Investing at a young age isn’t always the easiest thing to do, but it can help you build wealth for years to come. The earlier you start, the more time your money has to grow, which means that even small investments in your twenties can be worth a lot later on.
For young people who want better to prepare themselves for financial success in the future, here are some investments worth considering:
Stocks
Stocks are obvious investments, especially if you’re looking to build your portfolio over time. The main benefit of stocks is that they allow you to own a piece of a company, which means you will reap the rewards when the company succeeds.
In addition to potentially making a return when you sell the stock, some companies pay dividends as well.
When you invest in the “stock market” you’re actually investing in stocks on one or more stock exchanges, like the NYSE or NASDAQ in the US. There are over 60 stock exchanges globally.
Tax Lien Certificates
A tax lien certificate is an official certificate of claim against a property that has a lien placed against it because of unpaid property taxes.
Certain counties in the US put a lien on a property when the property owner fails to pay the taxes on their property. The lien is a formal legal claim against the property for the outstanding debt. Before the taxes are paid, and the lien is released, the property cannot be sold or refinanced.
When a lien is placed on a property, the county issues a tax lien certificate; that details the principal debt plus any accrued interest or penalties. Typically these certificates are then sold at auction to the highest bidder or the one bidding the lowest interest rate.
Tax lien certificates pay secured fixed interest rates ranging from 8% to 25% max interest per year depending on the state. This can get quite competitive, especially when institutional investors participate in the auction.
Auctions aren’t the only way to acquire tax lien certificates. You can learn more about how to bypass the auction process by taking this tax lien investing course from the USTLA. It’ll teach you all about how tax liens work and how to get started in this niche market.
Dividend Index Funds
Dividend index funds are an alternative to individual company stocks. Instead, you’re investing in an “index,” which is a collection of stocks that make up a particular market. For example, you could buy shares in a fund that invests in the companies of the Wilshire 5000 (a popular index for larger US companies).
With dividend index funds, as the collection of these companies succeed, so does your investment. Unlike company stocks, though, there is no chance of your money suddenly becoming worthless if one company fails.
Bonds
Investing in bonds can be appealing because it’s not as exposed to volatility as with stock market investing. The downside? The returns are usually much smaller. And buying bonds will require a broker.
The more risk associated with a bond, the more may pay out, but it could also lose value; – meaning your investment may be worth less than expected.
Mutual Funds
Mutual funds are sold by companies that invest in other companies. These funds give you access to a portfolio of stocks, not unlike the aforementioned index funds. The difference is that a mutual fund manager is choosing the stocks to invest in rather than simply buying into every company that’s part of a particular list like the S&P 500.
Mutual funds have differing rates of return based on the investor’s risk tolerance; skill of the fund manager, and other factors.
Mutual funds make it easier for young people with limited financial knowledge to build their portfolios; as the individual stock picking is left to an “expert” (the fund manager).
Government Bonds
Treasury Bonds, T-bonds, or Treasury notes are government bonds that are backed by the federal government. This theoretically makes it a safer investment, assuming that you believe the federal government can’t go insolvent. These bonds don’t require a broker; you can buy them directly from the US Government.
The Bottom Line
When investing, looking for a good risk/reward ratio is crucial. When looking at investments and portfolio building early on in life, you want to be able to take measured risks. i.e. limited exposure to downside. You have time on your side, so don’t try to rush it.
Take the time to study each opportunity, join classes and workshops, connect with investors and financial advisors to make the best choices for your needs, and always monitor your investments, preparing solid exit strategies for each of them.