Investment Ideas for The Young Adults
For young adults, transitioning to independent living should be one of the top priorities. If you are especially in the age group of 20- 24 years, you should look to develop your financial resilience. Part of that involves making the correct financial decisions, particularly when assessing credit, saving for a deposit to buy, or rent a property, or planning for short-term savings.
Young adults have a different perspective when it comes to personal investing and finance priorities. Many can look forward to investing in various ways to reach their financial goals.
Investment Tips for Young Adults
Work Towards Being Debt Free
Debt is one of the major concerns for young adults at the moment, with student loans being a good example. The average student loan amount in the US for instance is over $30k. On top of that, many young adults have added liabilities like a car loan as well. All of this can harm one’s cash flow.
If you are a young adult and want to invest when you still have debt, you need to device a balance. A good way to do this is by making monthly minimum debt payments on time and allocate the rest towards investing, thereby allowing you to take advantage of compounding of income.
The risk involved here is that returns are never guaranteed. On the other hand, you need to pay fixed amounts of loan interest on a timely basis. Thus, you should start by beginning to eliminate your debt, with credit card debt being a priority.
Using Robo Advisors for Investment
If you are a little tech-savvy and have some basic knowledge about trading stocks and funds, consider using a Robo advisor. These are automated software programs that take all the trading and investment decisions on your behalf. This includes portfolio management, reinvesting your dividends, and even rebalancing portfolios. Some Robo advisers even work to adjust your taxable investment gains.
Furthermore, Roboadvisors can also be used to invest in a retirement account like an IRA or any other taxable investment account. They generally invest in a combination of bonds, stocks, and REITs.
Consider Index Funds
Young adults should always look towards investing in growth-oriented assets. Investing in Index funds is a prime example. You can easily earn more from the compounding of higher return rates compared to safer investments. The S&P 500 Index is considered one of the best performing index funds for investors, producing a 10% return rate annually. Even though the world is going through economic turmoil because of the pandemic, you can still take advantage of top stocks and their low prices. Just be careful to use money that you do not currently need, and never sacrifice paying off debt for investing.
Consider Stocks or Exchange Traded Funds
If you are a young adult, you can consider ETFs and stocks as a good investment. Nowadays, you can invest in fractional shares if you cannot afford the entire ETF or stocks. This makes it important to choose a good investment app or broker, that facilitates fractional share trading.
Real Estate Investment Trusts are a good idea
Real Estate is one of the few areas of investing that sees appreciation even in the most volatile economic conditions. One way to access this market is through REITs or Real Estate Investment Trusts. These instruments allow you to hold a portfolio of different commercial real estate. This makes it better than being in the ownership of just one investment property.
REITs can allow you to invest with just a few thousand dollars, compared to significant down payments involved in investing in entire properties. It only invests in commercial real estate which outperforms returns produced by residential properties. Also, you do not need to actively manage the instrument yourself.
Consider a Retirement Plan
Retirement may seem a long way ahead when you are a young adult. However, you start considering a retirement plan. The first step is to get an early edge on retirement savings. You can do this by starting to contribute at least 10k per year to a retirement plan when you are 25. Delaying this for a much later age can fetch you a lower return rate.
Investing in a retirement plan can also help you get tax deferrals. Consider investing in a 403(b) or 401(k) as provided by your employer. It is tax-deductible from your existing current income. In case your employer does not offer any plan, consider investing in a Roth IRA or traditional IRA. This allows an individual to contribute up to $6k per year, which in turn provides a tax deferral on your investment returns.
Always Look to Better Your Skills
Improving both your financial planning as well as your professional skills can also be thought of as an investment. You should start doing this especially if you are a young adult, as your single greatest asset will be the income you will generate in your life. Allocating some amount of money and time for the acquisition of an additional skill that can help you further your career. This can be anything from taking additional online or college courses or enrolling in various virtual certification programs that can add to your existing professional skill set. It may seem that it is eating at some of your returns in the short run. But through this, you can look to increase your future income flow, which is a great advantage for your later life.
The above list may seem overwhelming to you at first, and you may not be able to take all the decisions right away because of limitations in your income. Start by picking one or two and moving forward slowly, but in an organized fashion.
Focus on monitoring and planning your savings and expenses on a short-term basis. Another thing you always must consider is building an emergency fund, which is capable of funding at least three to six months of monthly expenditure in financially dire situations.