You’re young, expecting a satisfying future brimming with friends, family and a comfortable lifestyle.
You’re a Next Generation Investor, likely aged between 18 and 25, and you’re starting to think about financial security.
According to an Australian Stock Exchange study, nearly a quarter of all investors over the past two years were Next Generation Investors. Additionally, some 27% of surveyed people under age 25 intend to invest over the next year.
The excitement of embarking on a journey toward financial freedom is common, as is confusion, after all, in the rush of enthusiasm, how can you ensure you get the decisions made for the future, right today? Further, what are the rookie mistakes to watch out for?
Here are a few that can be easily avoided.
Not clearing debt first
Student loans and credit cards have a knack for eating away income. We’re not saying don’t save at all, but we’re recommending you clear as much debt as possible before committing to serious investments.
Track your spending to spot potential savings, then channel that cash towards your debts. Every little bit helps.
Desire to build wealth through investment is not a strategy. Saving for a new car, a home deposit? Perhaps you’re planning to retire in your 40s? The end game determines which investments will be most suitable.
Now, consider how you feel about risk and whether you’ll need access to your money. Successful investment strategies are planned.
If it feels overwhelming, seek professional advice to help you build your strategy. You’ll be surprised at how inexpensive a financial adviser can be.
Generally speaking, the higher the potential return, the higher the potential risk.
Market-linked investments, like shares, can be big-earners, but you’ll have to ride economic ups-and-downs to get there – sometimes for ten years or more.
If this worries you, consider lower-risk investments. Conservative in nature, their returns are generally lower, but you’ll probably sleep better.
Decide how much risk you’re comfortable with. You may be better off minimising exposure to high-risk assets by diversifying your portfolio with a variety of investment types.
Trying to predict the market
Investment markets are notoriously unpredictable; even experienced traders sometimes get their timing wrong. Buying shares at the wrong time can mean you pay more than you should, similarly selling at the wrong time can result in losses.
Short-term buying and selling might seem exciting, but it’s a fast-track to losing money. The way around this, as previously mentioned, is research, diversification and being prepared to stay the distance.
The magic word is patience.
No investment is a set-and-forget scheme. Always keep track of your savings and your ongoing investment plan, ensuring that it continues to align with your goals, particularly as they change over time.
A flash car may be your priority today, but fast-forward a couple of years and perhaps marriage and children are your priorities.
As your goals change, so must your investment strategy.
A few other things…
Fees and taxes are unavoidable and various investments attract different expenses and tax structures. Find out what you’re up for before making financial decisions.
Feeling lost? The Australian Stock Exchange offers free online courses and the Government’s MoneySmart website has a free info Starter Pack to get you underway.
Of course, nothing beats professional advice tailored to your needs. The Financial Planning Association of Australia will put you in touch with a qualified adviser suitable for you.
Strategic investing sets you up financially, and helps create a savings habit for life. Your financial future begins today.