Five Smart Investment Tips for Millennials

Millennials are the “best-educated generation” with a majority holding a bachelor’s degree or higher. Most of them may be saving, but they are not actively investing. According to experts, taking that next step is crucial to building long-term wealth. The good news? Even if you are investing 50 bucks a month, you’re in the game. Yes, the variety and volume of financial information can be overwhelming, but there is a myriad of smart investment tips available today for millennials to capitalize on. Alternatively, one can always experiment and learn. As Willa Cather quotes, "There are some things you learn best in calm, and some in a storm”. Even so, investing for beginners may feel confusing and smart investment tips can ease the process. The earlier you start, the sooner you can make mistakes, learn from them and subsequently have your own set of smart investment tips for your successors and heirs, depending upon what worked for you.

What probably holds back millennials? Perhaps, they have been through the Great Financial Crisis and tend to be more risk-averse than their predecessors. Other challenges include burdening debt, stagnant wages, strict paycheck-to-paycheck budgets, which can make it difficult to look to the future when you can’t see past today. Fear not, a new age of technology is ushering in. Millennial generation can now look to grow in their careers and start preparing for life beyond the workforce.

Without further ado, let’s give you five good tips to sail through life while putting your money at work.

I. Start Early and Make Use Of Compounding.

If you’re a Millennial, time is still on your side, but it won’t be for long. So, start investing somewhere from a field you know about and expand from there. Make use of the wonder of compounding which applies in investing options including Savings Account, Money Market Fund, Certificate of Deposit as well as the stock markets.

Compound Interest = P x (1 + r)ⁿ

Where r is the rate of return you get, n is the number of years for which you invest your money and P is the principal amount invested. For instance, you invest $ 1,200 once in the stock market reaping an average rate of return of 9% for 40 years, then your money can grow up to $ 37,691 based on this formula. Likewise, you can also invest $ 1200 every year to further multiply your final compounded value.

Not only will you earn interest, but you will also earn interest on your interest. Thus, these 3 variables are your key to financial abundance and well-funded and comfortable retirement.

II. Increase the Yearly Investment- Work on your P- Principle.

Stop living paycheck to paycheck. Invest in yourself and enhance your financial literacy. Read as much as you can. Work hard on your current job and get a raise. Perhaps, start-up aside hustles business. Get a better bank account. Also, being more aware will help you make informed decisions as what works for one, may not work for another, like cryptocurrencies. Investments in people, assets or a financial instrument should not be finalized unless you know something about it. Thus, perform your due diligence. Optimize your savings and set strict budgets for your expenses.

The best investment you can make is that in yourself, says American business magnate, investor, and philanthropist, Warren Buffett. This investment supersedes all and cannot be taxed nor inflation can take it away from you.

III. Invest long term- Extend your Investment Time Horizon-T.

The compounding formula suggests that the more you increase the number of years, the higher is the ultimate return. So, Factor in what you need to do to reach your goal, and compound that with diverse investing. One should not get attached to investments and be ready to let them go for the greater good. No one wants to keep their money in the bank account and let it rot. Thus, put it to work for the long run for best returns while obviously adhering to your present needs.

Additionally, make sure the rate of return is worth the wait. Thus, asses your options thoroughly.

IV. Your Ability to Protect your Expected Rate of Return - Portfolio Diversification-R.

Diversification takes a paramount role in your decision making. Allocation your income to a variety of financial instruments such as broad-based stock mutual funds helps in mitigating the risks. Say, when the market drops, as it is observed across market cycles consumer staple stocks are likely to be less impacted. It is a great way to hedge against market volatility and minimize one’s losses. The objective of diversification is to make use of the different investing avenues available that would each react differently to the same event and thus, maximize returns.

V. Always Maintain Your Savings for Emergencies.

It is important to prepare for unexpected circumstances and emergencies without having to turn to stress loans or credit card debt. Thus, an individual must set aside some emergency funds which are the essence of strong personal finance management.

Invest in your future today. It will be one of the rewarding decisions that you make!

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