Learning how to invest your money at a young age is an excellent idea for so many reasons. Investing wisely when you are young can give you an excellent opportunity to be able to retire earlier than most people.
The reason starting young is such a good idea is all down to the power of compounding. Did you know that if you invested $10,000 at 25 years old, and made a modest 15% a year, it would be worth over $660,000 by the time you are 55? This would allow most people to retire earlier.
15% a year is usually achievable in the long term for a conservative investor. You could of course take on more risk, but if you start learning how to invest while you are young, you have plenty of time and have no need to take on high amounts of risk.
Infact slow and steady conservative investing is my favorite strategy. I have seen so many investors end up losing large amounts of money because they get greedy and take on too much risk.
I love one quote made by the most successful investor Warren Buffet, “My favorite investing time is forever”.
Warren Buffet is worth over $50 billion US Dollars at the time of writing this page. Most of his investments have been conservative and long term.
Another big advantage to this kind of investing is that the time commitment tends to be very low. You do your initial research on the stocks you like, which can be time consuming, then wait for a good price. Then after this is done, the time commitment is low and you can get on with your day job or run your business.
This is what I do. I invest conservatively for the long term with the goal of retiring early. The time commitment is low and does not remotely interfere with my business pursuits. At present I am on track.
It’s important to be aware that over a long period of time, there will inevitably many periods where the stock market will become grossly overbought and grossly oversold. When the market becomes grossly overbought, there is always the potential for a crash, possibly a big crash.
There have been many occasions we can refer back to when the market has been overbought and later crashed. The big tech crash in 2001 springs to mind. Many stocks, especially tech stocks rose by several times in a short period, with absolutely no solid profits to back up these rises.
Of course, these company’s did not show anything like the profits many investors had expected and many even made a loss. Of course, the market had to correct.
For long term investors, one key point that will never change is, In the long term, the market will always move with the fundamentals. However, the short term is much less predictable and as the short term volatility is often fuelled by the human emotions fear and greed, it can stray from the underlying fundamentals. The tech boom I mentioned earlier is a prime example of investors being greedy without any solid fundamentals to back up their actions.
So when should a young person invest?
Personally, I invest completely different to most people, which I believe has been the main reason I have been successful. I try to buy when most people sell and vise versa. Why?
It comes down to the human emotions again. When a market is booming, more and more people think stock investing is “easy money” and start buying stocks. This so often creates a bubble, again like the tech bubble.
Bubbles always blow up. During a crash, panic always strikes. Investors get scared and fearful and sell their stocks. This is the time to buy. During a crash, the market always becomes oversold.
Buying at times like these can make you feel uneasy. Why would you want to be buying when most people are selling? The answer is, “Most people” are losing money.
In conclusion, if you are a young investor, now is an excellent time to start investing in the stock market.