Ask any 20-something what investments they have and the answer is likely to be a stony silence – wages are low, the cost of living is high and many young people are being scared off the idea of investment by the mainstream media. The chances are that they don’t think they can afford to invest and that it’s something for rich people, but the truth is much more complex.
The nature of long-term investments means that they will offer the greatest reward when held for the longest possible amount of time, so small investments made as a young person can pay big dividends later in life.
Much of the fear also stems from the prospect of risk – the idea of losing money is all the more frightening if you don’t have much of it in the first place, but volatile markets are actually a good thing for someone in their 20s, with a long investment time frame.
If there’s no hurry to cash in on investments, you can buy stocks for relatively little, and watch them make money for years, even decades. Although the stock market will naturally crash periodically, if you’re in it for the long haul, it matters far less – returns will be greater in the long run thanks to dividend reinvestment and compounding returns.
For many young people earning less money than their parents might have done, saving to buy a home or just struggling to keep their head above water, adding another outgoing might seem foolish, but investing doesn’t need to be expensive. Even investing small sums regularly can provide excellent returns in the long run.
Framing it as a future payout, even an investment of £100 each month earning 8% per annum could become a tidy lump sum of £18,000 in ten years, earning £6,000, significantly more than you would make on a high-street bank account.
Of course, capital is always at risk when making investments, but if you’re a young person who wants to make your money work hard for you, it might be a risk that’s worth taking.