Posted by DebtKid :: August 5, 2008 @ 12:17 pmAre you under 30? If so, you have a great chance of building a large nest egg if you start investing wisely now.
Here are 9 rules for young investors to keep you out of trouble as well as on the path to a healthy investment portfolio:
1. Don't Be Afraid of Risk
One of the biggest mistakes young investors make is allocating too much of their investments in cash or bonds.
A good rule of thumb is to subtract your age from 100. Allocate that % of your portfolio to stocks. Me being 25 (100-25 = 75), I would want to allocate around 75% of my portfolio in stocks.
2. Don't Overweight In Your Employer's Stock
If you can get stock in your company subsidized, by all means invest as much as you can. That is free money.
But don't overweight your portfolio with company stock. What happens if your company goes under? Not only is your job income gone, but your investment portfolio is shredded as well.
3. Start Yesterday
Yes, we are young, but even the difference between starting at 20 vs. 25 or especially 30 is huge in the long haul.
Developing smart investing habits now vs. later in life pays out exponentially in the future because of the "magic" of compounding returns.
4. Question Advisers Mercilessly
Your financial adviser is not your friend. He or she may actually be your friend, but their first responsibility is to managing your investments.
If you choose a financial adviser, know exactly how he/she gets paid and exactly how much of your money they are getting. Every dollar they get is a dollar less what you could be investing.
Ideally, try to ditch the adviser and learn the basics of investing yourself.
5. Invest in yourself
Running your own business is risky. It's also one of the best ways to achieve financial freedom. Start a side-project in the evening while you keep your W-2 job.
Starting a business as young person has never been easier or cheaper. Heck, a personal loan borrowed through Lending Club can even help you fund your idea.
6. Think Long-Term
You don't need to check your investments every week. A quarterly checkup is a good idea.
Focus on the long term, and remember time is on your side!
7. Max Out Retirement Plans
Never pass up free money. If your employer matches retirement funds by all means take advantage of it. Again here, the earlier you start the better.
8. Invest Like a Robot
Automation, automation, automation. Set up all your investments to get deducted automatically from your paycheck or your bank account. If it's not automatic you'll make excuses and not put away as much as you should.
9. If You Don't Understand It, Don't Invest In It
Complex options, annuities, oil wells, currency, any "investment" that you don't understand completely should be avoided.
8 Comments
I am an engineering student, and as you might know; being in college is hard enough (with the money,classes, life), is there a way, place, site (other than school, as it is expensive, time consuming) where you/I could learn to invest wisely?
like short videos, tutorials, podcasts (for beginners) [if they are free better!!!!]
thank you, and great post, useful for everyone.
thanx for sharing such nice rules with us
great post
Great post! I just have a few things to add:
1) Your advisor should give you a brief test about how much risk you are willing to tolerate. Ultimately, you have to be comfortable with your choices, on a day to day basis and in different economic climates. It's no good if you're making slightly better returns but you can't sleep at night!
So even if you're 25 you may feel more comfortable with being 30% in bonds, and that's just fine. But Debtkid is right, when you're young you can, and should be taking on more risk, the rewards are, if done correctly, well worth it.
4) I'm all for learning about investing and making your own investment choices, but a fee only financial planner or a good investment adviser can help you figure out how to achieve your goals, which may be time sensitive and more complex than what you're comfortable dealing with.
5) Why, that's what I've done at http://www.btgnow.net my only advice is not to go put all your eggs in one basket!
Not putting all your eggs in one basket is key. And avoiding foreign exchange trading unless you are already extremely rich
Invest in what you use.
Did you use Google 4 years ago?
Did you use Apple 4 years ago?
Do you drink Pepsi?
Do you drink Coke?
Do you like your computer? Who makes it?
Do your friends use/like Google, Apple, Pepsi, Coke, etc?
Buy into what you like...
Buy into what you use...
Start yesterday is a cool statement. There is no better time to get started in investment, just start early.
Good starter rules for a young investor. Many young investors don't know how to begin investing so this helps.
Good article. One question I have though is should a 25 year old really have 25% in bonds. Wouldn't even an index fund historically be better than that? I mean, I'm all for diversifying, but to me it seems like you ought to have some gray hair before allocating money to that safe of an investment.
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