Finances for young people have great advantages: the long term, compound interest and the margin to correct mistakes. In addition to being able to access different products that we explain below.
“You have your whole life ahead of you.” It is recurrent in some circumstances, makes perfect sense in the world of finance. This is because the sooner you start saving or investing, the better. For what reason? Well, among others, for the following:
- In the event of making a mistake or suffering losses in some positions, the temporary margin to maneuver and correct the situation is greater if you invest in the long term.
- In finances for young people, the enormous difference between reinvesting dividends or profits or not, that is, the advantage of relying on compound interest, becomes even more relevant.
- Although it will depend on the product in question, in general, the risk when investing in the long term is lower: the longer the capital is in the market, the greater the chances that the average annual return will be positive.
The markets, in the long term, tend to equilibrium. The figures are eloquent in this sense: for example, the average return of the S&P 500 at 10 years exceeds 8%; at 20 years, it exceeds 9%; already 50 years, it goes beyond 10%.
Finance for young people
So for a person under 30 or 35 years old – even better if they are in their twenties – the great ally is time, the possibility of investing in the long term. Although this is not an obstacle, of course, for you to opt for the short or medium one – no more than two or three years – within the wide portfolio of vehicles on the market.
As it is logical, each case must always be studied with its particularities, but, as far as possible, when investing while young; the most repeated recommendation is long-term. Unless a part of the positions – there may be a combination of time horizons- maintained with that perspective.
The reason is that the long term greatly reduces the risk in the investment and maximizes the possible benefits, especially if compound interest is used.
What to invest in when young?
In many cases, young people are linked to a lack of knowledge or experience to operate in markets. Hence the idea of what assets to invest in when you are young. To help answer that question, here are a handful of proposals that may be attractive in that situation.
Investment funds for young people
When assessing where to invest money, one of the most advisable possibilities in the long term is investment funds. These vehicles allow the private investor access to a huge variety of products and markets at the hands of a professional.
It is advisable to bet on clean classes in investment funds, which carry lower commissions and can lead to savings of up to 30% in the total costs of the product. Value funds are also interesting in finance for young people.
Although it is not the best time for these vehicles, there are still options in the market to, at a minimum, compensate for the effect of inflation and, at a higher level, achieve certain profitability. Especially, with a time horizon of travel, this fits in the field of finance for young people.
Another simple and recurring product is deposits. It is an investment with a high degree of security, in addition to being also under the umbrella of the Deposit guarantee schemes (DGS).
The great drawback of this product when investing as a young person is its low profitability. And it is that, in the long term, experts recommend focusing on profitability rather than security, the strong point of deposits.
A mid-way solution between the two worlds could be a combined deposit, which adds up to a fixed-term deposit with the hiring of a fund of your choice.
Specialized financial advice
Finally, the aforementioned potential lack of work in the investment world that may occur among younger people can be offset by the advantages of having the support of a specialized financial adviser. The intervention of this expert will help to build a well diversified portfolio … and guide the neophyte in his journey through the markets.