Presently, there are a wide variety of investment opportunities available to an individual seeking to generate money for themselves outside of their annual income. One difficulty that young professional might face upon beginning their career is the best way to utilize these options.
“One thing I plan on investing in is real estate,” said Nakada Brown, 21, fourth year economics student from Ft. Lauderdale, Fl. “I’ll probably invest money in the stock market too, but not until I’m settled in my career,” Brown said.
Dr. Nathaniel Johnson, professor of economics at FAMU, stated that one of the first things a young person must do is accumulate savings so that they are even able to invest their money.
“A systematic plan of saving money is the first step towards investment,” Johnson said. Dr. Johnson emphasized having a consistent savings plan because of the considerable amount of money it takes to make a serious investment.
Johnson said that once a person has saved up a sizeable amount of money, he or she must decide on what type of financial instrument they would like to invest in. He explained that financial instruments mainly are: stocks, bonds, savings bonds, mortgages, and mutual funds.
He also stated that a person must decide whether they want to make a shot-term or long-term investment; reason being, that it could take anywhere from a few months to several years before a return might be seen on a particular investment.
“In the near future, I plan on investing some of my money in bank CDs,” said Romeo Jones, a fourth year business student from Detroit.
Bank CDs (certificates of deposit) are a prime example of the type of short-term investment described by Dr. Johnson. Basically, a CD is a type of deposit account generally offered through a bank or some other financial institution that offers an investor a higher rate of interest than a standard savings account.
Dr. Carter Doyle, professor of economics at FAMU, said that there are three basic things that need to be considered when first making an investment. The amount of risk willing to be taken; whether your seeking a return on your investment a year from now, or thirty years from now; and how much you can afford to invest.
Dr. Doyle said that young people should pursue safer investment opportunities such as mutual funds.
Johnson stated that mutual funds are basically large companies that buy financial instruments on behalf of investors who have pooled their money into a single account. Once the returns from the investments have been gathered, the company then divides these returns evenly amongst the original investors.
Doyle said that in addition to providing a young individual with a relatively low-risk investment opportunity, mutual funds provide them with a way to diversify their portfolio. This is important because there will be times when certain industries aren’t thriving, and other investments could compensate for the monetary loss. “Not diversifying is one of the biggest mistakes an investor can make,” Doyle said.
Neither Johnson nor Doyle believe that a young person should start off investing in the stock market; both professors recommended that investment should be a gradual, yet steady progression in the level of risk.
However, Doyle said that if a person is interested in investing in the stock market, he or she should invest in more stocks than bonds as a young adult, and as they get older, start transferring more money into bonds than stocks. He also mentioned that there are businesses that offer life cycle mutual funds, which interchange stocks and bonds for you throughout your life.
Whether you have plans to only place your money in a simple savings account or plan to risk it all in the stock market, both Doyle and Johnson made one thing clear. The earlier an individual starts to invest their money, the better off they’ll be.