Investing early is one of the best decisions for young professionals. It allows more time for interest compounding (your interest to earn interest). The younger you invest, the longer you can take advantage of compounding interest. This means you’ll have more money for your goals.
Here are the top five best investment opportunities for young professionals.
Even if you haven’t given retirement a second thought because it’s too far away, invest for it now. Compound interest plays an important role here. If you invest in your 20s, you have 40 or more years for your earnings to grow.
When you invest in retirement early, you need to save less money per month and will have more money when you retire. You can also ‘take more chances’ investing in aggressive assets (stocks, options, etc.) versus sticking to conservative investments such as bonds with minimal returns.
Investing in property early could be another means of retirement income. Buying a home costs more than renting when it comes to repairs and maintenance, but you earn the home equity. Renters don’t get anything except an expired lease.
If you invest in a property for the long-term whether you live in it or rent it out, you’ll see a greater return on your investment.
If you have your eye on a stock but can’t afford a single share, buy a fractional share. The younger you invest, the more time your earnings have to grow. Not all brokers offer fractional shares, so look around for one that does before signing up.
Take Amazon for example, most people can’t afford one share today at its $3,000+ price. But even $50 would get you invested in Amazon, and you’d earn a prorated amount of the earnings.
If stocks interest you and scare you at the same time, consider index funds. These baskets of securities consist of a variety of stocks and bonds. They choose the securities for you, making it easy to start your portfolio with diversified risk, and little stress. ETFs are not actively managed, so they usually have lower expenses too.
While it’s not an investment ‘per se,’ it is in the big picture. Carrying debt is an opportunity cost for potential investments. No investment will provide the rate of return your debt costs you. For example, you pay 25% credit card interest – no investment will give that type of return. You’re better off paying off the debt and investing money once you’re debt-free.
No matter your age, start investing today. Even if it’s $50 – start somewhere. Every dollar that accrues interest is a step toward your financial goals. Retirement, buying a house, having a family, and paying for your child’s college education will be here before you know it. Invest now and financially prepare yourself.