By Josh Ariyo
Investing can be an exciting journey that enables young people to grow their money, achieve financial freedom, and build wealth over time. This guide is tailored to help youth, singles, and married individuals understand the basics of investing, why it’s crucial to start early, and how to get started with simple, actionable steps. Let’s dive in!
1. Introduction to Different Investment Types
Understanding the types of investments is key to building a balanced portfolio. Here’s a breakdown of the primary investment vehicles and the risks involved with each:
- Stocks: When you buy stocks, you’re purchasing a piece of ownership in a company. Stocks can offer high returns, but they are also more volatile, which means prices can rise and fall dramatically. For instance, companies like Apple and Tesla have seen massive growth, rewarding early investors. However, the high-risk nature of stocks makes them suitable for those with a longer investment horizon.
- Bonds: Bonds are essentially loans to governments or corporations that pay back with interest. They are considered safer than stocks but typically offer lower returns. Government bonds, for example, tend to be very secure but won’t yield as high a return as a successful stock.
- Mutual Funds: These funds pool money from multiple investors to invest in a diversified mix of stocks, bonds, or other assets. They’re managed by professionals, which can be helpful for beginners, but they often come with management fees.
- ETFs (Exchange-Traded Funds): Similar to mutual funds, ETFs offer diversification by tracking an index, sector, or commodity. Unlike mutual funds, ETFs trade like individual stocks on an exchange, allowing flexibility to buy and sell throughout the day.
Action Step: Research a few companies and funds, and create a list of 5 stocks or ETFs you’re interested in. Track their performance for a month to get comfortable with market fluctuations.
2. Why Start Investing Early?
One of the greatest advantages young people have is time. Investing early enables you to harness the power of compound interest, which is essentially earning returns on your returns.
- The Power of Compounding: For example, if you start investing $50 per month at age 20, with an average annual return of 7%, by the time you’re 60, you could have over $120,000. Compare this with someone who starts at 30 and invests the same amount — they would have around $60,000 at 60. Starting just ten years earlier more than doubles the end amount due to compounding.
- Building a Habit: Getting into the habit of setting aside money to invest while you’re young is invaluable. It’s like planting a financial tree that will grow over time, giving you financial stability and options in the future.
Action Step: Set a realistic monthly investment goal, even if it’s just $10. Schedule an automatic transfer to your investment account to build the habit.
3. Choosing the Right Platforms
The right investing platform can make a huge difference, especially for beginners. Here are a few popular options designed to simplify investing:
- Trove: Ideal for young Africans, Trove offers access to U.S. stocks, bonds, and other assets with a low starting point. It’s a beginner-friendly app that also offers educational resources to help users understand the investment world.
- Robinhood: Known for its commission-free trades and easy-to-use interface, Robinhood is a popular choice in the U.S. for new investors. However, it’s important to research assets on your own since the app doesn’t offer much guidance.
- Stash: Stash is great for beginners who want personalized guidance. It combines banking and investing in one app, allowing users to purchase fractional shares with as little as $5 and receive personalized portfolio suggestions based on their risk tolerance.
- Acorns: This app is excellent for micro-investing and rounds up spare change from everyday purchases to invest automatically. If you spend $3.50 on coffee, Acorns rounds up to $4, investing the extra 50 cents. It’s perfect for those with tight budgets who still want to build a portfolio gradually.
Action Step: Compare two platforms by checking their features, fees, and minimum balance requirements. Choose one and create an account to familiarize yourself with the app’s features.
4. Investing on a Budget
You don’t need a lot of money to start investing. Many apps offer micro-investing options, allowing you to start with as little as $1. Here are some tips for investing on a limited budget:
- Start Small: Apps like Acorns or Stash allow you to invest with spare change or as little as $5, making it easy to start on a budget. If you’re able to save more, even better, but don’t be discouraged if you start small.
- Automate Your Contributions: Set up automated contributions, even if it’s just $10 a month. Consistency is key, and automating removes the temptation to spend money you’ve earmarked for investing.
- Focus on Low-Cost Index Funds or ETFs: Instead of picking individual stocks, consider low-cost index funds or ETFs, which diversify your money across multiple companies at once. This reduces risk and increases the chance of steady growth, which is essential when investing on a budget.
Real-World Example: Mary, a 25-year-old school teacher, started with a monthly investment of $20. After using a micro-investing app, she’s built up a portfolio of over $1,000 in two years. Mary’s portfolio has gained value, demonstrating that starting small but consistent can lead to real growth.
Action Step: Decide on an amount you can comfortably invest each month, even if it’s minimal. Then, set up automated contributions to your investment platform.
Conclusion
Investing as a young adult doesn’t have to be overwhelming or expensive. With access to beginner-friendly platforms, options for small investments, and a basic understanding of investment types, you can set yourself on the path to financial growth. Starting early gives you the advantage of time and compounding interest, so take that first step today!
Remember, the key is consistency and patience. Start small, build the habit, and watch your investments grow. This guide offers a great starting point, but continued learning will be crucial as your investment journey progresses.