Expert advice on how young professionals can invest wisely for a secure financial future
Starting a career early has many advantages for young people. One of the smartest choices they can make is investing wisely. While money isn’t everything, managing it well is key to living a healthy life.
Learning to invest can have a significant impact on various aspects of their future. From getting a job to buying a home, and even starting a family, smart money management plays a crucial role.
For many early-career professionals, the idea of investing money might sound familiar, even if they prefer a “soft saving” approach, focusing on immediate experiences like holidays rather than long-term goals like retirement.
However, Harry Scherzer, the chief executive of international money transfer fintech Future Forex, stresses the importance of a solid investment strategy, no matter your financial objectives.
“Whether you aim to save for a three-month sabbatical or seek long-term financial freedom, you need to ensure that every rand you invest works hard for you.
“Understanding the need to invest is one thing; knowing where to invest is another, especially for those new to managing their finances. With some basic knowledge, young people can set themselves up for a successful financial future.”
Scherzer offers valuable advice for those just starting their investment journeys. As a business leader and qualified actuary at 30, he understands the concerns of young professionals.
Here are his top six tips for young investors:
Avoid leaving money in the bank, choose equities instead
Most parents begin their kids’ saving and investment habits with a traditional bank account. However, Scherzer advises that bank accounts should be used mainly for transactions.
“With inflation reducing the purchasing power of money over time, keeping funds in a low-interest savings account can lead to stagnation or decline in wealth,” he explains.
Seek investment opportunities that offer growth to outpace inflation.
He suggests that young investors should consider equities, which generally provide better long-term returns than cash or bank accounts.
If young investors are unsure how to pick stocks, Scherzer recommends using a fund manager or investing in index funds such as the JSE all share index. This way, you can diversify by including the entire South African market in your portfolio.
Seeking help from an independent financial advisor or investment professional. They can guide you through complex financial decisions, create a personalised investment strategy and offer valuable insights.
Consider investing in dollars or offshore
If you're a young investor consider equities, looking beyond South Africa, especially at US-based stocks. These often perform better than local ones.
“Investing in dollar-denominated stocks provides global security and shields you from local currency risks. Over time, stock markets tend to grow faster than savings accounts, despite short-term ups and downs.
“Also, investing in dollars can protect your money from losing value if the local currency, like the rand, weakens.”
Start early and watch your savings grow
The sooner you start investing, the more you can benefit from compound interest. Keeping your money in investments such as stocks over many years allows compound interest to multiply your savings.
Even small investments can grow into large amounts over time. Don’t delay.
Spread your investments to reduce risk
To balance risk and reward, stick to a well-diversified investment strategy.
“Don’t put all your money in just one or two stocks. Spread your investments across different stocks, or consider using index funds or asset managers.
“Diversifying your portfolio helps you minimise the risk because if one stock performs poorly, it won’t have a huge impact on your overall investments.”
Avoid playing the market
As tempting as it may be to think that you can accelerate your portfolio’s growth by playing the market, Scherzer says you can’t.
Trading in and out of stocks to time the market is generally unsuccessful. Perfect timing is usually expensive and difficult, resulting in lower returns.
Explore special investment opportunities
While stocks are a major part of investing, young investors can also explore other investment options.
Don’t just focus on stocks; look out for special investment opportunities that might outperform traditional bank investments. But make sure these opportunities fit well with your overall investment plan.
No need to sacrifice enjoyment for future gains
Young investors can strike a balance between short-term and long-term financial goals. You can save for short-term joys such as vacations while still working toward long-term financial freedom.
“Investing should be something you’re excited about, not something you do reluctantly.
“Once you have a basic understanding of investing, a lot of the mystery falls away. That helps remove any fears investors may have and ensures that they can enjoy watching their money grow to the point where they can achieve their financial goals.”