Investing is seen by many as an arduous task- one that is complicated, risky and best left to other people.
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It is often easier to avoid investing altogether, than confront it head on.
A natural human reaction is to create excuses that rationalize why one has chosen to avoid an activity.
Investing at a young age is no exception: a variety of misconceptions about investing young perpetuates the idea that investing is best left to older people and experts. This article will examine several of these misconceptions that are often used as an excuse to delay or avoid investment activity. SEE:Young Investors: What Are You Waiting For? "I don't have enough money." "I don't know anything about investing." "Investing is too risky." "Investing can wait till I'm older." "Investing is for old people and Wall Street types." "My 401(k) should be all I need." The Bottom Line
While it is true that young adults are usually inundated withdebt- from student loans, car payments and mortgages- many can find at least a small amount of money to invest on a monthly or yearly basis. Contributing to employer-sponsored plans, such as401(k)s, can allow a small investment to grow over time, particularly when matched by the employer. The power of compounding creates a golden opportunity for young investors, even those on a tight budget. It is important to keep in mind that investing does not have to involve hugepositions; it is possible to invest in a very small number of stock shares.
Many young adults are keenly aware of theeconomic crisis and the resulting chaos that ensued. While investing can be risky, it can be managed in a way that keeps it from beingtoo risky, however that is defined for each individual. Young investors with a lowrisk tolerancecan select more conservative portfolios, like blue-chip stocksandbonds. Investors with a higher tolerance for risk can enter more aggressive positions with higher reward potential.
Young investors have to contribute less to make more money over time than older investors. This is due to the power ofcompounding. A person who starts at age 20 and invests $100 per month until age 65 (a total contribution of $54,000) will have more than $200,000 when he or she reaches age 65, assuming a 5% return. If the person delays investing until age 40, he or she will have to contribute $334 each month (a total contribution of $100,200) to arrive at the same $200,000 by age 65.
While the media do portray many investors either as wizened old men or young, power-hungry Wall Street types, most investors are ordinary people,both young and old, wealthy and not. Even though we often hear "You are never too old tostartinvesting(or saving for retirement)," the opposite is true as well: people are never too young to start investing.
Depending onsocial securityand 401(k)s can be risky. It is difficult to predictwhere social security will be in future years, and many investors learned the hard way in the last decade that employee-sponsored retirement plans don't always work out. Starting young and diversifying through a variety of investment vehicles is the best way to secure one's financial future.
Young adults often have so many distractions that it is difficult to set aside the time to think about investing. In addition to being busy with friends, work and hobbies, this age group is often burdened by a significant amount of debt, making investing seem like something that will have to wait. Despite these common misconceptions about investing young, those who do start studying, researching and investing young, have many advantages over those who wait, including the power of compounding and the ability to weather a certain degree of risk. (For a slightly subversive take on financial misconceptions, check out5 Investing Statements That Make You Sound Stupid.)
This post originally appeared at Investopedia.
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Jean Folger has 15+ years of experience as a financial writer covering real estate, investing, active trading, retirement planning, and retiring abroad. She is co-founder of PowerZone Trading, a company that has provided programming, consulting, and strategy development services to active traders and investors since 2004. Previously, Jean was a real estate broker, an English teacher, and a trip leader for an adventure travel company.
This story was originally published byInvestopedia.
