Investing for young people: how do you do that?
Do you dream of being able to do everything? To go through life without money troubles? Then it might be smart to delve into the world of speculation and investments. Especially when you are young it is smart to improve your financial knowledge and to learn how to build a good fortune by investing. In this article we discuss the best investment methods for young adults.
What are good investments when you are young?
Not every investment is equally suitable for everyone. We start this article with an overview of the different investment opportunities that exist for young people. This can help you to recognize the possibilities immediately.
Many young people choose to speculate actively on the price of, for example, shares. Young adults prefer this option because they often want to achieve a higher return. The average return on shares is 5 per cent, while young people often try to achieve a return of 10 per cent. However, beating the market is difficult and you will have to use all your skills to achieve this goal.
A good way to practice speculating is to open a free demo at Plus500. Plus500 is a broker where you can trade with CFDs in stocks & commodities. By trading fake money, you can slowly work on strengthening your trading skills. Use the button below to open an account directly with Plus500:
Investing in shares
When you are young, you can absolutely invest in stocks. Many young people are frightened by the high transaction costs that many brokers charge. When you invest with a small amount, it sometimes seems impossible to get a good result. Nothing is further from the truth!
Nowadays, there are also brokers where you can buy shares commission-free. This means that you can buy a single share and still get a positive return. For some brokers it is even possible to buy so-called fractional shares. A fractional share is a part of a share, which allows you to benefit from the price developments of a share for a small amount.
A good broker where you can buy shares without commissions is eToro. Use the button below to open a free account with eToro:
Investing in a fund
For most young people, investing in a fund every month will be the smartest choice. This does not sound overly exciting, and it isn’t really. However, this is often the most profitable in the long term. Most people are not an investment expert and quickly make wrong decisions. In addition, with a fund, you immediately benefit from maximum risk spread, which allows you to reduce your risks with a small amount of money.
Even when you invest in a fund, it is smart to pay attention to the transaction costs. DEGIRO is a good broker where you can invest in a fund or ETF. Funds included in their core selection are free from transaction fees. Use the button below to open an account directly with DEGIRO:
Pay off your debts
This investment is actually a no-brainer. Still, there are plenty of Millennials who are scrambling to invest while they still have a credit card debt open. This is a shame, since you often pay more than ten percent interest on a similar debt.
Keep in mind that you must only invest with money you can miss. When you are in debt, you cannot really miss any money. Pay off your debts before you seek out adventure.
Buying a house
Buying a home is also a smart investment when you are young. Unfortunately, this is not always easy: House prices have risen considerably and as a first-time buyer you often need help from, for example, a parent. When you buy a house, you save a lot of money.
When you rent a property, that money disappears into another’s hand. By buying a house, you put the money into your home and when you sell the house you get the money back. Moreover, the cost of a mortgage is almost always lower than the rental costs.
What do you want to know?
- Why invest: why should you invest when you are young?
- Financially independent: how to become financially independent by investing?
- Mistakes: which mistakes do young adult investors often make?
- Tips: with these investment tips, you get better results.
It is smart to invest, especially when you are young. Many young people do not start to invest because it has a rather old-fashioned image. Still, I am here to tell you that it does not matter if you are a teenager, or in your 20s or 30s. The only good time to start investing is NOW. But why is it so smart to start investing just before you are 30?
Before we finally answer that question, I would like to let you know that investing is a good idea regardless. The average savings rate has been around zero for years and inflation only makes you lose money when you put it on a savings card. But why is it even better to start young?
Well, as a young investor you simply have more time. The stock market is unpredictable and does not move up in a straight line. It is therefore possible that you start investing just as the market collapses. Then you will need some time to really take advantage of your investments. Fortunately, you have that time when you are a young adult.
In addition, you also benefit from the beautiful effect of interest on interest. When you invest, you achieve a return. When you reinvest this return, you will receive returns over those returns as well. Over decades, this increases your capital until you can truly live of it. So, when you start young, you are a lot more likely to become completely financially independent at some point. Who would not want that?
Everyone has a different goal when they start investing. A great goal is to achieve financial freedom. Especially when you are young, this is a realistic goal: you have much more time than someone who is already thirty, forty or fifty. But how can you become financially independent when you start investing?
Make sure you have money left over
An important first step is making sure you have money left at the end of the month. So, do not waste money on unnecessary luxury and see how you can save a lump sum at the end of the month. Even an amount of 100 or 200 pounds can make all the difference in the beginning. When you invest such a small amount monthly, you can build up a large amount of capital over the long term through exponential interest rates.
Increase your income
Still, I would not recommend young adults to cut out all luxury: you want to live a little too, don’t you? Moreover, you can only save so much: You still have to eat. However, your income can increase indefinitely. It certainly pays to think about how to build a higher income. For example, I started doing business at a young age and I then used this money to invest.
They say that knowledge gives power. In a sense, this is also true in investing. If you have no idea what you are doing, chances are you will not get a good result. For example, if you want to build up a large amount of capital in the long term, the book value investing by Graham and Buffett is a good read. At least make sure you have realistic expectations: this increases your chance of success.
Open an investment account
At the end of the day, knowledge in itself is of little value. It is mainly applied knowledge that gives the real power. It is therefore certainly wise to open an investment account at a young age. That way you can already play with the possibilities and when you are ready, you can even make some small investments. Do you want to know what brokers are reliable parties to invest with? In our overview of quality brokers you can compare the best brokers directly:
Buying your first shares
When you are ready, you can buy your first share. Buying and owning your first share immediately gives you a different feeling. Maybe you can finally smell that financial freedom…
However, it is important to keep controlling your emotions. Do not suddenly go crazy and buy many random stocks. Stay in control and work slowly towards that beautiful goal: financial independence.
Unfortunately, not all young adults manage to achieve good results investing. In this part of the article we investigate what mistakes young investors often make. By taking this into account, you can prevent yourself from making these kinds of mistakes. That way you can obtain better investment results.
Millennials are kings of procrastination and that is a shame. Do not keep daydreaming about a rich and independent future. Take that first step today and start practising! Stock markets have been rising long term. The power of compound interest is enormous: when you start at 25, you only have to invest half the amount of a 35-year-old person to become a millionaire at 60.
It is not a casino
Some young people confuse the stock market with a casino. Do not apply excessively high levers and do not bet on random, risky stocks. The savvy investor thinks about every purchase. Is it not clear why you should buy a certain share? Then do not do it!
Do not ask questions
When you are young, sometimes you can react a little more impulsively. This is fun at parties, but less fun for your finances. Therefore, remain critical of your investment behaviour and ask many questions. Do not blindly go along with the trend and think about whether you are doing is still wise. That way you avoid losing all your money at once because you wanted Bitcoins just like all the other cool people.
The biggest mistake you can make is not investing at all. If you do not invest, you will never become financially independent. If you can miss the money, I recommend you invest. This does not have to be difficult at all: If you do not want to spend time on it, you can simply buy a stake in an index fund.
Young and still investing?
Are you young and do you want to invest money? That is definitely a possibility! The owner of this website, Alex Mostert, also started investing at a young age. It is possible to achieve a good return by investing money. Of course, this can never be completely without risk. Thanks to the arrival of online brokers, young people can already buy and sell shares with the click of a mouse.
It is advisable to choose a good broker. A broker is the party that makes it possible to buy and sell shares. You are young and investing can be quite complicated in the beginning. It is therefore advisable to first take the time to practice with a demo. With the button below, you can immediately see with which providers you can open a free demo account:
When you start investing young, you have a better chance of success later. However, many young people have grown up with the credit crisis and see the stock market as a risky place that is best avoided. In the long term, however, the highest returns are still achieved on the stock market. But what separates wealthy, successful young investors from the masses? With these tips, you can become a successful young investor!
Tip 1: set money aside
It is important to keep some money. Young people who are doing well financially understand that they need a positive number in the bank. By setting aside money every month, you build up your assets. Capital that you can ultimately invest with a positive result!
Tip 2: Get rid of those debts!
Many young people are in debt. It is therefore wise to get rid of them as soon as possible, especially when you consider that the interest on debts if often higher than the average yield on investments. So, paying off a debt can be the best investment!
Tip 3: Increase revenue
By lowering your debts and by putting money aside, you are already taking control of your financial situation. However, when you are young, you also have to provide extra income. You can choose to take a side job. This in itself is wise. However, entrepreneurship can be much more profitable and when you are young, you have all the time to set up something beautiful.
Tip 4: Study
Most young people attend higher education. We do not find it strange when young people go to university. Still, a surprisingly low percentage of young adults spend any time studying their finances. Therefore, regularly read good books on investing and finance so you get a better overview of what works and what does not. Some of the most impressive books are:
- Rich dad, poor dad by Robert Kiyosaki
- Trading in the Zone by Mark Douglas
- The way of the turtle by Curtis M. Faith
Tip 5: Practice!
When you are young and want to make a profit from investing, you will have to practice! The best way to do this is to open a demo at an online broker. With a demo, you can actively trade in the markets without putting your money at risk. Click here to see where you can invest for free through a demo.
Tip 6: Buy your first shares
When you turn 18, you can buy your first shares. By opening an investment account and by physically buying shares you develop an understanding of investing. Spend an afternoon reading annual reports and think about which company you would like to co-own. Then make the decision and buy those shares. You can do this at one of the following brokers.
Tip 7: Control your emotions
The biggest challenge for young adult investors is to manage emotions. Emotions, such as fear and greed, are a big influence on the quality of your investments. Therefore, it is wise to practice when you are young. In the article on the influence of emotions on investing we discuss more about how emotions can influence your results. Read this article carefully, it is one of the most important things you need to practice when you want to become a good investor.
What is a CFD-broker?
This allows young people to invest with a small amount of money!
Young and still investing?
You usually must be of age to invest yourself. When you are younger, you cannot open an account yourself. Of course, you can watch your parents. Maybe they can help you and teach you more about how investing works. That way you will be ready when you grow up!
Get rich by investing?
When you start investing with a broker at a hundred pounds, you should not expect to get rich. However, if you practice a lot and study the stock prices, you can get a nice result.
Can you invest if you are a minor?
If your parents do not agree to open an account with a broker, you can still invest. Many banks have a special account where you closely monitor the movements of the stock index and which, to a certain extent, determines the interest you receive in your savings account. By the way, remember that investing always involves risks; so only start investing when, in spite of the risk of losing money, you can sleep well.