Accessibility of Investing and Exchange Traded Funds
You can start investing at almost any age, any sum of money, any leftover money from last Christmas, and you can find an opportunity to grow your money now and the many years to come. Historically, having a diversified investment strategy(having many stocks across different sectors, different market caps, and different assets) in the stock market has delivered some of the strongest long-term returns of any commonly accessible investment options. Getting started with investing does not require a large sum of money, allowing individuals to grow their wealth over time no matter how much you start with. You can invest your profits consistently into ETFs which would allow for passive, historically strong returns through their large set of stocks. An ETF holds a diversified basket of stocks, meaning your money is spread out over tens or hundreds of companies at once. This diversification significantly reduces risk while also allowing investors to participate in the growth of the market. An example of an ETF is the S&P 500 which spreads your money over the 500 biggest U.S. companies with an annual return of about 10% in the past. Contributing consistently to an ETF like the S&P 500 allows you to participate in the long-term growth of the market through a diversified fashion.
Research, Learn, and Invest on Your Own
You could also invest in stocks of your choosing though it requires greater research, risk management, and a willingness to accept the risks that come from picking specific stocks. Careful research into stocks and diversification as mentioned earlier can help investors manage risks and pursue long-term returns.
Dividend Stocks
A third option for consideration is dividend stocks. Dividend companies distribute a portion of their profit directly to shareholders typically on a quarterly basis, this gives you money on a consistent schedule straight into your brokerage account as cash, creating a passive income stream that compounds further if reinvested.
Consistency is key
Across all of these investing strategies, one of the most important tools for building wealth is compound interest. When you invest consistently, your money grows exponentially over time as your returns generate their own returns. For example, investing only $200 per month into an S&P 500 ETF at the historical average return of 10% annually would grow to over $150,000 in 20 years(assuming a 10% average annual return and ignoring taxes and fees). That same $200 invested monthly over the same period in a standard savings account would give you about $48,000, a significant drop off. The difference shows the power of investing early and staying consistent, investing for over 20 years as shown in the example historically gains you significant returns and shows the benefits of compound interest.
Now is the time to invest and learn
Financial literacy is not taught in most classrooms, but that does not mean these skills cannot be self-taught. For younger generations that are facing a complex financial environment, learning how to manage money effectively is more important than ever. Investing is one of the best ways to prepare yourself for your upcoming life as I suggest investing once payments are met in other aspects of life. Investing can happen with any surplus of money and can grow exceedingly fast if you act now. There is much room for profitability and I hope that on this new financial frontier you all will pounce on the opportunity.