Lending Club Blog

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

Comments (9)

  1. Francisco:

    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.

    August 5th, 2008 at 11:27 pm

  2. jasmine celion:

    thanx for sharing such nice rules with us great post

    August 6th, 2008 at 1:06 am

  3. 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/dontfollow my only advice is not to go put
    all your eggs in one basket!

    August 6th, 2008 at 7:46 am

  4. Not putting all your eggs in one basket is key. And avoiding
    foreign exchange trading unless you are already extremely rich :)

    August 11th, 2008 at 3:45 am

  5. Chuck:

    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…

    August 20th, 2008 at 2:56 pm

  6. Start yesterday is a cool statement. There is no better time to get
    started in investment, just start early.

    September 1st, 2008 at 9:39 pm

  7. Good starter rules for a young investor. Many young investors don’t
    know how to begin investing so this helps.

    December 17th, 2008 at 12:51 am

  8. 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.

    May 8th, 2009 at 3:30 pm

  9. Michael:

    Very good article. In my opinion, it is all a matter of market
    timing. It does not matter if it is gold, oil, or Microsoft, if you
    have access to good market timing signals, they will help you get
    in and out at a profit. No guarantees in this business, but if they
    are right most of the time, you can still make $s. There are may
    web sites providing them out there (search Google). Just find one
    that works and use it! Check out http://invetrics.com/dontfollow as
    an example. Its Dow Jones timing signals are up 44.7% as of 6/24/09
    while the Dow is up just 26% off its March lows. Following a market
    timing system works!

    June 24th, 2009 at 4:27 pm

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