As a young professional, investing can be a daunting task. You might not have a lot of money to spare, or you might be unsure where to start. However, with the right investment strategies, you can set yourself up for long-term financial success. The following are some potential investment strategies young professionals may want to think about.
Start early
One of the most important investment strategies for young professionals is to start early. The earlier you start investing, the more time your money has to grow. Even if you only have a small amount of money to invest, getting started early can make a big difference. Even small amounts of capital invested early can appreciate significantly over a longer period of time.
Invest in a diversified portfolio
Another key investment strategy for young professionals is to invest in a diversified portfolio. This means spreading your money across different types of investments, such as stocks, bonds, and mutual funds. Diversification can help reduce risk, as it ensures that your money is not all tied up in one type of investment.
Take advantage of tax-advantaged accounts
Tax-advantaged accounts, such as IRAs and 401(k)s, offer valuable tax benefits that can help you save money over the long term. By investing in these types of accounts, you can reduce your taxable income and grow your money tax-free. Many financial experts say that contributing to a tax-advantaged account is one of the first investments young professionals should make. However, each investor is different and investment strategies should be customized for each individual young person.
Invest in low-cost index funds
When it comes to investing in stocks, it can be tempting to try to pick individual stocks or actively manage your investments. However, research has shown that over the long term, most actively managed funds do not outperform low-cost index funds. Trying to pick individual stocks can be risky since just a single anomalous incident or situation can cause a stock price to go down quickly. Index funds spread the risk among a large number of assets, providing you with instant diversification.
Stay the course
One of the most important investment strategies for young professionals is to stay the course. Investing is a long-term game, and it is important to stay committed to your investment plan even when the market experiences volatility. Overreacting to a downturn in the market can mean that you will miss out when the market goes back up. Not every piece of negative daily market news is worthy of reacting by making changes to your investment portfolio.
Talk to a financial advisor
Most young professionals, unless they happen to work in the finance industry, do not have deep knowledge of how markets work. Although it is quite possible to put in the hard work to learn how to invest, many people do not have the time or energy to do so. If this is the case, you may want to consider speaking to one of our professional wealth managers at Waller and Wax who can help you create an investment plan and advise you on the best investment decisions for your situation.