Do you know that starting your investment journey can be exciting and sometimes challenging? You may have different financial goals. Investing to build wealth for retirement, saving for a major purchase, or making your money work harder for you. Investing will always be worth every effort required. Ultimately, strategic investing will empower you to work toward your financial goals.
Especially as a young American, your investment will compound over time. This means you earn interest not only on your initial investment but also on the interest that accumulates over time. Even small amounts can grow over decades. For instance, investing $1,000 at an average annual return of 7% could grow to over $7,600 in 30 years.
Investing can help combat inflation, stabilizing the purchasing power of your money over the long term. Moreover, Warren Buffet once said that compound interest is the world’s eighth wonder and he who understands it earns it and he who doesn’t pays it.
You’ll likely encounter ups and downs in the market, but having a long-term investment horizon allows you to ride out volatility. Investing is crucial for building wealth and achieving financial security over time. As a young investor, you can afford to weather short-term losses. You have time to recover and benefit from the long-term growth of your investments.
A common misconception about investing is that it’s only for the wealthy. Many people believe they need a large sum of money to start investing or possess extensive knowledge of the markets. This can hinder you from exploring investment opportunities. You don’t have to leave yourself reliant on low-yield savings accounts. In reality, investing can be accessible to you, regardless of your financial background.
No matter how challenging the process may seem, getting started is easier than you think. Here’s a straightforward 5-step guide to help you kick off your investment journey.
Invest in Yourself First
You are the first investment worth every dime for you to make sound financial decisions. So it is not out of place to consume resources that will build your mental muscles. Starting your investment journey will require your decision-making abilities. Therefore you must invest in yourself, the decision-maker.
Investing is not about putting money into stocks or bonds; it’s about understanding where your money is going and why it is going there.
This is to say that, you must become a person of the right judgment to achieve a good fit in starting your investment journey. Take the time to educate yourself about different types of investments like stocks, bonds, mutual funds, and real estate. How do they work? What is the right channel to invest, to achieve your long-term and short-term investment goals? How much risk are you willing to take?
As a young man, you have fewer financial obligations, allowing you to take on more risk. This means you can invest in higher-risk, higher-reward assets like stocks. Your returns will grow over time. You can shift to more conservative investments as your financial situation changes.
Set Financial Targets and Timelines
When you set financial goals, they streamline your spending and investing. Goals discipline you to work towards achieving them. Before diving into the world of investments, defining what you’re aiming for is essential.
Are you saving for retirement, a home, your child’s college education, or trying to grow your wealth? Clear goals will shape your investment strategy and help you determine your time horizon and risk tolerance. This can’t be emphasized enough when starting your investment journey.
“Financial freedom starts with setting specific, measurable goals.” – Tony Robbins.
Write down, categorize, and be specific with your investment goals. For example, You can write down and categorize your goals as short-term, medium-term, or long-term. In addition, instead of “I want to save for a house,” specify, “I want to save $45,000 for a down payment in 5 years.”
When your goal is specific and measurable, it becomes easier to achieve. Your financial goal is not an exception when it comes to setting specific and measurable goals. Remember, you are setting the goals to achieve them and not to be another written and unvisited note on your to-do lists.
Allocate your Finances
Before starting your investment journey, make sure you have a clear understanding of your financial situation. Create a budget and it will help you identify how much you can afford to invest. The size of your income will go a long way in determining what goes into each budget category.
Are you in debt and want to repay your debt first? Do you need to delay gratification to actualize your goals? How will you deal with lifestyle inflation to make your dream a reality? These are some of the questions you will have to reflect on.
As your journey evolves, your income and expectations will change. Your budget may require adjustment and this is where your flexibility will come in. Track your income and expenses to identify areas where you can cut back to free up investment money. Most financial experts recommend allocating 10-15% of your income towards investments.
Decide on Your Investment Portfolio
Once you’ve set your goals and created a budget, it’s time to choose the right investment account and vehicles. Depending on your goals, some investment accounts include robo-advisor, brokerage, and retirement accounts. Which investment vehicle will serve your current and future investment needs? Stocks, bonds, real estate, or commodities?
For accounts, if you prefer a hands-off approach, consider using a robo-advisor. It creates and manages a diversified portfolio for you based on your risk tolerance and goals. Brokerage Accounts are for general investing and they allow you to buy and sell a variety of assets. In addition, retirement accounts like IRAs and 401(k)s offer tax advantages for long-term savings.
While choosing your investment account, consider the research fees associated with each type of account. Look for platforms that offer educational resources to help you learn as you invest. Remember while you are about starting your investment journey, you are always your primary investment.
Start Your Investment Journey
Now comes the exciting part of starting your investment journey, putting your money to work. To kickstart, start small as you’re just starting. Investing a fixed amount can help mitigate the effects of market volatility. Investment is a marathon and not a sprint. While on the journey it is pertinent to diversify, stay informed, and be patient.
Sometimes, how well you will turn is a function of the habits you have built. Starting to invest at a young age helps instill disciplined financial habits. You’ll learn about budgeting, saving, and understanding different investment vehicles. These habits can set the foundation for a secure future. The earlier you start the better.
While at it, don’t put all your eggs in one basket. Invest across different asset classes to spread risk. Review your investments and adjust when there is a need to. Keep learning about the market. Consider rebalancing your portfolio to maintain your desired asset allocation too. Investing is a long-term game, resist the urge to panic during market fluctuations and stick to your strategy.
Conclusion
Most times, good things get delayed by a lack of courage to start. Starting your investment journey doesn’t have to be overwhelming. You have to start, and the journey will begin your learning process.
Investing while you’re young is about harnessing the benefits of time, discipline, and risk tolerance. By starting now, you set yourself up for a future of financial stability and the potential for wealth creation.
Set clear goals, educate yourself, and budget. Choose the right accounts, and take that first step into investing, you’ll be well on your way to building a brighter financial future. Remember, the key is to stay both informed and patient.
Don’t forget the place of financial advisors when starting your investment journey. They play a big influential role with their wealth of experience and expertise. Consult with one and start investing today.