If you can start investing as early as possible, you will typically have a larger nest egg at retirement than you would if you waited. Wondering where to start and what to do? Here are some tips for investing under the age of 25.
1. Take Risks
The older you are, the more conservative you have to be with your investments. In contrast, when you are younger, you can tolerate more risk because you are young enough to weather ups and downs in your portfolio. To that end, don't be afraid to take a few risks.
To explain, imagine you have the choice between an investment that is guaranteed to grow at a rate of 3 percent per year and an investment that might grow at 25 percent per year or might absolutely hit rock bottom. If you were five years from retirement, you might need to pick the former, but if you're under 25, you might want to take the risk and choose the latter.
2. Make Conservative Investments as Well
That said, you shouldn't pour all your money into completely risky investments. You should still make a few relatively safe choices. On a metaphorical level, take a few risks with some flashy race horses but don't forget to put a few slow and steady work horses in your stable as well.
3. Always Take Advantage of Employer Matching Programs
If your employer offers investment matching, always take advantage of that. A direct match offers a 100 percent return on your investment before you take any interest or fund growth into account, and as a savvy investor, you should always take advantage of that.
Even if your employer just matches half of what you invest, that represents a 50 percent return. Again, that's not something you should pass up.
4. Diversify Your Investment Strategy
To create a diversified portfolio, you need to have a range of different investments. That may include a variety of different stocks and bonds or mutual funds with different risk levels, but you may want to look outside the stock market as well. For instance, consider buying some property.
Eventually, you may be able to sell the property at a gain, rent it out for income or live there yourself. Alternatively, you may want to invest in a business or something else with material value and the potential for growth.
5. Don't Do It on Your Own
Finally, don't try to handle everything on your own. Consider working with a professional who offers investment advice.