That's a complicated question. Ideally, one only invests money that they can afford "to lose." Or at least, can afford to live without. The earlier you start investing, the less you will have to invest, over time, due to the compounding of interest. So yes, you want to start early! But it makes no sense to be investing while paying 22% interest on credit cards. . . So strive to live within your means!
Before investing, you should have an emergency fund. That's money you use for unexpected things. Say, to pay the deductible on your car insurance if you get in a wreck. You should budget for irregular, but somewhat predictable expenses, such as Christmas shopping, new tires for the car, etc. An emergency fund should be enough to cover 3-6 months of expenses: rent, food, insurances, credit card payments, etc. I'd try to shoot for the 6 months. Job loss sometimes hits hard, and you want to be prepared for it, should it happen to you.
All that being said, it's a good idea to start SAVING, as opposed to INVESTING, right away. Put money aside to start building up that emergency fund. Put money aside, perhaps in a different account, for other things, such as school, Christmas, a car, etc. Also look into various insurances. The one I highly recommend is a good short and long term disability policy. Often times available at a reasonable rate from your employer, or, you can get one from an insurance company. It replaces a certain percentage of your income if you get sick or injured and are not able to work. Well worth the investment! I was in a bad car accident and missed several months of work. This policy helped!
By the age of 25 (preferably sooner!) you should be ready to start investing! Continue to keep up the emergency fund. When you use it, replenish it. The whole purpose of the fund is to allow you to "borrow" money from yourself, rather than paying to borrow it from others.
As you go through life, and receive raises at work, always increase your investments! (not with the whole amount, but at least some!) Be wary of "lifestyle creep." This is when your lifestyle changes with your income, and you can find yourself with less disposable income instead of more!
Hope this helps!
Hope this helps!!
WHEN SHOULD YOU START INVESTING
Yesterday. But if you haven’t started yet, today is a great second choice. One of the scariest things about making investments for beginners is the volatility of the stock market. When you see your funds temporarily go down, you may be tempted to pull your money and keep it in a no-risk savings account. In general, you want to start investing as soon as you have a solid financial base in place. This includes having no high-interest debt, an emergency fund in place, and a goal for your investments in mind. Doing so allows you to leave your money invested for the long-term – key for maximum growth – and be confident in your investment choices through the natural ups and downs of the market. Compound growth requires time. The earlier you start investing, the more wealth you can create with fewer dollars. When it comes to investing, time is your most powerful tool. The longer your money is invested, the longer it has to work to create more money and take advantage of compound growth. It also makes it far less likely that one harsh market downturn will negatively impact your wealth as you’ll have time to leave the money invested and recover its value.
Hope this helps Kelly
Hope this helps :)
Working with my financial advisor, we built a portfolio that invests in different markets, and I also participate in my company's stock exchange program. If it's within your means, I recommend working with a financial advisor on a long-term financial plan. Your bank might also have free resources that come with your membership, so never hurts to ask!
You should invest as early as possible. I would suggest you do a bit of homework before getting into it.
- Learn the basics about stocks, bonds, mutual funds and index funds. The key is to understand the risks associated with it. This helps you to quickly identify and stay away from risky bets.
- Learn about the power of compounding. In a long run, all investments are expected to grow.
- Learn about diversifying. As the saying goes 'Don't put all eggs in one basket'.
Investing is like a marathon, not a 100 m dash. Do it debt free, take small steps forward. I'm glad you are already thinking about investing - which is the first step well done. All the best!
For the second question on how stock markets work - Please see below couple of recommendations if you would like to read them and listen to their summaries on youtube :)
Intelligent Investor - Benjamin Graham.
The Bogleheads' Guide to Investing
Ganesh recommends the following next steps:
I've watched a ton of videos on the subject and she's the best! She explains things in simple terms and covers many different subjects. I believe this is a good place to start. The sooner you start investing the better you financial future will be.
I'm no stock expert, but investment websites like E*trade and Vanguard are great places to start! They make investing in stocks or mutual funds pretty easy to understand.
If you are working and your employer offers you a 401k plan, I would also recommend setting aside some of your paycheck to your retirement account. Even though your take-home pay will decrease, that amount you put aside will grow and help you in the future.
One of my friends was encouraging us to buy bitcoins back in 2013, but I didn't bother to even check it out, so I missed out on that one. The pokemon cards that we used to buy back in school, have now suddenly become more valuable. I think if you spent money on a tangible item that is close to you or you simple like it, just try to maintain its life because if its valuable to you, so it is to a few others, so your time/money spent is investment as long as you maintain it.
At an early age, you care lesser about losing as you are more dependent on others, so that's the best time to overcome the fear of losing and learning the game of patience. It's never too late and never too early.
* If you are moving out on your own, be sure that you are living within your means and choose a place that allows to save and invest (make this part of the budget for moving out).
Donavon recommends the following next steps: