3 Critical Details Millennial Investors Cannot Afford To Neglect

It is not an easy task to set up an ideal investment portfolio especially if you are a novice in this field. Beginner investors are often faced up with a unique set of challenges to make an entry in this field.

Whether you want to create and manage your own investment portfolio, intend to receive help from an experienced financial advisor, if you are not familiar with some basic financial concepts and objectives, you cannot expect stable growth system and a strong foundation moving forward.

The following are 3 important tips young aspiring investors need to keep in mind while setting up their feet in the world of investing:

# 1 Plan Early For Retirement

The earlier you start planning for retirement, the better off you will be. This the first objective that all investors should keep in mind moving forward.

It makes more sense for younger investors as they do not have as much financial obligations. With no spouse and children (yet), they are in an ideal situation to start investing early for retirement.

Another advantage of starting to invest while young is that you have more cash in hand and a longer time period to invest before your retirement. This means that you will have a bigger retirement nest egg. Under such circumstances, you can even think about putting some of your money in higher risk – higher return investments.

To fully understand the advantage of planning and investing early for retirement, let us have a look at the following example.

Assume that you are 25 years old and have started investing $200/month in a retirement plan that yields 7% annual returns. By the time you are 65 years old, your retirement nest egg will be worth approximately $525,000/-

If you start 10 years later when you are 35 years old, and make the same investment, you will only have $244,000/- in your retirement nest egg by the time you are 65 years old. That is difference of $281,000!

# 2 Diversify Your Investments

Avoid putting all your eggs in just one basket. Instead, try to make investments in different sectors or instruments. Try to mix a wide variety of investments within your portfolio.

Numerous studies reveal that asset allocation is the most important factor for the performance of your investment. It is estimated that the returns you enjoy from your investment depend 91% on your asset allocation, 5% on your stock selection, 2% on market timing and 2% on other factors.

The rationale behind diversifying your investments is that a well diversified portfolio comprising of different kinds of investments is more likely to enjoy higher yields (on average) and pose a lower risk compared to investing all your money in one instrument or sector.

# 3 Include Dividend Stocks In Your Portfolio

Younger investors may sometimes be attracted towards the “next big thing” in the stock market and completely disregard the slower-growing stalwarts such as dividend stocks. In order to enjoy long lasting success, you need to learn how to diversify your portfolio effectively and to include slower growing dividend stocks.

There are many companies that offer such dividend stocks. Look out for companies that are not only prospering, but also sharing the wealth they earn with their shareholders by paying them regular dividends. Just remember that you should also aim to reinvest the dividends that you receive back into the stock market, rather than to spend it away.

It goes without saying that without having a proper understanding of your current financial situation and of various financial principle and concepts; it can be a risky business jumping in this field. You need to have a tight grip on the foundations of responsible investing in order to become successful in this field.

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