Make the Most of Your Money: Why Young Adults Should Start Investing Right Now
Many young people see investing as an activity reserved for older, more financially established individuals who are closer to retirement. Even though investing can be intimidating, the fact is that as a young adult, you have a huge advantage: time.
This extra time will serve to strengthen your investments in both the short term and the long term. It allows more space for risk and recovery, and it will inevitably increase the value of compounding interest. In addition, learning to invest now lays the foundation for a lifetime of financial literacy and independence. Investing allows you to take control of your finances and lead a more empowered and enriched life.
Short-Term Benefits of Investing Early
With fewer home and family responsibilities, young people often have more time in their day-to-day lives. This means more freedom to research, understand, and stay engaged with your investments.
Additionally, you are more likely to be open to new trends that could help you take full advantage of new technologies and evolving options in the world of investing. You also have the time and resource to be sure to carefully evaluate emerging investments trends and ensure you aren't investing in anything you don't understand. All of this sets you up to be an attentive and engaged participant in your investments.
Shielding investments from inflation is an instantaneous benefit. Each year, prices increase, which means cash loses its value. When your money is invested, there are options to protect it from the effects of inflation, which can allow it to continue growing unstifled.
Long-Term Benefits of Investing Early
The most significant advantage of investing early is time. Long-term investments offer the strongest returns thanks to compounding interest. When investments earn compound interest, they roll the money earned each period into the amount that collects interest moving forward. This has an exponential impact, meaning that the longer it is in effect, the more money is earned. After 5 years, the interest collected may be underwhelming but after 40 years, the money you invested is often quadrupled or more!
Another long-term benefit of investing early is a lower-risk learning period. Investing is a learning curve for everyone, whether you start at 25 or 50. However, when you start young, there’s less pressure to succeed right away. You can make mistakes early, recover, and improve your strategies.
This is a huge advantage because the market is constantly fluctuating, and while timing is impossible to predict, gains and losses tend to balance out over a lifetime. Because of this, long-term investments carry more balance and resilience. As a young investor, you have time to bounce back from these uncontrollable market swings and for the same reason, you can take on more risk early in your investing career.
How to Start Investing Right Now
The most common access point available to young adults is an employer-sponsored 401k or retirement account. You might also have an individual retirement account (or IRA) that is operated independently from your employer. The most important thing for you, as a young person starting to invest, is financial education. Even though time is on your side, it’s still important to be intentional. Objective Measure’s Investment Essentials course will teach you what to consider before you dive in, the building blocks you need, and how to ask the right questions to take advantage of your extra time.