The Ultimate Guide To Investing in Your Twenties | How To Start Investing Young
Investment Advice for Young People and The Impact of Investing For Your Future
Learn 8 Best Tips on Where, When, and How to Start Investing as a Beginner- and see if a stock is worth investing in or not
I’ve heard countless people around my age say they have no idea where to start investing. They don’t have enough money, they don’t know what platform to trade on, they think they are “too uneducated” or all of the above.
I’m here to tell you- everyone is uneducated! (well, 90% of people who invest, let’s not count the day traders that watch the market for 8 hours a day.)
You don’t have to have $50,000 to start trading- you don’t even need $1000. Most platforms don’t even require a minimum balance to open an account.
And you definitely don’t need to have an extensive background on stocks and money management. In fact, in order to learn how to and start investing, you really just need access to the internet and a few dollars.
I started with almost nothing, and you can too.
Step 1: Learn the super basics
What is investing?
Investing is putting your money into an asset with the hope to gain more money. This can be done in the form of stocks, mutual funds, index funds, money markets, real estate, etc.
What is trading?
Trading is the act of buying and selling the assets listed above.
Why should I invest?
If you want passive income, be able to retire without financial worry, and pass money onto your children, investing is basically the only way to do it (unless you’re a trust fund baby or a millionaire entrepreneur).
What are the cons of investing?
Almost none! I will say the only con is the chance of a freak accident happening and you lose money. Chances are, this won’t happen by a freak accident, but your own stupidity! Be smart with your money. Don’t get greedy and definitely don’t get cocky. If you stay wise and humble, the chances of losing large sums of money are slim.
What happens if I don’t invest?
As I said earlier, investing is the way to get financial freedom. In fact, stocks are the top investment choice for people with net worth over $30 million according to themolteyfool. If you don’t invest, it will be extremely difficult to ever stop working. Unless you’re the trust fund baby or millionaire entrepreneur of course.
Here are the most common types of investments (best for beginners):
What is a stock?
A stock is a piece of a company. When you buy a stock, you now own a very very small piece of a company. I’ve seen stocks as low as $1.93 and some are in the thousands. Stocks are held in the stock market (NASDAQ and NYSE) and the cost of them go up and down depending on the demand for the product, how the economy is doing, etc. You want to buy when prices are low (when the stock is not doing so hot).
Examples of stocks: TSLA (tesla) NFLX (Netflix) NVDA (Nvidia) ~ another reason stocks are fun is because you can buy companies you use on the daily. Love Netflix? Buy some! See if your favorite companies are publicly traded here.
What is a mutual fund?
A mutual fund is a portfolio of investments that has a number of diverse stocks and bonds. Mutual funds are typically less risky than stocks because in a stock you are putting your eggs in one basket, whereas in a fund you are diversifying your portfolio so even if one company goes down, another will balance it. Mutual funds are meant to be more of a long-term investment than stocks. Some of them require a minimum investment.
Examples of mutual funds: NASDX, FITLX, SFLNX
There are also investments such as money markets, index funds, bonds, and CDS, but those are a little more in depth and can be looked at later when you fully understand the basics of the market.
What You Should Know Before Investing
The difference between long term and short term.
If you are trying to make passive income for short term gain to “get rich quick” it probably won’t work. Buuuut, if you’re determined, day trading is the way to go. It will take a long time to actually get good at it, but once you do, you will see profit relatively quickly.
Don’t constantly watch them go up and down or you will freak yourself out like I did. It’s better to watch the market as a whole, see the trends, and keep learning about investing than it is to watch your own stocks.
The information below is mostly for long-term investments. To plan your future and make sure you are comfortable later on so you don’t have to work till you die. Don’t expect to make profit quickly. By investing young, you are already miles ahead and can possibly retire quicker than average. Slow and steady wins the race!
Step 2: Open an Account With a Trading Platform
There are soooo many platforms out there to trade, and quite a few are beginner friendly. The one I started with when I was 16 was Robinhood.
I think this is a great app for learning more than anything else. My goal opening an account with them was to learn what the heck I was doing rather than making a real profit. I didn’t have any connections to anyone in finance, so I needed something that was easy, user-friendly, and where I wasn’t going to lose all the money I had put in in 2 weeks.
Robinhood has a $0 minimum fee and is super easy to use. The downside is that because it’s so beginner friendly, it has limited capabilities and trading options compared to other sites.
For more advanced users, Fidelity or Charles Schwab is the way to go.
I would open up a Roth IRA as soon as possible. A Roth IRA is a tax-free retirement fund. You can put up to $7000 per year until age 50. I would recommend maxing it out each year when your income allows for that. Also, take advantage of your workplace’s 401k and other retirement funds your employer may offer.
Then, open up a brokerage account with either Fidelity or Schwab. This allows you to practice trading and make trades easily. Charles Schwab has a very in-depth website that can look a little daunting at first, but you get used to it pretty quickly. I like Schwab because I am able to look up any stock, index fund, money market etc. very easily and see all of the ratings and history. Click here to learn how to tell if a stock is a good investment or not.
If you want to practice more active trading, or day trading, you can open an account with webull. There is option for paper trading so it’s not real money. Great for practice with 0 risk but real time data to see what would happen if it was real money.
Remember, you can learn and read all you want, but you’re never going to make real progress if you don’t try it out yourself and make some mistakes. Hands-on is the way to go. It’s scary to put your hard-earned money at risk, but no risk, no reward! Plus, the younger you are, the easier it is for you to recover because you have lower bills and more time.
Step 3: Learn more. And more. And more.
Reading a few websites and investing in a couple of stocks is just the beginning. If you want to learn more about the best stocks to buy, how to grow your portfolio, when to buy and sell, etc., you’re going to need to consistently study investing. Especially if you want to start day trading (usually takes a year of intense studying to start seeing profit).
Here are the best websites to read up on and follow for updated news:
TradingView — Track All Markets
Here are cheap copies of great books on investing:
The Intelligent Investor by Benjamin Graham –One of the most popular books on investing strategies
You Can be a Stock Market Genuis by Joel Greenblatt- How to beat the market
The Essays of Warren Buffet by Laurence Cunnigham- understanding investing strategies and the stock market
You can also listen to podcasts, subscribe to YouTube channels/social media platforms, follow blogs, and take courses.
Courses may be $$, but you learn something in 2 weeks that may have taken you alone 6 months. Time is money!
Step 4: Let them be. Don’t get too obsessed.
Something really important to note when beginning investing is that you will most likely lose money at the beginning. I remember losing even a few cents and it freaked me out so bad I think I sold everything lol.
You have to get used to loss- the market fluctuates so much depending on the day, but consistently holding stocks will produce long term success.
How to Tell if a Stock is Worth Buying | Red and Green Flags
There are many ways to look at a stock and see if it is a worth-it investment. Some websites such as Charles Schwab have built in ratings that can be helpful, but if you want to go more in depth, here are some things to look at when evaluating a stock:
Look at the company’s income statement, statement of cash flows, and balance sheets to see if they have:
10% revenue growth yearly (red flag if 2+ years of drop)
Profit Margin higher than 10%, and you can compare it to their competitors
Find total debt and divide by yearly profit – should be under 3x
Free cash flow (operating income- property & equipment purchases) should match or beat profit
Property & equipment (PPE) ratio should be under 100, lower than 5 year avg, lower than competitors
Red flags: CEO sells lots of shares, many board members leaving, big profit but no cash flow, debt higher than industry average
Of course, a company will never meet all of these standards. Aim for 7/10 of these. The company’s financial records should be public on Google. Here is a good resource on where to find financial data: Top 6 Websites for Finding a Company’s Financial Stats
Conclusion
In this post, I discussed how to start investing young, where to start, and how to tell if a stock is worth buying or not.
Getting good at investing takes time! Be patient and know you are doing this for your future self and family. Good luck!
This post was written by: Ava Rose
