5 Tips for Young Investors

Photo (cc) by loran

Common wisdom says to invest in the stock market while you’re young because investing over the long term reduces your risk and offers more opportunity for your money to multiply. But since when do young people listen to common wisdom?

Research from the Investment Company Institute (ICI) suggests that only one in five investors under 35 (22 percent) are willing to take a “substantial” risk in the stock market. That’s a big change from a decade ago, when they were the age group most likely to throw caution to the wind.

A report of statistics and market analysis from ICI notes that, “In the past decade, households have endured two of the worst bear markets in stocks since the Great Depression.” The implication is that watching their parents lose money in stocks may have frightened away an entire generation of budding investors.

Of course, unemployment isn’t helping – the unemployment rate last month for those under 35 was over 13 percent, 40 percent higher than the national average. Hard to invest when you’re not working.

Whatever the reason, many young people are playing it safe – instead of buying stocks or other riskier-but-potentially-more-rewarding investments, they’re choosing low-risk, low-return options like certificates of deposit (CDs). Of course, that’s the group making investments at all: Many don’t believe they have the excess cash and necessary knowledge to start investing.

But young people can develop the skill-set for risk-based investing and they should. For a compelling reason why, you need look no farther than Stacy’s portfolio. In less than two years, his personal stocks are higher by nearly 50%! That’s not a return you could hope to copy – much of his portfolio was purchased at the depths of a terrible market decline – but it does illustrate why stocks can make a good place for some of your long-term savings.

Definitely check out Stacy’s story What to Know Before You Invest in Stocks.

Here’s some additional advice for young and would-be investors…

  1. Deal with debt first. If you’re paying 17 percent on a credit card, the first place to “invest” is to wipe out that debt. While stocks have outperformed many other types of investments over time, their long-term average return is around 10 percent. Paying off a 17 percent credit card is like earning 17 percent with no risk – a much wiser choice. Watch Investing vs. Paying Down Debt for more.
  2. Separate short-term and long-term goals. For most people, saving is different from investing – you save for things you want in the near future, say within a few years. Investing is long-term: money you won’t need for five years or more. For short-term savings, keep your money safe: things like CDs: shop for the best interest on our interest rate search page. For long-term savings, investments with more risk – like stocks – should be a part of the mix.
  3. Don’t be afraid to start small. A lot of people think you have to be rich to buy stocks. You don’t. In fact, starting soon is much more important than starting big. There’s no law that says you have to buy 100 shares of a stock: you can buy one or two. You can also buy mutual funds and ETFs (exchange-traded funds) in small increments.
  4. Ask other people what they do. It never hurts to ask, especially if you’re new to investing. Never guess, and definitely don’t invest based on tips or hype. Listen to trusted, experienced investors instead. Start with Stacy: his portfolio is online, and he gives the logic behind the buys and sells he does (his most recent purchase was Corning – read about it here). But talk to anyone around you who’s an experienced investor: get their take and learn from their mistakes.
  5. See what your employer offers. Many companies have retirement plans you can buy into straight out of your paycheck. This is a good way to save for a few reasons: You aren’t tempted to spend it, the government doesn’t take a slice of it in taxes, and some companies even match what you put in: if your company contributes 50 cents for every dollar you contribute, that’s like earning 50 percent in one day- an offer you can’t refuse.

Finally, whatever the investment, always make sure you understand exactly what you’re putting your money in, how it works, and the potential for both reward and risk. Be brave, but don’t be stupid.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

The 3 Biggest Regrets of Retirees — and How to Avoid Them
The 3 Biggest Regrets of Retirees — and How to Avoid Them

Rescuing a retirement from regret starts with these steps well before it’s time to quit working.

11 ‘Disposable’ Items You Should Be Reusing
7 Kitchen Gadgets That Make Healthy Cooking a Breeze
7 Kitchen Gadgets That Make Healthy Cooking a Breeze

These small appliances and cooking aids make healthy eating easy — and they’re all available on Amazon.

19 Things You Should Never Buy at a Grocery Store
19 Things You Should Never Buy at a Grocery Store

These household necessities are overpriced at the grocery store. Get them cheaper at these places instead.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

8 Tips for Retiring Comfortably on Social Security Alone
8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

The Next 5 Groups Who Will Get the COVID-19 Vaccine
The Next 5 Groups Who Will Get the COVID-19 Vaccine

The CDC has unveiled a schedule that likely will determine who gets the next doses.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

11 Generic Products You Should Buy at Costco
11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?
Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?

The rules are complicated when it comes to eligibility for survivors benefits.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

11 Huge Retirement Costs That Are Often Overlooked
11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.