The benefits of investing at a younger age


One of the more commonly asked questions from young investors is: “How do I start investing in stocks?” Not only is that question popular among the young but the older and more experienced individuals are also trying to grapple with it.

It’s hard to subsist on a meagre income but the younger generation is straddled with heavy education debt, car loans coupled with escalating living expenses.

Maybe that’s a prime reason why the Gen-Y should start investing at a young age.

“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life,” says Suze Orman, a waitress-turned-personal finance expert. She was a former financial advisor with Merrill Lynch.

Independent financial adviser Yap Ming Hui feels that every Malaysian should start to expose themselves to the investment world but they should not speculate blindly.

“Unlike investing in properties, the stock market offers investors an avenue to learn more about the corporate landscape, and it gives a different dimension of knowledge which would help in the long run,” he says.

Yap is the founder and managing director of Whitman Independent Advisors Sdn Bhd, a boutique financial advisory company.

He says some people don’t read the business pages, but that is the first place any investor should read to start dabbling in personal finance.

“If someone is well educated and keeps up to date with the trends in the stock market, one can identify the windows of opportunities to invest when valuations turn attractive, but if you’re not prepared, you would not even know it when there’s an opportunity right under your nose,” he says.

However, he didn’t discount the fact that individuals should diversify their investments into different asset classes.

“Most Malaysians still do not understand the kinds of investments they invest in, and they don’t make enough effort to understand the types of investments they invest in and get hoodwinked by fraud that offer seemingly attractive returns,” he says,

Yap suggests the younger generation start investing in unit trusts.

“Invest in funds that are linked to equity markets, and follow developments in the market and learn from there. Investing in specific counters are riskier than investing in funds, and do invest in what you can afford,” he says.

His advice is sound but many people react to what has happened around them.

For Dennis Yap, a working professional for an international accounting firm, the heartache of his parents, who lost their retirement nest egg during the Asian Financial Crisis in 1997/98, has been a major deterrent for him to venture into equity investments.

“The volatility of the market is just scary, and now my parents are still trying to recoup back the losses that wiped out most of their retirement fund,” he says, admitting that he prefers to earn a meagre interest from keeping his money in a bank.

He says people often point to investments as an inflation-fighting tool but for him, investments are meant to generate returns higher than just to fight inflation.

“I would rather save up and invest in a physical business compared with paper trading and punting on rumours and speculation,” he says.

A trip down memory lane might provide an encouragement for the young investors.

During the Greet Depression in the United States, stocks crashed hard with the market plunging 86% and it took more than 15 years for it to recover. Soon-to-retired individuals would be devastated as an investor. Those who had put US$10,000 into the stock market just before the crash had just US$6,000 10 years later.

However, if one had been 25 years old and invested US$10,000 in the stock market just before the crash, that person would have had about US$210,340 upon retirement 40 years later.

Time is definitely on the side of the young if they invest in stocks.

There are many ways to investing in the stock market, but one thing is for sure, education, research and patience should be the pillars of any budding investor wanting a pathway to success.

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