Your twenties are a great time to invest in your future, but not many 20-year-olds know how. Financial advisors all say the same thing: the sooner you invest, the better. The more time your money can sit in an account, the more money it can accrue. Here are a few pitfalls and promotions to help you start investing smarter.
Do’s:
Amp up your banking. Yeah, most of us have it together with simple checking and savings accounts, but there’s lots of room for bigger and better when it comes to banking. Money market savings accounts are are low-risk (obviously you need your savings to stick around!) but offer great returns on your money over time. The best part: the more money you have in there, the more you stand to make, so stowing away in savings becomes a little easier.
Trade your music CDs for the financial kind. Financial CDs (certificates of deposit) are short-term investments that give small, but certain returns. For example, if a 5-year CD is listed at 3.5%, you invest $X.00 and leave it there for 5 years. At the end of the term, you get your money back, along with an extra 3.5% just for keeping it there. The best part: its guaranteed- not a promise that can be made in much of the investing world.
Buy, don’t rent! If possible, avoid renting a place if you can afford to buy one. Even a small condo or town home is a better investment than paying rent. At the end of 5 years in an apartment, you move onward and upward, but with no additional value; 5 years into a mortgage you have some ownership and equity into a large investment. The best part: real estate values go up over time; they may dip – even drastically – but over the life of a 30-year mortgage, the value will inevitably increase.
Think retirement accounts. If your company offers 401(k) matching donations, be sure to take part- it’s essentially free money. If your company has a 3% match, you can invest up to 3% of your paycheck into their 401(k) plan and they will put in the same amount into your account (some plans are 100% match, others are not, be sure to read the fine print, but participate either way). The best part: when you leave, company 401(k)s are easily converted into a bank IRA- along with the money the boss matched.
Trade aggressively. If you have the option to select your type of investment strategy within money market or retirement accounts, don’t be afraid to be aggressive. For those of us with plenty of time to make a killing, market research has proven that the more time you have invested, the more the market will prove a return. It will dip, but when it booms, it booms big, generally making up for any and all pitfalls.
Find the professionals. Research investment or money management firms like Edward Jones or Merrill Lynch. They are world-class experts in their field. They avoid the disasters of crazy stock exchanges with sound advice and time-proven tactics. The best part: they’re not just for Wall Street Ballers. Just about anyone can afford to invest with a reputable firm like Jones or Lynch.
Don’ts:
Don’t fall for trading schemes. Ponzi schemes have left many families penniless in the faltering economy of the last three years. If anyone approaches you with the idea that you invest “under” them and get others to invest “under” you, it’s just a pyramid scheme, but instead of selling weight loss vitamins, it’s stocks and bonds. Run away!
Don’t attempt day-trading on your own. Many people think “investing” means “trade stocks,” but it’s far from it. Although stocks play an important role, the professionals who play the market are working on years of research and hard work. Don’t get sucked into the suckers game. Buying stocks is okay, but don’t try to trade with the big fish.
Don’t “invest” in big-ticket purchases. With the exception of real estate, most big-ticket items decrease in value over time, not increase. That brand new Mustang convertible won’t pay for your retirement. Things like cars rarely build value; only specialty models in mint condition would redeem themselves.
Don’t go for penny stocks. While playing around with stocks that cost only pennies isn’t a bad idea, investing a lot of money in them is. Penny stocks are fun to play with for, say, $100, but more than that is foolish- there’s a reason they were only worth a penny when you bought them.
Don’t overdiversify. Often, retirement accounts like a 401(k) and money market accounts give the option to trade into different funds. Maybe you saw a huge deficit with one fund – that’s a decent reason to trade, but many get caught up in tracking each fund and trading often with the up-swing. There’s rarely a reason to trade more than once a year. Don’t waste time- money grows when it has a chance to sit.
