It's not surprising that a number of surveys have found that younger millennials and Generation Z score lower on financial literacy than their older Generation X and Y counterparts.
Fundamentally, this is because educating yourself and learning about the different components of wealth takes time, often through direct or shared experiences with family, friends and colleagues.
However, the flip side to this “education curve” is that there is digestible information, webinars and training material online that are more accessible than ever before, compared with the environment Generation X and older millennials had, so there is an opportunity for younger people to learn quicker than their parents, for example.
Additional digital tools such as “demo” accounts and investment simulations also offer a direct way to dip your toes into the wealth world before you have the capital or regular income to do so.
This is another great way to familiarise yourself with the wealth journey ahead.
Start as early as you can
If you consider how Fomo (fear of missing out) and Yolo (you only live once) influences youth spending patterns, it appears that younger people prioritise living for today ahead of thinking about tomorrow.
However, I would strongly advise that you start saving as soon as you can to get into the habit and take advantage of the “law of compounding” on your portfolio, which is among the strongest success factors for building a healthy investment portfolio during your lifetime.
Fortunately, access to investment platforms and even investment advice is far easier today than it was before.
It is relatively simple to set-up an online investment and trading account with either a zero minimum or low minimum cash requirements to start.
So, if you only start with a few dollars each month, my advice would be to start as early as you can, build the habit of regular saving to build some discipline.
Start simple and low cost
While you are going through the education cycle described above, you can start with easy low-cost investment products to build the foundation of your portfolio and take advantage of the compounding effect of money over time.
For example, you can start your early investing journey by buying simple, well-proven strategies such as investing into exchange-traded funds (ETFs), which are a basket of securities consisting of stocks, bonds, commodities or other financial assets that track major global stock markets.
This low-cost strategy does not eat into your savings, is a proven way to put your savings to work over the long term and does not require detailed investment knowledge.
In addition to buying ETFs on the US, European, and Asian indexes, you can also look to low-entry mutual funds, which are managed by professional portfolio managers, to gain entry to a diversified range of foundation investments in your initial years of saving.
Diversify, diversify, diversify
Diversification is one of the longest and most proven investment tactics that has stood the test of time.
Resist the temptation to go “all-in” on the latest hot trend or fad; the recent turbulence in the cryptocurrency market is a good example.
There is nothing wrong with having a small allocation of your portfolio in a high risk/high reward area such as cryptocurrency, however, make sure this is blended with lower-risk, arguably more “boring and predictable”, investments in index stocks, funds, or even fixed income.
By doing this, you get the upside if a part of the high-risk portfolio takes flight to the moon, but you also have the downside protection if the opposite happens as it will only impact a small percentage of your portfolio.
Avoid using debt to invest
Until you are at a far more experienced stage of your education, avoid using debt or credit to fund your investment portfolio.
It may seem very easy to build your portfolio from credit cards that are constantly being marketed to you online or, once you have started your portfolio, to use “leverage” from your portfolio to accelerate your investments.
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However, both can be very dangerous.
Think about this in simple terms: if your credit card is costing you 15 per cent to 30 per cent a year in interest charges, or if your online platform is charging you 4 per cent to 10 per cent to take “loans against” your portfolio, then you need to get a better return from the instruments you have invested into by using that cash, otherwise you will be in a negative position.
Be careful to avoid being scammed
As the saying goes: “If it looks too good to be true, typically it is too good to be true.”
It is, and will be, difficult when you start your wealth journey to validate this. So, take some time, ignore the Fomo, and speak to others who have more experience and can help to guide you in the early years of investing.
Damian Hitchen is the chief executive of Saxo Bank for Middle East North Africa
