wherever you are. While these come with lower costs and lower account minimums, don't expect to get as much guidance as you would with a financial advisor. The good thing is there is a robo-advisor available at your disposal, and while it's not the guarantee of profit you hope it would be, what it does is it uses an algorithm that hinges on your risk tolerance, financial goals, age, professional, and income to generate a customized portfolio and manage it on your behalf. It will invest in low-fee ETFs, so your money is spread out across the different markets evenly. It's not perfect, but it is of big help.
This brings us to the third investment tip for young investors.
3 Focus on long-term goals
Young people are often expected to be bold investors who invest aggressively because they can afford to ride out downturns. And while there's nothing particularly wrong with risking more, it's better to focus on goal-based planning and growth. Investing in multiple markets undoubtedly works, but it can also result in disappointment due to the lack of long-term goal planning.
It would serve you best to gain financial education and better understand the market. You can hit the books, listen to money podcasts, and read government resources. If you want to take it up a notch, you can also take a financial literacy course, as those typically offer some structure. And once you've gotten the grasp of achieving financial freedom, put it into practice by managing your finances meticulously (maintaining a spending tracker and a trading journal always helps), never letting yourself incur overwhelming debt, and investing wisely.