The minimum age to begin your investing journey is 18, and if you have reached it, what more are you waiting for?
Getting started early puts much ahead in your future life because many people don’t think about investing until they are in their 30s.
And there is a reason why a lot of people don’t start their investing journey early on; they didn’t receive the right knowledge at the right time.
In this write-up, we will provide a detailed step-by-step process to start your journey as early as possible. Let’s start with the reason first.
You can invest at any age, but why is it preferable to do it as soon as you reach the age of 18?
Well, first of all, it is the legal age and, secondly, your future self will thank you for doing it. All of this is because of the power of compounding.
Compounding
Compounding interest happens simply when your investment earnings make you more money out of it. To explain it to you in a better manner, let’s take an example.
You invest $100 in a stock that grows to $110 in one year. That’s a 10% increase over that year.
Now, let’s assume your investment grows another 10%. It’s now worth $121, meaning you earned $11 instead of $10 since you’re now earning interest on $110, not just the original $100.
It will be like a ripple effect in water, the circles will keep getting bigger over time.
The earlier you start investing, the more time you can earn through compound interest, meaning your $100 can be turned into thousands if you leave it invested long enough.
Here’s another example to show just how powerful it is by taking two different investors.
Investor A and Investor B are both 18 and investing in the same fund with a 7% annual average return for a period of 40 years.
Investor A invests $10,000/year from age 18 to 28, then stops all investing for the next 30 years.
On the other hand, Investor B invests $2,500/year from age 18 to 58. Both invested $100,000 total by age 58.
However, through the magic of compounding, Investor A ends up with $1,182,470.57 while Investor B ends up with $551,542.64 — putting Investor A’s investments at over twice Investor B’s.
After learning the compounding power, we will now proceed with the options in which you can invest right away.
How to Start Investing
Firstly, you should know about the different types of investment.
There are numerous, ranging from the basic stock market to the newer crypto market. Here are some of them mentioned:
Stocks:
You buy a share of a company that provides you with a fraction of the ownership. These will sometimes give a dividend as a form of income from this investment.
Mutual funds:
This investment involves a multitude of individual investors accumulating money to further invest in a number of stocks, bonds, or any other type of asset.
These are handled by a fund manager who buys and sells stocks to maximize your returns.
Cryptocurrency:
It is a form of currency that exists digitally or virtually and uses cryptography to secure transactions.
Cryptocurrencies don’t have a central issuing or regulating authority, instead of using a decentralized system to record transactions and issue new units.
Bonds:
It is a fixed type of income issued by federal, state, and local governments. The investor usually gets an interest payout every six months.
This investment is considered less risky than stocks, and the income gained from them also comes out on the lower end.
Index Funds:
An index fund is a collection of stocks that follows an index for example the Dow Jones Industrial Average (DJIA), S&P 500, etc. In this investment, the fund manager buys and sells stocks just to match the index price.
Assuming you don’t have a lot of money in your pockets, as you are just 18. Some brokers let you buy a fraction of stocks or mutual funds.
For example, you can buy a quarter of a stock instead of the whole share to save up some amount.
There are also other alternatives, such as:
1. Precious metal investing
2. Commodities
3. Real Estate
You will probably invest in them in a later stage of life as they need a bit large funding than the option mentioned above and are also a little more complex.
Diversify Your Portfolio
There is an age-old saying, “don’t put all your eggs in one basket.” Diversification just means the same. Don’t invest all your money in just one stock.
Spreading your investment across different assets will save you if one sector decreases in value, as it won’t destroy your whole portfolio in a single hit.
Several investment strategists say one sector of the market tends to increase when another decrease.
A common example we can take is the inverse relationship between stocks and gold markets. When stocks go down, gold tends to go up and vice-versa.
You can easily diversify by investing in different stocks, bonds, and mutual funds instead of just one company’s stock.
Be wary of hyped investments
You might know about cryptocurrencies like bitcoin, dogecoin, etc., they are a lucrative source to earn income but are very risky and volatile in nature.
Some of there prices increase due to the hype creation by big holder and when a lot of people but them there prices goes down like a waterfall, turning out to be a complete scam.
It is also important to know that whether you fall for a scam or not, you might lose some amount of money in the market.
To make continuous progress, you will need experience and knowledge. But as discussed before, you would be in your teen years while reading this article and burdened with a lot of academic papers and tests.
You can seek help from friends and teachers, or you can delegate your stressful college papers to online assignment help services.
This will, in turn, aid you in giving your sole attention to the investment market only. Also, keep in mind that the earlier you invest, the more you will profit!
Authors’ bio:
Naomi Wilson is an Investment Manager for more than a decades. He is very passionate about trading & helping people learn more about it.
He has been working with the Assignment desk as a freelancer to assist children. He provides assignment help Assistance to students with their writing because he is also an expert writer.
In his spare time, he reads finance books, plays the piano, and gives free coaching to people about investing.
