9 Rules for Young Investors
Are 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.
Tuesday, August 5th, 2008 at 12:17 pm