Anyone can invest if they can afford it.
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- The younger you are, the better to start investing. This is because even a small investment can become a big force later due to the effect of compound interest.
- However, people tend to avoid talking regarding money and investments. For young people with little social experience, this tendency is even stronger.
- So, here are 20 easy-to-read bullet points regarding investing that every 20-year-old should know.
You’re never too young to start investing.
However, some people find it difficult to invest. It may be so. In fact, financial experts use arcane language. But not everyone needs to pursue it.
As for investors, most people are just doing it to increase their retirement savings, earn a little extra income from a side hustle, or simply beat inflation (more on that later).
Here are 20 things every 20-year-old should know regarding investing. Is it okay if I don’t know everything written here? Of course not, but it’s certainly a powerful first step.
About the concept
1.A savings account is not an investment, but a defined contribution pension is an investment
Putting it in a savings account earns interest, but usually less than 1%, leaving the money in the bank account. If you’re looking for a better place to store your cash, online banks also offer accounts with so-called “high interest rates.” However, keep in mind that interest rates change over time.
On the other hand, ifiDeCo (Individual Defined Contribution Pension)If you are a member of a defined contribution pension plan such as a corporate DC (corporate defined contribution pension plan), your contributions will be invested. However, in the case of a defined contribution pension, you cannot withdraw until you are 60 years old, so young people especially need to be careful when using it. In this respect, it is easier to useNISA (small investment tax exemption system)There is also an investment method.
2.Investment is the only way to keep up with rising prices
In 2022, the value of money has decreased due to price increases.In America, on average7.7% lower. In other words, money must grow faster than the rate of inflation. For most people, investing is the only way to get those high yields.
3.Investing is risky
An investment can increase or decrease your money.In Japan, bank deposits are up to 10 million yenDeposit Insurance Corporationprotected by, but not investments. This means that you may never get your money back.
About investment terminology
Four. “Securities” means financial instruments
You may have heard the term “securities” before. It’s a catch-all term for stocks, bonds, certificates of deposit (CDs), and more. Securities can be divided into debt securities (borrowed from investors like government bonds) and equity securities (value actually owned by the investor like stocks).
Five. “Shares” are equity in a company
Buying a stock is buying a small part of a real company. Not in large quantities, of course, but still owned. Because stocks are more volatile than bonds, they can lead to higher gains and losses than bonds.
6. The “stock market” is linked to the performance of stocks
Stocks are traded on “exchanges” and make up the entire market.The major stock markets in the United States are the New York Stock Exchange (NYSE) andNASDAQis.Also, the stock price isS&P 500 Stock IndexIt tracks indexes such as the Dow Jones Industrial Average and the Dow Jones Industrial Average.
Even if you don’t check the status of your individual investments, you can know the performance of your portfolio by monitoring stock market trends.
7. “Bonds” are loans
When you buy bonds, you are lending a tiny amount of money to an entity like the U.S. government, for example. Businesses that have borrowed money must repay it with interest following a certain period of time. Unlike stocks, bonds are traded over the counter, so there is no place like a bond exchange.
8. “Diversification” means allocating funds widely among different types of investment products.
Opinions differ on how much to diversify an investment portfolio. But we all know how dangerous it is to put all your eggs in one basket.
About the process
9.usually charged
Investing is not free.financial advisorIf you hire an investment professional like , you have to pay a fixed percentage of your portfolio or a flat fee.
In addition, online investment platforms andRobo AdvisorHowever, each has its own fee structure.investment trusts andETF (Exchange Investment Trust)also requires a fee. These fees are different for each company, so if you check it out, you can reduce the fees.
10. You don’t have to pick stocks one by one
investment trustThen, an investment professional selects securities in bulk. These mutual funds allow you to diversify your wealth without choosing individual stocks and bonds yourself.index fundis a mutual fund that is curated to reflect a specific stock index, such as the S&P 500.
11. There are taxes, but there are also preferential treatment
The U.S. government will not let you get the profit from your investment for free. A tax called capital gains tax is levied when the money is converted into cash.Japan also20.315% for capital gains (income tax and reconstruction special income tax 15.315%, resident tax 5%)is imposed.
However, if you use a system such as a defined contribution pension plan or NISA, tax on investment profits will be exempt. In addition, the defined contribution pension plan is even more profitable because it is tax deductible. However, pension assets cannot be received until the age of 60, so planning is required.
12. Sometimes we fail
Unfortunately, it is also true that not everyone can become a star investor. Some are very successful, while others end disappointingly. And sometimes you may be that “unfortunate person”.
About strategy
13.Starting early is a great weapon
Even in your 20s or 30s, your greatest weapon is time. Even if you’re just starting to save for retirement,compound interest effectthere is nothing comparable to And if you lose money in the market, you have plenty of time to make up for it before you need the money.
14. You don’t need hot stocks
There’s always a hot stock, but there’s no guarantee it’s a quick way to get rich. It’s better to research the company and make your own decision to buy instead of blindly riding on trendy stocks.
15. Long-term strategy is irrelevant to this morning’s news
Most investors should not buy or sell stocks related to news on television. Active investing, buying and selling stocks strategically, is not for most people. Instead, it is better to buy investment trusts and leave them alone.
16.It is dangerous to stick too much to individual stocks
If you stick with a particular stock for emotional reasons or past performance, you won’t be able to sell it even if your advisors and investment professionals tell you to. If you’re going to get your hands on individual stocks, you need to be prepared to let go of unimpressive stocks depending on their current performance.
17.no need to check all the time
If you look at the market news, you can see that the market goes up and down every day. The same is true for individual stocks. However, if your goal is long-term investment and you are not an investment professional, there is no need to constantly check stock prices on your computer.
18.don’t invest the money you need soon
If you need cash in the near future, don’t invest in the stock market. Some money professionals say that if you need the money five years from now, you shouldn’t invest it. If the market goes down, there won’t be enough time to recover the money.
keep calm
19.No one can predict the market with certainty
It’s impossible to predict anyway. Investment professionals can make educated guesses, but market predictions are predictions of the future, and no one can.
Likewise, past market behavior is no guarantee of what will happen in the future. Again, it is impossible to predict the future. It means an unpredictable event.black swan”, the future may go in an unexpected direction.
20.no need to try to do it yourself
It’s a big mistake to think you’re an expert just because you’re generally smart and competent. There is always a lot to learn regarding the stock market.
In other words, you don’t have to be an investment expert. There are financial planners, wealth advisors and automated online investment platforms (robo-advisors). Any of these will lead you into the world of investing.
