Everyone knows how it feels to miss the boat on a good investment.
Take Big Tech as an example. If you would have thrown some money into Microsoft, Apple or Google when they were just fledgling companies on the market, instead of missing the boat you’d be sitting on a boatload of money.
A more relatable example for Gen Z and millennials may be Pokémon cards. A 1999 first-edition card of the popular Pokémon Charizard recently sold for $420,000. Another, rarer card — a Japanese Pikachu Illustrator — sold for just shy of an incredible $5.28 million in July. Anyone who deftly handled their childhood cards or put them up in a garage sale feels the sting on that one.
While that kind of hindsight is disappointing, it’s not surprising — accurately predicting what’s going to make it big is a little like winning the lottery. However, if you’re 20, 30, 40 years down the road with no investments, you may be more than disappointed.
Skills and Networking
One of the most effective ways to set yourself up for financial success is by increasing your earning power. If you put the effort in now to learn a lucrative skill or build a powerhouse network, you’ll be paid back tenfold in the jobs and salaries you can net later on.
Roger James Hamilton, founder and CEO of Genius Group, breaks it down very simply. He said there are three types of capital: financial capital, intellectual capital and social capital. While financial capital is a very measurable form of success, intellectual capital (what you know) and social capital (who you know) are the better investments.
“Unfortunately for Gen Z, their financial investments are limited, which often discourages them from investing at all. But your personal net worth isn’t made up of financial assets alone,” Hamilton said.
“It’s far easier and far faster to build your knowledge and connections and turn that into money than turning your money (or your time alone) into more money. While some people are lucky enough to be born smarter or born into a family with better connections, every member of Gen Z can go out today and improve what they know and who they know by simply investing their time.”
Retirement isn’t the most exciting investment for someone in their teens or 20s. After all, they likely won’t benefit from it for 40 years. But the secret to having money in retirement is by socking it away early.
“Open any retirement plan,” said Levon L. Galstyan, certified public accountant (CPA) at Oak View Law Group. Those without access to a 401(k) can choose a traditional IRA or Roth IRA. If your employer offers a 401(k), you should make investing in one a priority — especially if they match contributions.
“If you make $10,000 annual contributions to a retirement plan at age 25 and earn 7% annually, you’ll have $2,008,829 saved for retirement by age 65,” Galstyan said. “The results, however, are less gratifying if you wait. If you start at age 35 and save $15,000 annually, your retirement funds will only total $1,426,427 when you turn 65.
“Even though your annual contributions will increase by 50%, [you’ll have] more than 25% less [money]. That is a strong argument in favor of starting early retirement savings.”
“One investment Gen Zers should seriously consider is a cash value life insurance policy,” said Jasper Smith, founder of The #BuildWealth Movement™. “Life insurance gets expensive as you get older. Also, most people don’t get healthier as they age so taking advantage of their current health status is a plus.”
The obvious benefit of life insurance is to leave your family financially secure in the event you die. Well, if you’re young and without a spouse or kids, this may seem like a silly investment to make. But there are benefits to life insurance while you’re still living, too.
With cash value life insurance, you can:
- Take out a loan from the value of your policy. This can help you buy a house or a car, and any loan money will be low-interest and tax-free.
- Withdraw money. You can take money out of your life insurance before you die, but you’ll be hit with early withdrawal fees. You can even surrender the policy for the total value, but at that point you’ll pay the fees and income tax.
- Sell your life insurance policy. Life settlement brokers will pay you cash for your policy, but the caveat is it’s typically much less than your policy is worth — and you still have to pay fees and taxes on it.
In addition, if you have the right type of policy your life insurance can cover costs related to chronic or terminal illness, as well as long-term care.
Young people should invest in the stock market — specifically in index funds, said Erica Tan, CEO and founder of Best in Singapore.
“An index fund holds shares of all the stocks in the index, hundreds in the case of the S&P 500. By holding so many stocks across a wide variety of industries, the fund is highly diversified and typically offers less volatile returns than owning individual stocks,” Tan said.
“Another advantage of an index fund is that you don’t have to know a lot to get started. Buying an S&P 500 index fund is like buying the market, and you’ll get the market return. It’s a great way to learn how investing works, and it’s the strategy recommended for most investors by legendary investor and billionaire Warren Buffett.”
The average annual market return is about 10%, meaning if you put $100 into an index fund now, by this time next year you could have $110. This varies depending on the year, but in the long run, it should average out.
The true power of this 10% return, however, is in compound interest. Not only will you earn interest on the $100 you invested — and any additional amounts you invest — but you’ll earn interest on the $10 of interest, and every dollar after. Earning interest on your interest is what makes investing while young so lucrative.
“Youth is actually an ideal time to pursue high-risk investment strategies, because you’ll have plenty of time to make up for your losses,” said Carter Seuthe, CEO of Credit Summit.
Every investor needs to evaluate how much risk they can mix into their investment portfolio. When you’re young and decades away from retirement, it makes sense to go for more growth-oriented or volatile investments. The likelihood of striking out is higher, but it’s not the end of the world if you do.
“I’m not suggesting that you go and put your entire 401(k) into crypto or hot tech stocks, but you can definitely have a higher percentage of your investments in these kinds of assets,” Seuthe said. “When and if you do make it big on one of these, that’s the time to shift to a more conservative strategy and settle in for the long haul with index mutual funds.”
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