The best strategy for young investors

New apps have made trading easier to trade than ever before… and perhaps a little too easy. A video on the Bloomsbury Wealth YouTube Channel.

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Transcript: Robin Powell and Iona Bain/ Financial author

RP: We’ve seen a big increase in the number of young people trading individual stocks and cryptocurrencies online. New apps have made trading easier to trade than ever before.. and perhaps a little too easy.

IB: So we’re seeing lots of people really diving in the deep end and buying individual shares they think are a one-way bet but are actually potentially very high risk and could end up losing them a lot of money. So I think these young people are gambling and speculating rather than investing.

RP: So what’s a better strategy for young people than trading? The priority, says Iona Bain, is to have at least three months of income in a savings account.

IB: It’s crucial that all young people have some money in an easy-access savings account. Or as I like to call it, a ‘yikes!’ fund. And the way that I describe savings is, that when you put your money in a savings account, it’s still your money, it’s just put on one side so that you can access it when you really need and want it. It’s easier, cheaper, and far less stressful than maxing out a credit card or dipping into your overdraft.

RP: Once you have a savings cushion, the next step is to focus on investing in a pension — or, as Iona prefers to call it, a future fund.

IB: When you save into a pension, you are putting your money in stocks, shares, and other assets, and the longer you stay invested in those assets, the more potential there is to build up a bigger future fund. So that’s why I recommend that young people start saving for their retirement as soon as possible. More time in the stock market gives your money more time to grow, and also to benefit from the wonder of compound interest, where your returns are earning their own returns, it’s like a snowball that just keeps getting bigger and bigger over time.

RP: The best approach for young people is to automate their investments and to ride out any market volatility — hard though that can be.

IB: Market downturns can be really unnerving for young people, when you are new to the stock market and you see your portfolio losing lots of money, even if it’s just on paper, that can trigger lots of negative emotions, and you may feel that urge to do something, anything, to protect your money. But usually, the best thing to do is nothing. The market doesn’t ring a bell when it hits the top, and it’s usually very difficult, if not impossible to anticipate when markets are about to fall, and sell out just in time. So you need to accept that downturns are inevitable, and remember that the stock market is like a roller coaster. It goes down, but it will go back up at some point.

RP: In short then, young people should avoid the temptation to trade. Focus instead on getting some savings behind you, and then putting away money on a regular basis for your long-term future.

Disclaimer — The information in this video does not constitute advice or a recommendation, and you should not make any investment decisions on the basis of it. If you do however require advice please do not hesitate to contact Bloomsbury Wealth.