For many people in their twenties, taking the time to talk to a financial planner like Seymour Zises is low on the to-do list, below “check Twitter” and “take a selfie.”
But Zises, the CEO of Family Management Corporation, advises young people to look for ways to start growing their wealth as early as possible.
“There is no excuse when it comes to investing in your future,” Zises said. “There are no restrictions regarding age, but there are certain guidelines you should operate within as a novice investor.”
According to Zises, young investors should consider maintaining a robust, diverse stock portfolio that includes long-term investments.
Lee Wang, a Hawaii-based real estate agent, told The Huffington Post that young people “need to invest” to enjoy the same kind of retirement afforded to their Baby Boomer parents. He warned that saving is not enough to generate the same income as a traditional pension.
According to Wang, making a plan with attainable goals is the first step in developing an investment strategy. He recommended new investors start small and learn quickly, so that bigger investments will be more easily handled when more money is at their disposal.
“I, like most 20-somethings, went brain-dead the moment anyone mentioned the word retirement,” Wang wrote. “If retirement isn’t something in your scope of vision, start with baby steps, like having $10,000 in your savings account or buying an affordable home. Then move on to bigger goals.”
Paying down debt is as important as picking the right investments. “Making 10 percent a year on a stock means nothing if you’re paying a 23-percent interest rate on your credit card,” Wang said.
Furthermore, Robert Stammers, director of investor education for the CFA Institute, told Forbes that considering basic questions can help a young investor narrow down goals and find ideal investment opportunities.
“Investing can be simple, but it’s never easy,” Stammers said. “[Ask yourself] how much am I willing to be exposed to in order to get the potential upside? Or how much am I potentially willing to lose in any given period in order to take advantage of what the market may bear?”
According to Stuart Ritter, a T. Rowe Price vice president, the goal of investment should shape the strategy. He said that while the goal of saving for the down payment on a house would be best met by using a Roth IRA, saving for retirement or for a child’s education may be better served by a different type of investment. He recommended simply keeping money in a bank for short term goals to avoid concerns over fluctuations in the stock market.
It is also important to be careful in calibrating the returns expected on your investment. While some portions of the economy, such as the stock market, may have good years or improve in value over the short term, investments chasing such returns should only be a portion of any investment portfolio.
“New investors often have a hard time understanding why, in years when the market is up 30%, and they told their financial planner to generate a 6% return, their money didn’t grow by 30%,” Seymour Zises added. “People have a difficult time finding their emotional equilibrium as it relates to understanding the risk/reward balance in their portfolio.”
Deeply personal, the money one earns is for some people a real reflection of their own personal value or the value of their work and effort. According to Rahul Shah, a founder of Peninsula Wealth in San Francisco, many young millionaires struggle with the desire to do things for themselves, while lacking the experience to make sound decisions.
“There are a few who say, ‘Is there an app for this that can do this for me?’ ” Shah told The New York Times. “Whether there is an app for that or not, everyone is going to behave emotionally when they’re managing their own money.”
The experience that comes with age can often serve to temper the impulses that drive youthful exuberance in investment.
Young people interested in investing in their own enterprises can face considerable challenges, particularly when weighed down by student debt. David Croson, a professor of entrepreneurship at the Cox School of Business at Southern Methodist University, said the young entrepreneurs he and his wife work with have difficulty generating enough cash to get their ideas off the ground.
“We were discussing the problem of people who had been relieved of all of their money by educational institutions,” Croson said. “That doesn’t matter much for people going into traditional professions, but it does for an entrepreneur who has a negative $100,000 net worth.”
Younger investors with the means to become involved in the endeavors of their peers could see considerable, albeit risky, opportunities in startup companies. Having more time before retirement can help diffuse the blow of an unsuccessful endeavor when making risky investment decisions.
“While the investment plan matters a great deal, young people should not shy away from making decisions about their money. Whatever you choose, starting early is the best thing you can do to ensure long term financial stability,” advised global investor Seymour Zises.
Samantha Nash contributed to this article.