Tips for young — 30-years-old-and-under — investors (Part 1 of 2)
December 22, 2006
(First of a two-part series)
Face it, as an individual under 30, you're not the average investor, and modeling your portfolio after that of your parents isn't always a good idea. In fact, doing so can cause you to miss out on some valuable learning opportunities and, in the long run, even cost you money. If you want to make the most of your money, every decision you make about your portfolio is as important as the last. In this article we look at the unique set of challenges involved in portfolio management for young investors and provide some advice to help you succeed.
Obviously, picking the right stocks is one of the most important aspects of investing intelligently. However, as a young investor, you have a lot less to worry about – namely retirement and wealth maintenance. Because preserving your nest egg needn't be your first priority (you have plenty of years ahead of you for that) you can take on a greater amount of risk than your parents.
High risk certainly has some negative connotations, especially when you're talking about your money. Nevertheless, there are a lot of advantages to dealing with riskier stocks. And while higher risk investments do come with a greater chance of loss, they also comes with a greater chance of gain. In other words, these stocks are subject to volatility. This is in contrast to more stable investments such as those made in blue chip companies that generally have lower growth potential but also benefit from lower risk.
There is a wide range of riskier investments in the stock market, including small companies with high growth potential or companies in the midst of a turnaround. Taking a chance on one of these companies can greatly improve the returns you can earn in the market. Don't forget, though, that high risk stocks live up to their name, so you do stand the chance of losing the money that you invested. If you do, it's all right – virtually every investor suffers losses from time to time – chalk it up to experience and try again.
While higher risk investments have the potential for higher returns, there's a difference between a high-risk stock and a bad pick. Hopefully, you won't learn this the hard way. An important thing to remember in this case is that a high-risk investment doesn't necessarily refer to a penny stock. Investing in penny stocks as an inexperienced investor isn't just very risky, it's very ill advised. It's best to leave that to people who know what they're doing.
- From "Portfolio Management for the Under-30 crowd" by Jonas Elmerraji published on http://www.investopedia.com/. Jonas Elmerraji is the founder and publisher of growFolio, an online business magazine for the under-35 crowd, which provides business sense with just a dash of pop culture for future tycoons. Jonas is currently a financial economics major at the University of Maryland, Baltimore County.