Starting college and going into the real world can be very scary for many, especially when it comes to your money and your finances. Many of the kids graduating from high school saw up and close what the 2008 financial crisis did to many families throughout this nation. Now in our current days, the economic effects and financial issues of COVID-19 are causing anxiety and uncertainty to students preparing for college. Because of this, they feel like investing is a huge risk. However, investing for the long run is the best thing one can do for themselves. It allows them to build their wealth for retirement so they don't have to work for the rest of their lives. With pensions and other payment programs disappearing, it is very important to learn investing and do it actively. In this article, I am going to be breaking down five ways to get started.
1. Read, Read, Read!
When you read about investing, you are speeding up the learning process. This gives you the opportunity to learn from very successful investors like Warren Buffett and Ray Dalio. You will be learning how to analyze stocks, bonds, options, and mutual funds. You will learn how to analyze risk and find the investment that suits you best. This step is very important because it is the precursor to actually being in the markets. As the say goes, "you have to know the rules before you get in the game".
2. Pay off all debt
Before investing a penny into any market, make sure that you have all of your debt except your house paid off. If not, you are being irresponsible financially. You are putting money at risk when it could be used to pay down your debts. It is even more important to do this with high-interest debts as well as big debts. The interest in these babies can accrue like crazy if you aren't careful. Simply put, stop investing until the debt is paid off.
3. Start investing
Now that you have all of your debt paid off and have some general knowledge on how the market works, it is time to start investing. Before you take any position in any investment, make sure that you fully understand what you are investing in. I'm not going to get into the market of re-selling cars if I know nothing or little about cars and the car market in general. The same goes with any market. I know this is easy to understand, but many people fail to follow this rule. This is mainly why you see so many failures in the stocks market. If you get into an investment, have a plan behind it. Know if you are going to buy and hold, short sell, scalp, or swing trade.
Unless you are getting into a fund that is already pretty heavily diversified, it is going to be very important to diversify your individual stock, like taking part in a foreign direct investment. As the great investor Warren Buffett would say, "Never put all your eggs in one basket". When he says this, he is referring to diversification. Not diversifying is one of the many reasons why so many people got hit so hard back in 2008. In the end, diversify or just invest in an S&P 500 fund or another mutual fund that has a proven track record.
5. Start as soon as possible
Albert Einstein called compounding interest "the greatest invention". Compounding interest has been viewed as the eighth wonder of the world and for one main reason: it compounds you money. The sooner you start investing in the markets, the longer time you give your money the chance to grow and accumulate over time. For example, earning 8% on your money with only $1,000 invested isn't much at all. However, 8% annual return with $100,000 invested in a good chunk of change. In the end, start finding cash laying around that you would like to invest. Diversify your portfolio for protection and focus on growing your portfolio over time. It is as simple as that.