You shouldn’t be investing in Stocks in your 20's
If you’re reading this and you’re a young adult in your 20’s, you really shouldn’t be investing in individual stocks, you should be out there learning and developing your skills and adding on experience. That, however, doesn’t mean that you shouldn’t be thinking of financial freedom and security. Instead of individual stocks, invest in mutual funds instead.
If you don’t know already then mutual funds are formed when a group of investors pool together and invest capital into different securities such as stocks, bonds, or other money market accounts. Funds have different investment objectives, some want to yield more rewards and are therefore riskier than other funds- each fund has a different risk management style which is why it’s important to research the different funds available and find one that best suits you.
Now as a young adult looking to get into the stock market, you’ll more often than not lack the experience and knowledge necessary to consistently beat the market. Note that I say consistently as you might be able to beat the market on some trades but in the long run, that’ll be tough to do without the experience. People spend their whole lives trading and studying technical analysis and the absolute best of the best only report about 30% gains annually.
Now, you wouldn’t have the time nor the ability to inhale and apply all that information. As a result, your best bet is to invest your savings into a mutual fund.
First of all, Mutual funds offer diversified holdings. The whole point of a mutual fund is to diversify your investments. In mutual funds, you now own a small amount of money across a diverse pool of investments. With one share in a mutual fund, you’re basically owning up to 20 to 30 securities. This also means that the inherent risk you take is substantially less than if you were to invest in one company in one industry. Mutual funds aren’t only interested in one sector, their funds span across different industries like financials, health, and tech. By putting your eggs in different baskets, you protect yourself against the risk of any of one of them dropping. As you spread your assets into different securities, the remaining risk is what experts agree to be called “market-wide” risk. This basically means that the remaining risk that you have, after diversifying, is the risk inherent to investing which means that the only way for you to lose a large amount of your money is when the whole economy crashed.
Secondly, Mutual Funds are convenient. Again, a big bonus to investing in mutual funds is that you have other people, more professional people, doing the research for you. This is the stock market equivalent of shoving money into someone else's hands and then telling them to make more for you. It’s kind of like having an investing butler. You have a team of people, who probably have like a hundred years of experience between them, who you won't be able to access otherwise. They’ve devoted their whole lives to studying the stock market and their services can be made available simply by investing in their fund.
Instead of going through the whole research and decision-making process yourselves, you can instead look into the different researching techniques and investment criteria set by these mutual funds. Each fund has different risk management policies. For example, one fund could be more willing to take on more risk in return for larger returns and one fund would be willing to settle for lower returns in favor of less risk. If you were a young adult, I’d suggest you be willing to invest in the funds with larger returns. Even if you might lose some money, you’d still have time to earn it back and you probably won’t start off with a huge initial capital anyway.
Lastly, and this may not seem obvious at first but Mutual Funds are also more time-efficient. We’ve said this multiple times over the course of the video but a major selling point of investing in mutual funds is that you leave someone else to evaluate financial statements. Someone else would be watching the economy, reading the news, and crunching the numbers.
As a young adult, this could be a major selling point. You now have all this free time to spend doing whatever you want, you could be going out with your friends, studying, or even earning extra capital for more investments! All the while your money continues working for you.
Conclusion
As we can see, mutual funds are clearly a great option when it comes to stock market investing. If you have some savings in the bank that you’re not planning to spend any time soon, why not make it grow in a mutual fund?
