Let’s be honest, telling someone in their 20s to start saving is like trying to sell ice in the North Pole. But I would strongly urge young people to not take their financial future for granted, the fact is the sooner you start saving and investing, the better as you are never too young to start investing.
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Bear in mind that investing is not as difficult a concept as you may imagine. In fact, entering the investment market has become easier in recent years with a host of providers, apps, and information catering to all levels of knowledge, and for bankrolls of all sizes. Chances are, you are already investing and haven’t even realized it.
If you are currently enrolled in a company pension scheme, you are likely to be making 401(k) contributions already, which will form the bedrock of your pension fund when you eventually retire. Admittedly, this is not exactly hands-on investing as most likely your contributions are made automatically from your salary and you are not actively involved in the account.
However, time is the single most important factor when it comes to investing, and the more time you spend invested, the more the miracle of compounding will be working in your favor. It’s a sad reality but the majority of 18–34-year-olds currently face greater economic challenges than the generations before.
Invest sooner rather than later
This is why it’s important that you make sure time is on your side. Investing sooner, rather than later, can place you in a position whereby you can start earning interest upon interest—a proven way to grow your capital.
This is all very well, but a lack of knowledge and understanding in the market is still holding a lot of potential investors back. Fear of losing what little savings you have makes many younger potential investors reluctant when it comes to taking the plunge into the stock market. We’ve all read that the value of your investments can go down as well as up, and you could end up getting back less than your original investment.
For this reason, a savings account can certainly feel like the safer option, especially when the markets are so volatile.
But whilst it is certainly true that the markets are volatile and risky, putting aside your money in a savings account may not be the wisest course of action. In these topsy turvy times interest rates are at record lows and struggling to keep up with soaring inflation levels. An unfortunate side-effect of which is the fact that a savings account is now a place where your money can actually lose value over time. For this reason, I strongly recommend young investors who are serious about getting the maximum return on their investments take the plunge and start trading.
Modern platforms like SoFi are also providing a welcoming environment for investors of all abilities, with ready-made, fully managed portfolios providing cost effective solutions for those with little knowledge or experience. But there are many other platforms and apps to choose from, so why not check out our handy guide to some of the best brokerage apps currently on the market.
Before you make your decision on whether to start trading or not, you should bear in mind that the historical returns in stock market portfolios consistently outperform those of savings accounts, even high-yield savings accounts.
As the old trading adage goes; “its not timing the market, but time in the market” and as a young investor you should be able to ride out any short-term market volatility and come out on the other side.
Obviously, there are risks but the risks of investing responsibly outweigh those of not doing anything, and the sooner you start the closer you are to turning your financial dreams into a reality.