If you are young, have just got on a new job and your income exceeds your basic expenses, you should start considering investment opportunities to save for the future. By starting early and making wise investment decisions, you will be able to grow your wealth and secure a safe financial future for yourself.
But most of the young people who have just passed out of college don’t have much idea about where to invest, how much to invest, and how to time investment decisions. Here are some tips to simplify these decisions for you.
As a young investor, you should start with safe investments. Only after you have gained considerable experience in making important financial decisions should you look at riskier asset classes. This means that you should not immediately jump into investing in individual stocks. It is very difficult to determine how a particular stock will move unless you have a very good idea about that company. It is not only much safer but also more convenient to invest in mutual funds and let experts take care of stock specific decisions.
There is a wide range of mutual funds out there that you can choose from. The simplest of these are index tracking funds, whose value goes up and down in line with a particular index like the S&P 500. Such a fund will make it much easier for you to track your investments.
You can also go for regular mutual funds, which focus on a particular kind of stocks like blue chip companies, mid cap companies, or small cap companies. But before investing, always compare the performance of different funds for the last 3-5 years. Don’t focus too much on the performance of the fund in the last few months. As your investing horizon is long term, your performance benchmarks should also be long term.
Another important strategy to minimize your risk is to diversify your investments. You should create a portfolio of 3-5 different mutual funds so that poor performance of one fund does not ruin your returns. For example, the portfolio can include one index tracking fund, one bond market fund, and one fund that invests in international markets. Such a portfolio will give you moderate returns without exposing your investments to too much risk.
One of the most important qualities of a good investor is patience. Don’t be swayed by too much panic or euphoria in the market and never be hasty when making investment decisions.