Young Investors: Why Aren’t You Investing?
This article is sponsored by Securities Commission Malaysia, under its InvestSmart initiative.
Getting your first job and entering the real world can be exciting, but also daunting. You didn’t expect it to be this hard to stretch your entry-level salary to survive. It is far too easy to fall into the paycheck-to-paycheck lifestyle, unless and until you make your money work for you.
Time is the biggest boost to the value of your money. The more time you have, the higher the value will be. Understanding the time value of money is critical for all investors, particularly young investors who have all the time in the world to take the risk and potentially gain a lot from their investments.
Building your financial portfolio does not just depend on your career. Yes, it is an important and vital part of achieving financial freedom but youths today should expand their horizon to give their finances a boost with the right investment.
Just like saving money, money put into investment compounds over time at different rates of return. If younger investors want any chance of achieving their short and long term financial goals, be it getting married, buying their first home, or even retirement, they are going to need to overcome their aversion to investing and delve in.
When reality bites
If you are earning RM2,500 a month, your monthly expenditure might look like this:
As you can see, with a net income of RM2,500, you will only have 34% balance after your usual monthly expenses — and that’s with the most basic expenses. That’s not a lot left. If you leave this extra cash in your savings account (3.38% per annum), you will only get RM217.87 after religiously depositing RM850 every month for 12 months.
Perhaps a fixed deposit account can earn you a higher return? The highest fixed deposit rate in the market now is at 4.15%, and after 12 months and a total of RM10,200, you will get a meagre RM268.17.
That’s hardly enough to pave the way to financial freedom, or to protect your funds from inflation.
What’s plan B?
There has to be a better way to grow your funds than these two options. One of the lower risk investment vehicles one can start with is unit trust funds. With time on your side, the sky is the limit for your return.
For example, if you invested RM3,000 in a moderately risked fund that was a mix of equities and fixed income which saw a 55% growth over three years, you could come out of it with an extra RM1,500. And these growth numbers are real with many funds performing as well as this.
Find out what are the potential returns for other unit trust funds now!
Being young means you can let your money grow for the next 20 to 30 years to achieve your short term and long term goals. Want to save up the down payment to buy a property? How about getting an MBA? And ultimately saving for a comfortable retirement? All these can be achieved if you start early.
One thing that most non-investors do not know is you don’t need to have thousands of Ringgit to start investing. If you are 25 years old now, you have at least 35 years of income to invest and grow before retirement.
Don’t fear the unknown
Some of the common excuses that stop young investors from investing are not having enough money, thinking it’s too complicated, or just not knowing their options. The problem is, most of these people who use these excuses have not even tried, but are quick to give up based on other people’s past experiences.
Yes, investing comes with risks. An article published on Forbes said investing in stocks is akin to a dance step — two steps forward, one step back.
It’s true but it’s not necessarily a bad thing for young investors. With time horizon on your side, you will still gain, as two steps forward for 35 years amount to a lot of steps forward for your money, despite the steps backward.
Time can mitigate risk and this also means you can take bigger risks because you are able to bounce back. Investing requires knowledge and research but you don’t need to be a rocket scientist, or have formal education on investing before you can start.
Young investors just need a push in the right direction to get started. Don’t let the jargon intimidate you. Remember, not investing poses a bigger risk than all the investment risks combined.
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