Are you ready to start investing after making real money for the first in your life?
I know what it’s like. I couldn’t wait to start investing when I finally had some money in the bank after being out of college. Life changes when you go from broke college student to a college graduate making real money. You know have to figure out what to do with your money. You don’t know where to start.
How do you start investing?
Many twenty-somethings/millennials that land their first decent paying job out of college, will want to do one (or all) of three things:
- Move out (so that you can improve your love life).
- Buy a car (so that you have a love life).
- Travel (even if it’s just to a resort to get wasted for a week with your friends).
I love all three ideas and would prefer to do them all at once. However, what if you would like to invest your hard earned money so that you can have even more money? What if you want to grow your savings so that you could afford all three options? You have to build yourself up a little bit before you can start conquering the world.
Let’s take a look at investment opportunities that 20-somethings should consider…
Online savings account.
This is arguable the safest investment option for young people. You setup automatic transfers and have a portion of your paycheck go towards your high interest savings account online. With a few minutes of maintenance a month, you can safely grow you hard earned money in one of these accounts.
Unfortunately, we all know that these accounts don’t exactly offer the highest interest rates in the world. I recently took a look at the best online bank accounts and found that rates are very low across the board at the moment. If you want to take on more risk for the potential of more reward (and more loss), continue reading please.
This is a good place to hold your money when you’re getting started. Sometimes the best investment is the one that you don’t make.
Invest in securities.
You can go the safe route by investing in low risk investments, such as a bonds. The return is usually just slightly higher than a online savings account. The positive is that you can sleep at night knowing that your savings are growing. In essence, you’re earning a passive income through investing in low-risk securities.
You can be a bit more riskier by investing in individual stocks. I’m sure you’ve all heard the arguments for and against this. I won’t get into that debate.
I’ll just throw out some time-tested tips on investing in stocks:
- Don’t day trade if you don’t know your stuff. Get to know the company and the market.
- Invest in companies with solid management and don’t worry about fads.
- Look for dividend paying stocks to ensure that you have some money coming in.
- Don’t invest money that you don’t have. Don’t borrow money to start investing.
- If you’re going to get into complex investments, hire the right people (find the most reputable forex broker if you want to go in that direction).
- Find the best forex broker if you choose to go that route.
- Understand that you’re essentially gambling and that you should only invest within your limits. It’s all a gamble.
This is the most expensive investment, and likely the most riskiest.
I’m not referring to your principle property. I’m referring to a real estate property that you specifically purchase as an investment property. There are some “financial experts” that swear by this method. Then there are those that are totally skeptical and would rather invest their money into dividing paying stocks. I fall somewhere in the middle.
You could mitigate your risk by purchasing real estate in a hot market (with high demand) and something that is brand new (condos preferably). With a brand new condo in a hot downtown market, you could likely find a tenant at a high paying price in a quick amount of time, and not have to worry about anything breaking down on you.
You do run into one major problem with a real estate investment though.
How can you afford a down-payment on a downtown condo?
How will you get a mortgage? After the credit crunch and economic turbulence from late-2008 it’s getting increasingly more difficult for 20-somethings to obtain a mortgage. This means that you need to ensure your credit score is solid, you have a decent amount of money saved up, and that you have proof of a steady source of income.
At the end of the day, no matter where you decide to invest your hard earned money you need to do your research and understand what you’re getting yourself into. Just because an investment opportunity worked out for one person, it doesn’t mean that it’ll work out for you. There are many real estate fees involved in a property investment. There’s risk that comes with trading stocks. Online savings accounts don’t pay you as much interest as you would like to earn.
There’s no perfect investment out there. Everything depends on how many risks you’re willing to take and how much money you have. This is how you can get started with investing your money.
5 thoughts on “Investing Tips For Young People– What You Should Consider”
I’m a big fan of online banks and we use ING and Smarty Pig. Rewards checking can be a great idea too (currenty in the 3.5% range on CHECKING accounts…look at credit unions in your area).
We also invest in high dividend stocks and target date mutual funds.
One more investing tip: Live like a college student for a few years after college (while employed) and pay off any student loan debt or save up a hefty emergency account. If you sacrifice to do this, you will have so much more cash flow to do the things outlined here.
As a side note, I did all three things mentioned above when I left college. Buying the car was the biggest mistake.
The best investment is to pay off your debt so you don’t accrue interest.
I don’t recommend real estate right out of college, its really hard making good decisions, so the best real estate investment is the one for your family.
This interested me because this is me. I am a 20-something, not out of college, but I have accumulated a nice nest egg for a DP on a condo. I am getting close to achieving the 20% needed, and will make sure I have $5-10k leftover for emergencies.
Also beginning to purchase mutual funds, TFSA’s, and studying up on stocks currently. I may decide to purchase some bonds as well at the end of this year, just to diversify my portfolio and get a little more passive income than my stupid savings account.
Nice Sum up! BibleDebt, I like what you said about living like a college student after college to pay of debt, very wise point to add.
I would like to try my hand in the real estate market. I think it was Rich Dad Poor Dad I was reading a few years ago and Donald Trump talked about the different levels of investments. Real estate was the highest, or the best potential return.