What I’ve Learned In My First Five Months As A 20-Something Investor
*This post has been reviewed by a financial expert, but solely reflects the opinion of the author.
I’ve always been a good saver. I like practicing frugality, and, barring a few vices, I don’t have expensive tastes. Because of this, I’ve had the privilege of watching my savings nest egg grow considerably. As this was happening, I became interested in the world of personal finance and realized that my money could work much harder in an investment account than in my personal savings accounts. It was earning enough interest in my savings account to keep up with inflation, but it wasn’t growing in its own right.
I’d previously written off the thought of investing money in the stock market. It was a huge, scary thing that I didn’t know anything about. It was the domain of economics alumni who discussed the Dow in board rooms while wearing suits. I didn’t even own a suit.
I thought that in order to invest, I would have to spend time looking at companies and trying to pick the winners — the ones that would do better than the rest of the market. I brushed this challenge off, thinking I had better things to do on my weekends than reading business reports and working out whether my shares were going to go up or down.
However, once I had actually done some research, I realized that it didn’t have to be as difficult as I was making it out to be in my head. My method is a pretty hands-off way of investing. I made my brokerage account online and bought my initial investments after thorough research, then I let them sit there and work for me. Every so often, if it’s the right time for me financially, I buy more shares. Other than that, I don’t touch it.
I opened my account and started investing about five months ago. Unfortunately, this was right before the market took a serious downturn. At first, I was pretty annoyed; if only I’d waited to buy those shares, I wouldn’t have lost money! But it’s normal for the market to go up and down a lot. If I wait patiently and ride out the storm, I know that the market — and my portfolio — will recover. I’m investing for the long term, so bad times are to be expected. I just need to learn to keep calm and wait for them to pass.
It hasn’t all been bad news since I started. I was really excited, a few months later, when I got my first dividend check. It was $83. I received this dividend payment because (sometimes) when an investor puts her money at risk, she can sometimes receive a portion of the compensation for taking that risk. (I got $83 by investing my money rather than letting it sit in my bank account!) I had to do almost nothing, and I got paid for it. Rather than treating myself to a fancy dinner out or a new bag, I reinvested the dividends so they can continue to make money for me.
One thing I didn’t anticipate was the emotional and intellectual benefits of investing. I know that I’m looking after my financial future, which has brought me some peace of mind. The money is stashed away where I can’t touch it, where it will grow (hopefully at a good rate) for many years to come. Investing is also helping me realize some of my more concrete goals. I want to buy a house one day, but I live in a city with seriously expensive real estate. Unless I switch to an extremely lucrative career or win the lottery, I need to start planning now. Knowing that I’m investing a portion of my savings gives me extra encouragement to save for my dream of homeownership.
Investing has also given me an incentive to start learning about the economy and finance. I wanted to know exactly what I was investing in before I started, so I took a while to research what the different types of investments are. In the beginning, it was really confusing, and I didn’t understand any of the jargon. There was a steep learning curve. It was incomprehensible to begin with, but slowly, I began to understand the basic concepts. (Quick confession: I started by reading a finance book for elementary school-aged kids.) It took a lot of time and reading, coupled with many visits to the financial dictionary, but I now understand the finance section of the newspaper. I’ve found that I actually enjoy spending my time trawling financial blogs, which is intellectually rewarding.
My experience has shown me that investing isn’t as scary and complicated as I thought it would be. It is a great way to build up your net worth. If you have savings that you don’t have a plan for and already have an emergency fund set aside, I highly recommend researching investment options or talking to a financial advisor. If you are sensible about how you do it, you can construct a portfolio that fits your investment goals and is consistent with your risk tolerance. When I first started thinking about investing, it was all Greek to me. But I spent some time reading, and it started to make sense. Once I understood the concepts and lingo, I could make informed choices. And now, I get to reap the benefits for a long time to come.
Hannah is a science student living in Sydney, Australia. She loves reading fantasy novels, hiking, and drinking tea (though not all at the same time).
Image via Flickr
