Starting your investment journey early is one of the best things you can do to guarantee financial success and independence.
Not everybody can be like legendary investor Warren Buffett who started as early as 11. However, one age group which most people tend to miss out on , in terms of financial planning is during their 20s.
We tend to think that retirement is far off, and we have sufficient time before we begin to take on more responsibilities such as starting a family or buying a house.
However, if one starts investing in their 20s, it can reduce the financial pressure of later years which comes from the added responsibilities we take on as we age.
The benefits of compound returns make investing in your 20s the most reasonable thing to do. Plus the time frame makes you more flexible in your investment approach.
You can take on more risks which can potentially increase returns for your portfolio. You are also better equipped to absorb volatility because you know that time is on your side.
Investing in your 20s can seem overwhelming at first; but when you look back from your retirement age, you will be glad you did! Here are some tips you should consider investing in if you are in your 20s.
Knowing your risk tolerance is one of the cardinal rules of investing.
Risk tolerance implies the level of risk you are comfortable with. Knowing this would help you to know what investments are suited for you, how much capital you are willing to risk, and what percentage of loss you are willing to take before you hit the sell button.
Playing it too safe means you are missing out on significant returns. Going too aggressive may mean you are too close to the fire and may get burned. Everyone has a different risk tolerance so it is important that you clarify yours and do not follow the herd.
Most people tend to go for the popular investment vehicles without finding out how they align with their investment goals.
This is because they do not have in-depth knowledge of the uniqueness of each asset class. For someone in their 20's, knowing the different types of assets and their respective benefits have a direct impact on portfolio returns.
Assets that suit investors in their 20s are long-term investments.
As such, you should be allocating a greater portion of your portfolio to stocks and cryptocurrencies and less to bonds. However, as you get closer to retirement, when your emphasis shifts to capital preservation rather than returns, then you can allocate more portions of your portfolio to bonds.
If you are risk-averse, then you can consider investing in index funds to track the broader market.
One way to boost your returns on your investment is by investing extra cash.
If you get tips, bonuses, or cash gifts, this is not the time to go on a shopping spree or vacation, you can put that extra cash to work by investing it. Perhaps you got a raise in your place of work, rather than fall for the lure of lifestyle inflation, take a step back and reassess your investment goals.
If done consistently, investing extra cash would build a healthy financial habit and reduce wasteful spending. It is always best to treat yourself to some niceties once in a while, but this should not be done to the detriment of your financial independence.
Inflation is a silent thief because it erodes the value of your money in an unsuspecting manner.
Many people tend to recognize the effects of inflation decades later when they are comparing the present price of items to when they bought them when they were kids. Since you are starting early with a long-term perspective, it is important to guard your investments against inflation so you don't shortchange yourself in the future.
Read up on materials on inflation, how to recognize it and which assets are good inflation hedges. This would increase the quality of your investment and enable you to make sound investment choices.
Though stocks, bonds, and ETFs are good places to start your investment in your 20s, you should not ignore investment opportunities in other areas.
One major advantage of starting early is that it gives you time to experiment with other asset classes. There are always new generational opportunities waiting to be explored. The only way you can recognize them is by stepping outside your comfort zone and thinking out of the box.
This does not mean that you should have a lackluster attitude when it comes to investing. It entails looking out for potentials based on due diligence. If you are unsure of an alternative investment, you can start with a smaller amount and watch the returns before you commit larger sums.
You can never rule out the role of mentorship in achieving results, especially when it comes to financing and investments.
Learning from others is akin to a signpost on the road directing you when you are going and at what speed you would need to reach your destination. By learning from others, it helps you avoid mistakes and achieve results faster.
It also gives you some insights into how the financial world operates and the thought patterns that separate exceptional investors from ordinary ones. Look out for great minds in the investment world and learn from them. Know their strategies but more importantly, pay attention to their character and attributes.
If you want to be a better investor, then you can never rule out the importance of reading.
Making good investment decisions requires the collection of large amounts of information. The financial markets are rapidly evolving. The way assets are performing now is far different from the way assets performed 5 years or a decade ago.
The only way you can keep track of these changes is if you are constantly reading and staying informed. Reading makes you identify potential assets that would perform very well in the future.
It also improves the quality of investment choices. apart from reading books about investors, getting acquainted with other financial material such as financial statements, analysts' reports, and industry forecasts.
June 30, 2022