Many young people are nervous to start investing, even though they know it’s important. With interest rates on most savings accounts below 1%, it’s clear that your money won’t grow if you just leave it in your bank account. However, many of us came of age during, or shortly after, the financial crash of 2008, and are naturally wary of investing in the stock market. However, many people might not be aware that the market not only recovered from the crash, but is up 200% since bottoming out in March 2009!
I started investing with only $1,000 when I was 24 years old. At that time, I didn’t have a background in finance, I didn’t even really have an idea of what I was doing. I just knew that rich people invested in the stock market, and I wanted to be rich. Fast forward five years later and my portfolio has grown, and so has my knowledge and confidence in helping 20-somethings invest.
At first glance, the stock market appears complex and intimidating – and it is – but there is a way to get started investing without tens of thousands of dollars or having to go back to school for a degree in Finance! Investing is a good financial strategy even if you only have a few hundred dollars to get started. Below are the steps you can take to start making your money work for you in the stock market – without taking on too much risk:
1. Invest time before money. Nothing will get you a bigger return on your money than simply learning what investment options are available and what they are. Whether it’s taking out a book from the library or sitting down with your parents’ financial advisor or taking a lunch & learn through your employer, educating yourself is the best thing you can do for your bank account. You should never hesitate to invest time in learning about investing before you invest money.
2. Start small and play it safe. I’m an index investor, which means I primarily purchase funds that replicate the whole stock market. There’s no wildcards or surprises in this investing strategy: if the market returns 8% in one year, my portfolio returns 8% that year. If you’re buying an index mutual fund or index ETF, you can often get started with as little as $1,000 – sometimes even less! Don’t ever thing you need tens or hundreds of thousands of dollars to get started investing. You can start right now with just a small amount of money.
3. Fund your investment account regularly. If you really want to super-charge your wealth, contribute to your investment account every month, or better yet, every payday. In your twenties, consistency is more important than the amount you put away. Even $100 adds up over the course of a year! As your investment account grows, continue to reinvest the income it generates through interest and dividends.
The sooner you dedicate a portion of you income to growing your net worth in the stock market, the sooner you’ll start seeing real results. Don’t let a lack of knowledge, or a lack of cash, hold you back! Investing takes discipline, and the payoff takes time, but you’ll reap the rewards for the rest of your life. Start small, but start now.