The Investments That Make Sense for Young People
by Lina Martinez
Young people have a variety of investment options to take advantage but which are the right ones? It can be difficult to predict how the market will change, particularly if you’re considering making a long-term investment and, if you don’t have any investment experience, it can be hard to know whether a risk is worth taking.
It’s important to remember that investments can decrease in value, as well as increase. Some investments are higher risk than others, which could allow you to make a better return but it could also make it more likely that you’ll lose money.
Furthermore, some investments don’t just put the capital you’ve invested at risk. If you choose an investment which is secured against your home or property, you could face losing these if your investment fails.
Whilst these are important things to consider, there are a number of investments which could be a good idea for young people. By starting early and familiarizing yourself with how investments work, you can increase your chance of making successful investments in the future. For inspiration, take a look at the type of investments which may be attractive to young people…
Online accounts
If you open an online checking or saving account, you can often get better rates than if you open a traditional account. Furthermore, there are online accounts which don’t charge any fees and which don’t penalize you for taking money out. Choose an account which is covered by the Federal Deposit Insurance Corporation and you can save up to $250,000 without any risk at all.
Certificates of Deposit
CDs can be a great way to save money in the short to mid-term, but you’ll need to be sure you can manage without the funds while they’re tried up. Typically, certificates of deposit require you to save a certain amount for a specific length of time. You may need to deposit capital of at least $5,000 or make monthly contributions of at least $1,000, for example.
In addition to this, your CDs will last for a set amount of time and this can range from a period of 90 days up to five years. During this time, you won’t be able to access your funds or you could face financial penalties for removing money from the account.
In return, however, you’ll get an FDIC-insured investment option and higher rates than standard savings account. If you’re sure you won’t need to access the funds for a set amount of time, CDs can be a great way to earn a decent amount of interest and a handy way to save your money for an upcoming life event, such as a wedding or a house deposit.
Refinance or pay off your debts
If you’re currently in debt, you could be paying a significant amount of interest each month. Most student loans charge 4-6% interest, for example, whilst federal student loans can charge between 6-7% interest. By paying these off or refinancing them and getting a better deal, you could minimize the amount of interest your paying and save money on student loans.
Peer-to-peer lending
Peer-to-peer lending gives you the chance to be a lender for once, but it can be a relatively high risk method of investment. Via lending platforms, you’ll be able to lend cash to borrowers over specific time frames. Depending on the terms, you can lend for any length of time, although typical peer-to-peer loans are for around 1-3 years. Similarly, the terms can include monthly repayments, so you’ll get a bit of your capital back each month, as well as some interest.
However, peer-to-peer lending isn’t generally insured and there’s no guarantee that you’ll get your full investment back. If the borrower doesn’t repay the loan, for example, you’ll need to look at how you can go about enforcing the debt and whether it will be viable to do so.
Money market accounts
Many people use money market accounts in the same way as savings accounts, but you can usually get a better rate of interest from money market accounts. Whilst this can boost your savings, it does come with increased risk. Money market accounts aren’t generally insured by the FDIC, so your funds won’t be covered if something goes wrong or the account provider collapses. Furthermore, money market accounts may have minimum monthly income requirements, so you’ll have to commit to paying in a minimal amount each month in order to access the best interest rates.
Short term bond funds
Short term bonds tend to mature within a one year period, so they can be less risky than longer term investments which may be affected by interest rate increases and market changes. Although your investment could lose value, short term bonds are usually seen as less risky than their longer-term counterparts.
When you invest in short term government bond funds, your repayment is backed by the government so is considered to be less risky than corporate and municipal bonds, which are back by companies and local cities.
Of course, investing in a bond fund isn’t the same as buying a bond and you will normally face more risk when you invest in a bond fund than when you purchase a bond. Furthermore, you’ll need a broker if you want to invest in short term bond funds so you’ll need to find a reputable brokerage with reasonable fees in order to make an this type of investment.
Property
If you look, you can find many properties for sale that would make great rentals as a way to make money. Alternatively, you could buy your own home and rent out a room to make some cash, killing two birds with one stone, and ensuring you have some spare cash to invest with.
Making investments at a young age
Investments can be a great way for young people to make the most of their money but it’s important to ensure you understand the investment options which are available to you, how they work and what level of risk they present.
If you’re unsure, take your time to research a product before committing to it and seek professional advice when you need to. With the right types of investment, you can make a significant return on your money but understand the markets is crucial to successful investing.