Basic Investment Knowledge Twenty-Somethings Should Have
When we are in our twenties, investment chit chat is one of those topics we never feel grown-up enough to understand. We may try to expand our knowledge once, twice, or maybe thrice, but it always seems like jargon. It is just an intimidating topic and, whenever we hear experts talk on this subject, it is like listening to someone speak a foreign language – we catch the occasional word, but the context, phwrrrr, that remains an unknown.
If this is ringing any bells and causing you sweat a little, take a deep breath. You’re not going to get into investment as a career. You’re probably just going to dip your toe into bulk up your savings or enjoy a more cushy lifestyle.
That is why we have come up with a few little basic tips to help you navigate the basics of investment when you are in your twenties. You may not be able to blag your way into a Wall Street internship, but you will have a solid foundation.
Savings Aren’t Invested
Yes, the money in your savings account is earning interest, but your money isn’t invested in anything. It just makes you less than one percent annually and that’s it. Your money just sits in a vault gathering dust.
Retirement Savings Are Good
If you put your savings into a retirement fund then you are actually investing your money in something. We’re talking about a 401k or an IRA fund. These will then accrue a substantial amount of interest between now and your retirement date, making life better later on.
Some Investments Do More
Not all investments are born equal. Some offer greater returns in exchange for greater risk and some work as part of a plan. Something like an investment-linked insurance plan falls into this category because it is an insurance plan that combines investment and protection. Your premiums pay your cover but they also get invested in specific investment funds you choose.
Keep Up With Inflation
For a lot of people, investing their money is the only way they can keep up with inflation, which reduces the value of your money by over 3.5% each year. As such, they invest their money so that it has a better chance of growing faster than the inflation rate does.
Stock Is Equity
You may well have heard about stocks without really knowing what they are. Well, when you buy stocks in a company, you are buying a piece of that company. Not much, but some. You are a part-owner. They are quite volatile, though, so the risk is greater.
Diversification Works
No one can agree on how much diversification is perfect. However, what every investor will tell you is having all your money in one basket is a really risky game. Instead, you want to diversify and spread your money out across different investments.
Investing Isn’t Free
These fees tend to chop and change and vary, but by doing your research you can reduce them substantially. To give you an idea of what we are talking about, investment advisors will either charge a fee or take a percentage. Robo-advisors will take a fee upfront. Mutual funds will also have a fee structure worth understanding. Basically, fees come as standard.
