Investing Tips for Twentysomethings

Tough questions in tough times

Investing can seem confusing and tricky when markets are operating normally. Now that the stock market, real estate and the financial system as a whole are so shaky, it is even more difficult to figure out what to do.

Luckily some experts out there have advice for young people who are lucky enough to not only have an income but to have money to invest as well.

Figure out your objective

Financial experts agree that what you should do with your money depends largely on your long-term goals. You might be focused on paying student loans and want to remain mobile for a few years. Or you might want to stay put and invest in real estate while it’s cheap.

Whatever your situation is, advisers have a few tips that apply to everyone.

Cool cash

Whether you’re using extra money to invest or to pay off debt, make sure you are also putting some away. It might seem like it makes more financial sense to pay off a loan that is costing you interest. However, it is imperative to keep an emergency cash fund on hand. That way you won’t end up owing more interest on quick loans or credit cards. If you want to pay off your debt, avoiding getting into more debt is critical.

Financial advisers say the minimum you should have on hand is a month’s worth of expenses. Ideally, you should have three to six months of expenses saved, if you can afford it.

Investing in real estate

Low housing prices right now make purchasing a home tempting. But there are a couple of things you must take into consideration. First, credit is extremely tight right now and it will be difficult to secure a mortgage. Also, banks are requiring higher down payments than the 5 or 10 percent down payments they commonly accepted in years past.

Finance experts agree that having an emergency cash fund is the most important step toward financial stability. Spending your emergency savings on a down payment defeats the purpose. Also, if your job situation is at all tenuous, as it is for many right now, taking on such a large debt could be very dangerous.

Risky business

A CNN money expert makes the assertion that young people can afford to invest almost all their money in equities because they have time to make up for any losses. However, different factors should affect how much risk you take with  your investments.

Just as with buying a house, job security must factor into your investments. You may be planning to invest long term, but what if you lose your job? Will you have to pull your investments to pay for everyday expenses if you get laid off? That’s not to say you shouldn’t invest, but unless your job is very secure, you may want to start off with lower risk investments. You can always redistribute your portfolio when the markets get better or if you get promoted or otherwise receive a sign that your job is secure.

How much heat can you take?

Also, you must assess your ability to deal with a fluctuating market. Some investors think they can handle watching their portfolio fluctuate.  However, many end up cashing out their investments early because they get too nervous about losing money on their investments. If you are the kind of person who will be checking your investments frequently and adding up dollars and cents, you probably shouldn’t invest in equities, which are very risky.