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AD. As a student or young professional here’s to a bright future. Retirement might seem a long way off, but if you want what you do with your money today to contribute to a prosperous tomorrow, you better start investing now. It may not be retirement that you are thinking about primarily, maybe you want to build an educational fund for children you have in the future. Whatever your aim, here are a few simple rules.
Maximize your income
Any type of investment requires a sacrifice, and you are going to keep making that sacrifice, so the more wisely you use your money the more you can invest and the bigger possible reward. I say possibly because it is imperative that you understand right up-front that investments can decline in value as well as rise and, in the worst case scenario, you can lose it all. Whenever possible, avoid using credit, particularly high-interest credit cards. If you do have to take a loan, pay it off as quickly as possible. Take a really good look at your expenditure, sure you have to have some treats, but try to limit them.
Get your objectives clear
You need to decide what your long-term goal is going to be, what size pot you want. If you are investing for pension purposes you need to think about the age at which you aim to retire. Once you know these two factors you can work out how much a month you need to invest. Use a pension calculator such as the one on MSN. This is a long-term investment so think about what your situation might be in ten years time and whether you will still be able to make that contribution if you are paying a mortgage or raising a young family.
Deciding your risk tolerance will determine where you put your money
You should never make the sorts of investments that make you lose sleep. The more you have to lose, the larger the returns can be from investing in the stock market, as opposed to fixed investments in things like corporate and government bonds and commodities. However, investing in the market can be lucrative, as this table from paragraph 3 of Money Saving Expert shows. The A popular way to invest in the stock market is through a collective fund, managed on behalf of a group of investors whose funds are pooled.
Since the financial crash of 2007, robo advisors, such as Moneyfarm have entered the market. These are basically computer programmes that track the market and use complex algorithms to determine the best investments at any particular time. Investors interface with robo advisors online, stating the level of risk they are prepared to tolerate and their long-term objectives. The investment is placed and the robo advisor, for a small fee does the rest.
Do your homework
Warren Buffet is possibly the most famous investor in the World. Buffet’s advice is, don’t invest in businesses you don’t understand. Learn how certain markets tick, what makes them money, why they crash and burn. Look at tax incentives too. Investing in an ISA is tax-free up to £20,000. If you are a young professional pay into a pension and your employer will meet any contribution you make to your pension, so make sure you get maximum benefit and look for other ways to boost your employer pension.
This is a collaborative post provided to me. Please note that I am not a financial advisor and any advice should be researched thoroughly before you make an informed decision for yourself.