Deciding to create an investment portfolio at a young age can pay off significantly in later life. Read on to discover some proven investment strategies for those in their mid-20s.
Think about this: an investor who begins with £1000 aged 25 will accumulate over £32,000 by the time he or she is 60 years old – assuming a 10% rate of return and no other additions to the investment account. If the same investor waits until he or she is 40 years old to invest the same amount of money, the amount in the investment account aged 60 would only be £7,300. This points to the benefits of investing early and often. For most of us, investing becomes a serious concern around age 30-40, but for those who desire a way to build long-term wealth over the years, an investment plan should be created around age 25. Here are some of the ways to do so if you’re in your mid-20s:
Step one: Understand your tolerance for risk. This doesn’t mean that you should invest recklessly, but by selectively choosing high growth opportunities and focusing some of your working capital on high-yield investing opportunities, you’ll empower yourself to see immediate and quite lucrative gains. In short, 25-year-olds possess a level of financial resilience that can support some calculated financial risks – risks that may not be possible during an investor’s later years.
Step two: Free up working capital early by minimising unproductive debt. Productive debt is anything that enables you to make financial moves downstream. Unproductive debt – which is unfortunately the hallmark of many 25-year-olds - can be quite destructive and may prohibit future investment opportunities. Cut out non-essential expenses and keep those credit cards in a drawer instead of in your wallet or purse.
Step three: Seek all opportunities for investing. Now that you are in your mid-20s, you may be working for a company within your chosen field. If they offer a 401(k) or individual retirement account, you’ll want to begin contributing now so that you get used to saving for retirement throughout the years. Get used to immediately reallocating some of your earnings toward investments, instead of using your entire pay check for current living expenses.
Step four: Understand where to invest. How much money will your cash make sitting in a box under your mattress? The answer is – zero! Decide to invest in certificates of deposits or treasury bills, and you’ll earn scant returns compared to what you could make in other areas of the financial marketplace. As a 25-year-old, you have a better chance to invest in higher risk/higher return options than those who are in their 40s or 50s because you have time on your side. Consider the stock market or the currency marketplace to aggressively grow your capital during your 20s.
Step five: Trust historical data. While you can conduct some serious investment research both online and in books, you’ll find that numbers never lie. Trust the data and not the individual, as anyone who offers to try an unlock the secrets of investing is probably trying to sell you something. Partner with a reputable brokerage or investing firm that can point to past performance as a predictor of future results.
Step six: Understanding that you can lose money is crucial. All investors will have periods of downturn where their investments lose money, and the psychological ramifications of a downward-spiralling investment portfolio really hit home. Make sure that you place stops on all of your investing positions to avoid catastrophic losses.
Step seven: Start saving money. It can be so tempting to want to purchase a new car, high-end electronics device, or even take a well-deserved holiday when you’re in your mid-20s. But if you live by the mantra of “save, don’t spend,” it will free up significant working capital that can help you progress towards creating real wealth. Live well, but live within your means.
25-year-olds possess the unique benefit of time when it comes to investing. If you are ready to begin creating your own investment portfolio, make sure that you understand that your age provides serious advantages that can help you to grow your financial position throughout your early years, and beyond. Minimise debt, corral spending, understand your tolerance for risk, and realise that discipline will always be more important than talent when it comes to investing. Those in their 20s should look to the securities marketplace and the Forex arena to net significant gains with a minimal upfront investment. Remember: when it comes to investing, start early and invest often.