Investment opportunities, 401ks, mutual funds, and stock options are not terms generally associated with twenty-somethings. However, perhaps they should be. While many do not start making long-term investment decisions until well into a career – when stability and financial security suddenly become urgent – a better approach for young people is to get involved right away, even if they have student loans and only meagre tip money from waiting tables.
LEARN BY DOING
Chris Linkas, a financial expert and the European Head of Credit at a UK financial institution, learned this lesson early. He began his career in college, getting into markets and learning by failing. The only way to improve one’s prowess with investing and financial markets is to get involved and make some mistakes. Mistakes are gold, particularly at a young age when being a novice is more forgivable, and comes with fewer consequences.
As Chris Linkas could confirm, starting long-term plans early pays dividends. By thinking like a multiple-decade investor, a young person’s future retirement will inevitably be stronger and wealthier. A $5,000 investment at twenty years old, compounded monthly at a modest three percent interest, will be worth nearly $20,000 at a 65-year old retirement. The same $5,000 investment would be worth less than $15,000 if saved at 30 years old, and just over $10,000 dollars if invested at 40 years old.
RISK and REWARD
Young people also have a distinct advantage: they are capable of taking more risk. With less at stake – like families, children, mortgages, and health savings accounts – young people can be more aggressive with riskier stocks and options, ultimately learning both how to be effectively forceful and when to practice restraint. These tools and techniques will be beneficial when young people have much more to protect in their mid-adulthood (Kirkland).
Ultimately, to be a successful and comfortable investor, much like the UK’s Chris Linkas, the first lesson to learn is to start early. Getting familiar with terminology and patterns, learning by failing, and accepting help when necessary can all be part of the normal growing pains of early adulthood – rather than suffering them when there is more to lose.