10 key investment tips you should know before turning 18

As young people are growing up they have set many goals for themselves to achieve when they finish school, but how to realize these goals has always been a problem for many because majority of people have issues with investment. Here are 10 key investment tips that can help you to be financially independent and achieve your dream.

1. Understand the type of investment account you need to open

Investment tips: Most important thing to do when you want to open an investment account is to make the necessary inquiries from a financial advisor on the type of investment account that will be appropriate for you.

For brand-new investors, the process might be overwhelming. Here’s how Julie Rains, long-term investor, journalist, and publisher of “Investing to Thrive,” recommends getting started:

“If you are unsure of how to open an account, fund an account, or even select a mutual fund or exchange-traded fund — call the customer service agent at a brokerage firm. Representatives will answer questions and [walk] you through the process. Generally, they won’t give specific investment advice, but can point you to tools that guide your investing decisions.”

2. Start investing early

The perception of most young people is that they have a lot of days ahead of them to invest they end up not investing at all. For you to reap the benefit of investment, you will need to build a financial discipline attitude that can help you invest from your early age.

Unfortunately, waiting can make a world of difference. Financial advisor Mitchell Bloom of Bloom Financial, LLC offers this example to illustrate what you’ll miss out on if you wait:

Let’s say you invest $300 per month starting at age 20 and don’t stop until you’re 60-years-old. If you managed an 8 percent return during that time, you would have more than $1 million dollars in that account alone. Now let’s say you waited until you were 30 to get started. By the time you reached 60-years-old, you would only have $440,445 in your account. Those first ten years you missed out on would cost you more than $550,000 in returns – even though you only skipped $36,000 and ten years of deposits!

This is the magic of compound interest, a phenomenon Albert Einstein once lauded as the eighth wonder of the world. Compound interest is the type of interest you accrue when the interest you earn on your savings or investments begins to compound on itself.

“ Compound interest is the most powerful force in the universe,” says financial planner Jude Wilson of Wilson Group Financial. But, it's important to note that its power comes with time - time you'll squander if you don't start investing when you're young.

If you want to be financially free in the future, then you have to harness this power and put it to work. If you don’t, you’ll miss out on gains you can never get back.

3. Investment tips: Define your investment goal, define your risk

“Too many people invest without clearly defining what they are investing for,” says Anne Cabot-Alletzhauser, Head of the Alexander Forbes Research Institute.

“You need to ask yourself: what is the intended purpose of the proceeds of this investment? The reason this is so important is because it enables you to quantify how much risk you need to take in order to achieve that goal.

If you’re investing for your children’s education and you have a relatively short investment horizon of say five years you can’t expect to achieve high growth in a short space of time by investing in low-risk assets like the money market.

"At the same time, if you are investing for your retirement, and you’re taking a 20-, 30- or even a 40-year view, you can afford to take a bit more risk. However, if you’ve already accumulated most of your retirement savings and you want to protect your capital for retirement in say five years, then you’d want to choose a low-risk option.”

4. Investment tips: Consider investing as part of a broader financial plan.

While investing early and often can help anyone in their 20’s begin building wealth, that doesn’t mean investing is the answer to every problem. As Seattle Financial Advisor Josh Brein notes, the best thing any young person can do is consider all aspects of their financial health.

Do you have student loans you need to pay off? Credit cards that just keep growing? A spending habit you just can't contain?

If you're spread too thin financially, and especially if you have a habit of overspending, investing may not be the best choice, notes Brein. “You can't invest your way out of debt or bad spending habits.”

This is why Brein says his best advice for young new clients is to spend less time worrying about the next hot stock and more time worrying about fundamental spending habits, debt, savings, and budgeting. The bottom line: A fully-funded retirement account won't set you up for life if you're drowning in debt and don't have your spending under control.

5. Investment tips: Realize that money is a tool.

If you’re in your 20’s and ready to build wealth, it all starts with recognizing the money you earn is nothing more than a tool, says financial advisor Eric C. Jansen of AspenCross Wealth Management.

Instead of thinking of the money you earn as the solution to your problems, think of it as a tool you can use to create the life and lifestyle you want via smart choices regarding spending, savings and investing.

“Learning to become a diligent saver and investor early on is the key to being able to live the life you desire,” says Jansen. “While you’re trading your time for money today, in the future you will be able to use your money to give you the time to do more of the things that really matter in life.”

With the money you earn as your tool and guide, Jansen suggests dividing your goals into short-term and long-term buckets and choosing investments that will help you reach them. For short-term investment goals like saving for a house, consider conservative investments such as Bank CD’s, Savings or Money Market Funds.

For long-term goals like retirement and/or financial independence, you will want to invest more aggressively as you have time on your side to withstand the ups and downs of the stock market, he says.

6. Ignore all the Joneses in your life.

“Don’t try to keep up with Joneses… or the Kardashians,” says financial advisor Jamie Pomeroy of FinancialGusto.com. "Instagram, Facebook, Twitter & Pinterest are full of pictures and stories of your friends and stranger’s unblemished lives.”

Unfortunately, fear of missing out has a way of driving young people to try to keep up. This can lead to spending money you don’t have, racking up debt, and of course putting off “boring” responsibilities like saving and investing for the future.

Your globetrotting friends might look like they have it all, but chances are good their luxurious lifestyles don’t include ample savings for retirement. Their trips to Thailand? They were probably financed with a credit card.
“Tune out the distractions and tune into solid advice to drive you to find money to start investing in your future,” says Pomeroy.

For example, some solid financial advice to consider in your 20's is to simply start a Roth IRA.
"By starting early on some of that investing advice, you just might find yourself able to go to Thailand someday and paying for it with cash.”

7. Ramp up your savings as you age.

Your 20’s are a time when there are almost too many goals to save for. You may want to buy a home, purchase a new car, or travel the world – all at a time when you should also save for the future.

That’s why financial advisor Alex Whitehouse of Whitehouse Wealth Management says your best bet is to start investing gradually then ramp it up as you age. This will allow you to save for retirement while also letting you save for other goals.

“Start with just 1 percent of your income, then increase the percentage gradually by 1 percent,” says Whitehouse.
By the time you reach your 30’s you’ll be saving 10 percent of your income. By your 40’s, you’ll be saving 20 percent of your income. And if you get a raise every year, you may not even notice the difference.

8. Diversify, diversify, diversify

“It’s the old adage of not putting all of your eggs in one basket,” says Glenn Silverman, Chief Investment Officer at Investment Solutions. “That’s particularly relevant at a time when the global economy as well as financial markets are facing a lot of uncertainty. That’s when a well-diversified portfolio that helps spread your risk – as well as the potential to deliver returns – across a wide range of asset classes certainly makes sense.”

9. Reduce your costs

“Reducing costs is a crucial part of any investment strategy but is often sadly overlooked. You can’t control whether or not your investment outperforms the market but you can control how much you’re prepared to pay to achieve that potential outperformance,” says Cabot-Alletzhauser.

“If you consider that your investment horizon can be as long as 20 to 40 years, then the compounding effects of fees and other costs can significantly erode your returns over time.”

10. Keep some cash on hand

“When markets are performing well the mantra is often 'cash is trash’ as there are usually better returns to be had elsewhere,” says Silverman. “However, when things go south there is nothing as beautiful as cash. It’s a much-maligned asset class but it provides wonderful optionality in that it allows you to take advantage of a falling market by purchasing under-priced assets. If you’re fully invested and have no cash available then you can’t take advantage of falling asset prices.”

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