When it comes to investing, anyone under the age of 25 has a superpower that even the wealthiest and most successful financiers envy: time.
“If you invest $2,000 at 8% a year, over 40 years you’ll have about $235,000,” says Michael Zisa, the Pennsylvania-based author of The Early Investor: How Teens & Young Adults Can Become Wealthy. “It’s not guaranteed, obviously, but it’s very doable.”
How much money do you need to start investing? Zisa says as little as $25 a month is plenty to get a new investor started.
“No amount is too small,” says Lisa Kramer, a Professor of Finance at the Rotman School of Management at the University of Toronto. “It’s very wise to develop a routine to contribute regularly to your portfolio.”
An investor starting with a relatively small amount of money doesn’t need a stockbroker, says Zisa, who also teaches high-school classes in investment and wealth management, and runs his own investment firm, Viking Wealth Management LLC.
“It’s going to cost them money, and most reputable advisors are not going to take a small account like that.”
Stock tips on social media fuel the buzz around trendy investments like cryptocurrencies that often promise fast rewards. Enticing as they appear, these advisors, who Kramer says “might not be very knowledgeable about investing,” tend to encourage frequent trading and higher-risk stocks. Robo-advisors like Wealthsimple and JustWealth, are good platforms to start out on, but they can also encourage more frequent trading than is necessary.
“In the long run, if you keep trading in and out of stocks, eventually you’re going to lose,” says Zisa.
“I really advise young people to buy and hold. If they’re good investments, they should go up over a long period of time.”
Kramer warns new investors to “be aware of the incentives of the people you turn to for financial advice.” For instance, banks often hope to sell mutual funds, which come with fees. She recommends searching online for a “fee-only advisor” whose fixed fee isn’t tied to what the client decides to buy or sell.
“There is no magic formula for outsmarting the market. People get into hot water when they think they can do better than others at investing or they can outperform the market index by using clever trading tactics, but those who try to do that by buying and selling a lot tend to underperform others,” Kramer says.
Those who want to take their knowledge to the next level will enjoy magazines and websites like Investopedia.com, Forbes, Fast Company, The Motley Fool and Barron’s, but even with reputable sources like these, “you have to take everything with a grain of salt,” Zisa says.
Books like Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing by Hersh Shefrin, or Meir Statman’s Finance for Normal People: How Investors and Markets Behave are helpful, because they explain why people make certain kinds of investment choices.
But the best advice for a young person thinking of investing, says Zisa, is “start now!”
