What are the Best Tips for Young Investors?
Investments are long-term projects, and the time to get started on them is at a young age — perhaps in high school, college, or immediately after; therefore, young investors should think about investing for the future and be prepared to let the money they invest accrue over the course of years and even decades. The wisest young investors will research the different options for investments, and try to avoid investments with hidden fees and high taxes. Riskier stocks are a good start for young investors, though they may also want to consider diversifying their investments to include safer outlets.
While retirement may seem like a long way off for someone just out of college, young investors are the perfect age to begin saving for their later years. Start by researching stocks; they are perhaps the riskiest investments, and young investors are likely to lose money in any given year, but the yield on stocks is higher in the long term than other investments. The stock market, too, is not likely to dip for several years at a time, so even if young investors lose money one year, they can potentially make it back the next year. Investors should stick with their stocks and trust that the markets will recover after a dip.
If the stock the young investor settles on does not recover, however, he or she can lose the money permanently, which is why diversifying investments is important. If one stock fails, another might be successful, canceling the failed one out. One way to diversify is to invest in a mutual fund. The idea behind mutual funds is to give a set amount of money to an investor who will research a variety of stocks. The young investor's money essentially gets spread around to several different stocks to avoid losing all the money on one stock. The mutual fund manager will research the stocks and choose which are the best investments so you don't have to do the leg work. That professional will charge a fee for his or her services, but it saves the young investors from having to do it themselves.
Young investors need to be careful, though, as many mutual funds charge fees that can hurt the bottom line after several years. One way to avoid such fees is to research mutual funds that invest only in the 500 top earning companies. Managed mutual funds require the investors to research which stocks are doing well at any given time rather than ones that do well consistently, and statistically speaking, funds that invest in the top stocks perform better consistently.
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