Understanding the concept of investing
Initially, making a habit of saving will provide you the basic platform from where you can start building a considerable fortune relatively early in your life. However, most young adults just don’t want to hang onto their money as it will not get accumulated over time.
Therefore figuring out places to invest in should be the starting point. The need to invest money will vary from individual to individual as some will want to buy a car etc, or simply want to have some money for paying college fees to ease the burden on their parents. Understanding how companies work and the prevailing market conditions will help you determine the most viable investment for yourself.
Stocks/Bonds and Mutual Funds
The most popular way of saving and earning money is to invest in stocks, bonds or mutual funds. However, it is important to understand how these three components work so you don’t end up losing what you have.
Stocks are offered by companies with the main intention to raise capital. Buying a stock will make you a part of the company. In most scenarios you need to be able to gauge how the market is performing and whether buying a stock of a particular company is profitable for you. You will need to open a brokerage account, backed by your parents, if you are ready to invest somewhere in the region of $500.
However, there are other sites such as GiveAShare and OneShare where you can invest relatively lesser amounts before starting to increase it overtime. Pepsi, Nike, McDonald have dividend investment plans in place to cater for young adults.
Buying saving bonds. This is generally the safest route for teenagers due to low default rate as they are backed by government. However, the time span or maturity period is relatively lengthier.
Mutual Funds will allow youngsters to invest their money in a group of stocks and bonds in order to minimize the risk. This will be usually done by a fund manager, who will invest the money on your behalf. Make sure you understand the term ‘diversification’ before pursuing mutual funds.
Opening a Roth IRA or individual retirement account. The biggest advantage is that the tax will be applied within a year rather than when a gain is realized.