The digital age has given us more knowledge and opportunities than ever before. Today’s young investors have grown up in an era where financial info is at their disposal, and wealth-building communities on social media have made investing more accessible than ever.
But taking those first steps into investing can be daunting. Many young investors will start by saving in a bank account before exploring other options. There are no guarantees of returns, but these four proven strategies will help young investors build a solid foundation for their future.
1. Know Your Goals
Investing starts with clarity on what you’re trying to achieve. Knowing if your goals are defensive or growth is key. Are you saving for a house deposit, planning for early retirement, starting a business or building a nest egg for your future family? Your goals will dictate your investment strategy.
Once you know your objectives, you can create a personal financial plan that aligns your investment choices with your goals. This will be your roadmap to guide your decisions and keep you focused on your long-term vision.
2. Start Small
Many young investors hold back because they think they need a lot to start. The truth is that starting small and building your portfolio over time is not only acceptable but often the best approach.
Starting with a savings account is a safe way to begin building your investment funds. While savings accounts are considered safer and are often recommended for holding money, there are higher returns to be had elsewhere.
This gradual approach has two big benefits:
Firstly, it’s a low-risk environment to learn about investing and build your knowledge and confidence without the pressure. Secondly and more importantly, it allows you to get the power of compounding sooner. When you reinvest your returns, your money can grow exponentially over time. The earlier you start, the more powerful this effect becomes.
3. Diversification and Risk Tolerance
The old saying “don’t put all your eggs in one basket” is still true for investing. In investment terms this means don’t put all your money in one type of asset or investment vehicle.
Diversification is more than a safety net – it’s a way to build a robust portfolio that can ride out market fluctuations and still grow. By spreading your investments across different asset classes, you can protect yourself from big losses and position your portfolio for more stable long-term returns. Diversification can also reduce the risks of share price falls and the financial impact on your investments.
4. Keep Your Head During Market Volatility
The market is cyclical, so growth, decline and stagnation are inevitable. As a young investor, you’ll go through several market cycles during your investment journey, including market crashes that will test your resolve.
Knowing what capital gain is will help you make better decisions during market volatility. Capital gain is the profit from the increase in share price, which can have a big impact on your returns.
During these times, keep your emotions in check. Don’t make impulsive decisions based on fear. Stick to your long-term investment plan. As Warren Buffett says, “Be fearful when others are greedy and greedy when others are fearful”. Market corrections are opportunities to buy at lower prices and potentially set yourself up for future gains.
Tax Implications of Investing
Investing in the stock market has tax implications, and understanding these is key to making informed investment decisions. In Australia, taxes such as capital gains tax (CGT) and income tax can affect your returns when investing in shares, funds and trusts.
When you buy shares, you may encounter tax implications like stamp duty and CGT. When you own shares, you may be liable for income tax on dividends and CGT when you sell those shares. For tax purposes, keep accurate records of all income and expenses related to your investments.
A diversified portfolio can reduce tax implications by spreading risk across different asset classes. However, you should seek professional advice to make sure your investment strategy aligns with your financial goals and risk tolerance.
Market volatility can also impact tax implications and create capital gains or losses. Knowing how market fluctuations affect your tax situation will help you make better investment decisions.
In Australia, the Australian Securities Exchange (ASX) is the main stock exchange, and investing in ASX-listed shares has its own set of tax implications. Knowing these will help you navigate your investment journey.
Ongoing Education and Learning
Investing in the stock market requires ongoing education and learning to make better investment decisions. Stay up to date with market trends, economic changes and regulatory updates to maximise your returns.
One way to improve your investment knowledge is to seek professional advice from a financial advisor or investment expert. They can provide personalised advice tailored to your financial goals, risk tolerance and investment style.
Also, educate yourself through online resources, books and courses. Websites like the Australian Securities Exchange (ASX) and MoneySmart are great resources for investing in the stock market.
Investing is ongoing learning and improvement, and you need to stay patient and disciplined. Don’t make impulsive decisions based on short-term market fluctuations, and focus on long-term growth and capital growth.
By committing to ongoing education and improvement, you can develop an investment strategy that aligns with your financial goals and risk tolerance. Keep accurate records of your investment decisions and seek professional advice when needed.
In summary, investing in the stock market requires an understanding of tax implications, market volatility and a commitment to ongoing education and improvement. By seeking professional advice, educating yourself, and staying current with market trends, you can make better investment decisions that align with your financial goals and risk tolerance.
Seek Professional Advice: Your Investment Partner
While these are good foundations, investing becomes much easier with professional guidance. A qualified financial advisor can help you:
- Set clear financial goals
- Develop a tailored investment strategy
- Make better decisions aligned to your objectives
- Stay on track during market volatility
- Adjust your strategy as your life changes
Don’t feel like you have to go it alone. Our team of experienced advisors will help you build and manage a strong investment portfolio for your long-term financial success.
Ready to start your investment journey? Contact us today to schedule a consultation and learn how we can help you achieve your financial goals.