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Ultimately, building wealth and securing financial freedom is a long-term game. But there are other reasons why people in their 20s have the jump when it comes to investing, says Kamogelo Mosime.
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Investing in financial instruments such as stocks, commodities and forex may seem like a task belonging to the world of "adulting". In the world of personal finance, the truth, however, is the younger you can start, the better.
The investment decisions you make in your 20s can have a profound impact on your future.
Start early, succeed sooner
By starting young, you can develop valuable financial knowledge and learn important lessons about money management.
Ultimately, building wealth and securing financial freedom is a long-term game. Investment is also one of the key elements within the financial skills mix – by becoming an investor, you’ll gain insight into the interconnected realms of tax, budgeting, asset management and estate planning.
Harnessing the power of compound interest
One of the most significant benefits of investing in your 20s is the ability to harness the power of compound interest. Time is your greatest ally when it comes to growing wealth through investing.
By starting early, even with modest contributions, you allow your money to accumulate and compound over an extended period. Compound interest allows your investments to generate returns on both the principal amount and the accumulated interest, creating a snowball effect.
As the years go by, the growth potential becomes exponential, significantly multiplying your initial investment. By the time you reach your 30s or 40s, your investment will have had ample time to grow and establish a strong financial foundation.
Risk tolerance and time horizon
Another major advantage of starting young involves the interplay between the concept of time horizon and the investment dimension of risk.
Having a longer time horizon (which relates to the amount of time you’ll need before you’ll need the money you’re investing) will give you a better chance of rebounding from short-term losses. In the long run, this will make you less vulnerable to short-term market volatility and fluctuations.
In turn, this may give you the space and capacity you need to diversify your portfolio with more high-risk investments, knowing that you have a safety net if things don’t initially go as planned.
Access to information and research tool
Furthermore, in today's rapidly evolving technological landscape, the youth have a distinct advantage when it comes to making investment decisions.
As digital natives, their technical proficiency translates into a greater ability to navigate and leverage technology to make informed investment choices.
Trading platforms offer a wealth of information that can inform decisions, including real-time financial data, market analyses and economic indicators. This, coupled with the ability to use digital forecasting tools, access expert opinion and conduct online research on companies, provides young people with the competitive advantage of having technology at their fingertips.
Young people as trend-setters and trend-watchers
As early adopters of new gadgets, social media platforms, and innovative technologies, the youth are at the forefront of emerging trends and disruptive technologies.
This puts them in the best position to recognise and understand the value of emerging investment opportunities in sectors such as artificial intelligence, blockchain, cryptocurrency and e-commerce. Their innate understanding of these technologies allows them to spot potential growth areas and invest in companies that are at the forefront of technological advancement.
Ease of access to the marketplace
People in their 20s also have the advantage of enjoying an unmatched level of access to the investment world. Digital platforms have done much to "demystify" the world of investments and promote a greater degree of accessibility to an industry that was once a playground restricted to financial experts.
For young people, these kinds of digital tools offer a new level of convenience, cost-effectiveness and the ability to start early with smaller amounts.
The seamless integration of technology into investment processes allows young people to have greater control over their investments and make informed decisions in their own time and on their own terms. By embracing these platforms, the youth can easily diversify their portfolios, execute trades, and monitor their investments in real-time.
Their proficiency in leveraging technology, better access to information and research tools, familiarity with emerging trends and their adaptability, position them well for success in the investment world.
Kamogelo Mosime, Partnership Manager at Tickmill.
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