One can never be too young to invest. It may appear intimidating and daunting. But keep in mind that anyone with a small amount of extra money can invest. So, while you’re young, take the first step in investing as soon as you can. Also, doing some investment can help you to save tax while doing tax preparation.
Once you become an investor, you will be, for the most part, using your money to purchase things that have the potential for rewarding results, whether through cash flow, interest, and dividends, or appreciation of value from assets.
The younger you start investing, the more money you will heap together in the long run. Aside from that, you’ll likely to cultivate financial habits that’ll surely last a lifetime. To know what investment options are best for you, check the list below.
Best Investment Options
Buying a home or any property at a young age can be one of the best investments you can do. However, whether it is true or not, it greatly depends on various variables or factors. These variables include the current housing market and the duration of your residence, as well as the rental prices, current interest rate environment, and your financial situation.
But in the event wherein you plan on residing in one area for at most five years, then it’s best just to rent out. Why? Mathematically speaking, it typically takes at least seven years to build up the sufficient equity in a home to substantiate buying a home versus renting.
Certificate of Deposit or Savings Account
Buying a certificate of deposit or using a savings account is one of the best options that you can avail out there. A savings account provides you the ease of access to your money anywhere and at any time with minimal risk. However, the only drawback is that it offers a lower interest rate on your investment.
On the other hand, a certificate of deposit gives you, to some degree, better returns, but with a small amount of flexibility. With this option, you must entrust your money to your preferred bank for a certain period of months to years.
These investment options have plenty of benefits and advantages. For instance, they are easier to set up, plus they’re usually protected by a government agency. Hence they are much safer than other investment options.
However, one of the significant drawbacks of these options is that they pay or compensate a very small amount of interest. Keep in mind that without much interest, you can’t have much as compared to compounded interest. With that said, savings accounts and certificates of deposit are advisable for keeping small amounts of money on a short-term basis.
A mutual fund is a collection of money provided by many investors, for which you can then invest in securities like stocks or bonds. This option can generate a higher stock dividend or bond interest income. Investors in a mutual fund can also benefit from this investment if security is out for sale.
Know that mutual fund accounts are very much straightforward to open and maintain. Fund investors pay a certain amount of money for money management. You can either opt to reinvest your earnings or add your investment regularly.
This option enables you to invest in a wide range of bonds and stocks. This fund also offers the safety of diversity, securing you against losing cash whenever several securities slump in value.
Additionally, mutual funds enable you to invest even a small amount of money and add small, periodic amount of money. It can be very important if you don’t have the money to invest.
Once you decide to purchase stocks, you become a company owner as a default, commonly called as equity or stock investors. Those individuals who buy stocks can earn income from dividends plus they can benefit from the sudden increase or growth in the stock’s price.
Know that stocks provide better returns compared to the other investment types. By that, it also draws in more risk. To recover or get back from a stock price downturn, you’ll need to be able to invest in stocks for a longer period.
Alternatively, you can buy stocks by starting a brokerage account. Once opened, you can then deposit money and buy stocks. Consider asking some financial advice from any financial firms such as Ashe Morgan or Affluent Financial Services.
Municipal or Government Bonds
Investing in municipal or government bonds is yet another great option. When you purchase bonds, you’re loaning a small amount of money to a municipality or a government. Alternatively, you can also buy bonds provided by corporations.
Municipal or government bonds pay a certain interest rate on your investment annually. You can either allow compounding to work for you or reinvest your interest in more bonds. However, there’s a significant drawback to it.
When interest rates are decreasing, your returns on investment can be small as well. Even when the rates are increasing, bonds typically provide lower returns compared to stocks, but bonds are less risky though.
Indeed, one of the most significant decisions that a young person can make is to get involved in the saving habit. Keep in mind that what investment option you choose to invest is more important than what you invest. The right investment option depends upon your time horizon, risk tolerance, and investment objectives. To know more, check the list above.