Let’s face it, being young today is hard. Rent is expensive, food is expensive, uni is expensive and the less said about housing the better. But even if it will take hundreds of years of forgoing our $20 a week smashed avocado obsession to save up a house deposit, that doesn’t mean you can’t start investing now.
Start sooner rather than later
We’ve all seen the Compare the pair ads where Alice and Bob both make the same salary but Alice’s super provider has a better return, and by the time they retire she has thousands more in her account than Bob. Compound interest is a strange and powerful force and over time can make a huge difference to your investment.
If you were to start saving while you’re young, even if it’s only small amount, you’d have time on your side to grow your money. A little now can add up to a lot later. You can start investing with as little as $500 in an exchange-traded fund or $1000 for a managed fund.
Clear your debts
Before you go racing off, it’s a good idea to make sure that your finances are in good shape. While there’s not much you can do in the short term about your HECS/HELP bill you and I have hanging over our heads, you can make sure that your bills are paid and your credit card doesn’t have a mountain of debt.
There’s not much point in making a killing on the stock market if the power company is going to shut off your lights. If you’re in a stable enough position that you can afford to set aside a few hundred dollars, you can start having a look at what’s available out in finance land.
Ways to invest
There is a seemingly endless array of ways you can invest – ASX 200 funds, emerging market ETFs, REITs, mFunds, CFDs, CDOs – it seems that no matter your interests, there’s a place for you to invest, and in many ways, that’s true.
Hiring a financial adviser can be a bit pricey, but it can also be a great way to identify what’s right for you. Everyone’s situation is different, and an investment that suits your friend might not be a good fit for you.
Whether or not you decide to engage with a financial planner it’s probably still helpful to get an understanding of the investment options available to you. Below are some of the most common ways to invest and what they offer.
Old fashioned but no less important, buying shares is still very much a part of many peoples’ portfolios. Buying and selling shares can be a bit intimidating for a first-time trader and it generally requires a bit more involvement than some of the other options. However, typically what it does give you is direct control over your investment, and you can pick and choose exactly what you want to hold.
The mantra of buy low, sell high remains true today, but it’s not the only way to cash in on stocks. You can also receive dividends if the company makes a profit. Buying individual shares is perhaps not the most beginner friendly and you will need to consider the risk element involved in this type of investing. However, it is often easily customisable to your needs and interests.
Bought and sold like a share, an ETF is actually a pool of money from many different investors that is then used to buy shares across a portion of the market. The dividends are then passed on to you, the investor. ETFs seek to replicate an index, like the top 200 companies in the Australian Securities Exchange, the ASX.
So, every time you invest in an ETF you are in effect making a small investment in each of the funds captured in the index. ETFs are a fairly straightforward investment option, and cover a wide variety of market sectors, but can never outperform the index it tracks.
A managed fund pools your money like an ETF, but instead of passively tracking an index, it is actively overseen by a manager who tries to make the best return they can for you by choosing what stocks to buy and sell. A managed fund will have a particular strategy that the fund manager employs, like investing in high-risk Australian shares or low-risk government bonds.
The fund manager hopes to outperform the market with their strategy, but there is always the risk they will underperform. Nevertheless, these funds are another popular investment option for those just starting out.
Ok so, you won’t get to enjoy your money until you retire but putting more money into your super now will mean you have more later. Current regulations allow you to invest up to $25,000 a year into your super (inclusive of employer contributions and personal contributions) at a concessional rate of only 15%, which can save you on tax.
You can also consolidate your super to make sure you only have the one account, to cut down on the fees you’re paying as well as adjust your super strategy to suit your needs.
‘Future you’ will thank you
Diving into the world of investments can seem a scary and confusing thing to do, but it is never too early to start. Consider your interests and needs, and how much you have to invest. And while buying a house might be a few years away, you can at least start saving for it, or at least start making your money work harder for you.
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