Usually, people are told to begin saving money in a retirement account, like a 401(k), when they’re in their 20s and starting their careers. However, ultimately, many investors end up wishing they had started when they were younger. From the magic of compounding to building financial literacy and patience in times of volatility, investing early can open the door to substantial benefits and greater wealth over time. To help younger investors get started, U.S. News & World Report turned to Burke Koonce, investment strategist at Trust Company of the South, for insight.
According to Koonce, while many teens and young adults may be eager to jump straight into cryptocurrencies, they should first build a foundation within the stock market. By beginning the diversification process with index funds, mutual funds and ETFs, young investors can expand their understanding of the market while also building their risk tolerance to tackle other types of investments, such as cryptocurrencies, in the future.
“Every investor is different and will have his or her own personal risk tolerance, but it’s certainly the case that young investors have time on their side and can generally tolerate the normal ups and downs of the equity markets more easily than investors who are closer to retirement,” says Koonce. He is also a proponent of teens educating themselves about investing to further build and enhance their skills. “There is an ocean of information available and scores of online tools and apps, but in the end, reading at least one of a few well-known investment texts and speaking with a financial advisor is a good idea,” Koonce adds.
Regardless of how strong a foundation is built, younger investors will likely make mistakes. Fortunately, when errors do occur, Koonce tells the publication that a basic understanding of financial markets “is good medicine both before and after the fact.”
While it may seem that teens are the underdogs of the investing world, they do have at least one advantage over some older investors: Many of today’s financial apps are aimed at helping young investors get started in the market in a fun and engaging way. “There has never been an easier time in history for investors, young or old, to access the financial markets,” Koonce explains.