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Anyone who starts making provisions for old age at a young age with equity investments will do everything right. Engine Forex reveals what young investors should watch out for.
1. Pay yourself first!
Take a certain amount (or percentage) from your income at the beginning of the month and invest it in yourself. Immediately after receipt of your salary, you transfer a savings amount that you have set yourself to a separate account. The money is then out of reach, and you’re not just going to use that money for your daily consumption. The best strategy is, in our opinion, to set up an automated transfer, which helps you to forget about the monthly investment altogether.
To take this investment strategy further, we recommend that you always adjust this monthly investment amount, for example, when you receive a pay raise. If you receive bonuses, put parts of it away as well.
Bottom line: never miss out on paying yourself first.
Particularly with small savings amounts, diversifying a portfolio with individual shares is complicated. It’s better to invest in an ETF since they are often diversified in themselves. Whoever wants to cover the whole world markets should think of a combination of MSCI World and MSCI Emerging Markets. However, this depends entirely on personal risk appetite.
How daring you are, also determines whether you want to invest a particular portion of your monthly savings in bonds or not. However, especially in the case of long investment periods, a 100 per cent equity quota brings the highest return.
Many money managers and financial advisors are also pointing towards different risk classes of investments, and it is said, that the younger the individual investor, the higher the risk appetite should be. Of course, this doesn’t mean that youngsters should put their money “all-in” or focus only on the highest risk bucket but rather allocate a certain percentage of their investment into higher-risk products.
Again, it is crucial that you find a strategy that you’re comfortable with and then apply it without excuses.
3. Think of the costs!
Be sure to choose a broker where your monthly ETF investment costs you nothing. Many brokers offer free ETF savings plans starting at 25 dollars. It is essential to pay attention to the cost structures and hidden fees of ETF providers. (Read our review for IC Markets Forex Broker)
Do you think it doesn’t matter whether a provider has an annual expense ratio of 0.3 or 0.6 per cent? It’s not! Because in terms of costs, the interest-rate effect works against you – that is money that serves the ETF provider and is no longer available for your retirement provision.
4. Increase your savings rate!
Maintain a budget book, identify where the largest expenditure items are and try to minimise them. But you can’t just work on the spending side to increase your savings ratio.
Especially at a young age, a lot is possible on the income side: Talk to your boss about a salary increase, change jobs if necessary, take on a second job. Use your higher salary to increase your monthly savings – and don’t just spend it all on the go.
5. Keep your nerve!
Anyone entering the stock market at a young age will experience numerous corrections, crashes and bear markets in the course of his investor life. The statistics are inexorable: every seven years, on average, the time has come. Then the financial markets are gripped by a wave of panic and despair, and prices collapse dramatically.
It is then essential to keep calm and not to sell your shares head over heels but to stubbornly continue to save. Investors who do not take this to heart will go under on the stock exchange, whether young or old. Smart investors buy when markets are down and sell when prices are high. Therefore, inexperienced investors shouldn’t do the opposite.
Steff has been actively researching the financial services, trading and Forex industries for several years.
While putting numerous brokers and providers to the test, he understood that the markets and offers can be very different, complex and often confusing. This lead him to do exhaustive research and provide the best information for the average Joe trader.