Investing for young people
Young people have an innate ability to live for the moment as well as in the moment too. If there are things they want to buy, experiences they want to enjoy and places they want to go, it’s highly likely they will, especially if they have the money. Even if they haven’t got the funds, in the past, they might have chosen debt over going without. However, over the last three years or so, there has been an increase in the amount of young people investing.
Why more young people are looking to save
Likely fuelled by the desire to save for a house, investing can still be difficult for the young because they don’t feel they have as much surplus income as previous generations. And this may be true based on socioeconomic pressures to conform to current trends. While saving for a house today is no harder than it was for previous generations (house prices may be higher but wages are also much higher), life in the 60s, 70s and 80s was a lot simpler. Young people today have far more expense when it comes to staying in touch with the world: they need social media accounts, phones, laptops and numerous subscription services. That said, there has been a shift, and many young people are starting to realise the prime position they are in to enter the world of investment, despite and university debts. So, here is why young people should be investing, if they aren’t already.
1. Time
For years, investing has been something people do when they approach their mid-thirties or early forties when the thought of retirement begins to rear its head. But while starting late is better than never, the earlier you start, the better your results. A lot of this is based on compounding which is the ability to grow an investment by reinvesting the profits. Albert Einstein referred to this as the ‘8th Wonder of the World’ and with compounding, a single investment of £1,000 at the age of 25 would grow to £3,315.15 over 40 years based on a 3% interest rate*, without you having to do anything at all! If time is on your side, take full advantage.
*Source The calculator site 27/10/2021.
2. Tech savvy
Advancements in technology mean today, young people are only a click away from information that will help them study, learn and research everything they could possibly want to know about investing. Not only can young people access online tools that will help them invest money in profitable places, they are also more aware about what they are investing in. People today are more informed about what is happening in the world with climate change, equality and the need for sustainable resources to name the basic few. But because people are more discerning, there are more options for those who wish to invest in something they are passionate about.
In the ‘50s ‘60s and ‘70s people didn’t really care where they invested their money as long as they made a profit but today, investors have more choice and demand better results. Investing is a very personal thing and investing now gives you greater choice and opportunity to shape the future while still making a profit.
3. It helps them build better financial habits
Young people are becoming increasingly aware of how money actually works and more importantly, they are aware of the impact of debt. Having things now, and paying for them with debt, is a choice fewer young people are making despite the pressures of social media constantly advertising the latest trends. Debt steals savings of the future and by choosing to invest rather than lose money to pay off debts, people are starting to see the benefits of investing and build better financial habits as a result.
In fact, here is an example of what better financial habits could yield later in life if young people chose to forgo their twice-weekly Costa and Subway lunch which might equate to around £60 a month.
Firstly, we need to consider average stock market returns over 10, 20 and 50 years. Interestingly after 20 years, average returns even out to around 10.8%pa every extra 10 years. *
*Source The calculator site 27.10.21
So, average returns could look like:
Over 10 years = 13.9%
Over 20 years = 10.7%
Over 40 = 10.8%
Therefore, by investing that £60 a month:
After 10 years = £16,130
After 20 years = £51,562
After 40 years = £489,362
If you were able to save £90 per month or just £22.50 per week that would change to:
After 10 years = £23,444
After 20 years = £75,553
After 40 years = £734,043
4. You can bounce back
With time comes bouncebackability. Investment growth is dictated by economic cycles and so, the later you leave it the harder you make it for yourself to see good returns on your investments. Also, the earlier you start, then even if your investments suffer losses as a result of tech market crashes or global pandemics, they will recover and are likely to recover well.
5. You can take the risk
Because young people have time on their side and bouncebackability, they can take more risks. While investing is a great way to build and grow wealth for the long term, it can also be risky (due to aforementioned economic cycles and wider events that can affect the stock market). Once people get married, start a family and have a mortgage, they are less likely to be as risk averse as they could be in their youth. Using these early investment years to take a few risks could really pay off.
Myths around investing
One reason a lot of people don’t invest is they think it’s too hard, it costs too much or it is simply not achievable. There is still an air of mystery around people who have a lot of money. But money, or wealth, is all relative.
People think they can’t afford to save but this is a complete fallacy. Most people can afford to save if they try. They can save on their insurances or spend a little less on things they don’t truly need and then invest that money for growth.
What’s more, those savings can be small and consistent. People believe you have to invest lump sums of thousands, but this isn’t the case.
If you’re in your twenties, don’t get stuck thinking it was easier for previous generations to save. After all, if you think you can’t save, then you won’t. Don’t talk yourself out of a future that you can easily afford.
At Middleton Private Capital, our primary objective and responsibility is to help our clients grow and preserve their wealth by maximising investment returns.
Invest in your future by investing today and enjoy life safe in the knowledge you will always be able to enjoy life, live your passions and pursue your dreams.
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Please Note: Past performance should never be used as a guide to potential or expected future returns. Investments in equity markets can be volatile and you may get back less than your original investment.