Investing
My hot takes on how the average young adult should invest
Gambling is NOT investing.
Purchasing call options, futures, and 3x leverage ETFs are nothing more than just a gamble -- in the short term, there is no guarantee whether the stock market will go up, down, or sideways.
Speculation is NOT investing.
Meme stocks and penny stocks are not investments. If you like a stock because of X, Y, or Z, you're probably speculating. You should only speculate with money you're willing to lose.
This chart allows you to simulate how a speculator might perform vs. an ETF investor.
Historical data suggests that the ETF investor will have a slightly higher average return, but lower standard deviation. As a result, the speculator does sometimes outperform the ETF investor, but on average, the ETF investor performs better with less risk.
Most of your money probably belongs in a low-cost index fund.
People often delay investing, here's why you should start early
Monthly Contribution:
Annual Return Rate (%):
The chart above shows the power of compound interest. The earlier you start investing, the more you'll have in the future.
How can I achieve high returns?
Invest early and consistently -- without trying to time the market.
The best advice is to start out with an all-equity ETF portfolio and slowly transition to a more bond-heavy portfolio as you age. For Canadians, just buy VEQT or XEQT, or opt for VGRO or XGRO for a slightly more balanced portfolio.
But what are equities and bonds?
Good question! Equities represent ownership in a company, while bonds are a loan to a company or government. Equities are riskier but have higher returns, while bonds are safer but have lower returns.
Risk
Be very careful about investing anything you'll need within the next few years
Risk is the probability of losing money. Younger people can afford to take on more risk as they have more time to wait for the market to recover. That's why an equity-heavy portfolio is recommended for young adults.
However, with that said, you should never invest money you need in the short term. If you need the money in 3 years, it's best to keep it in a high-interest savings account.
Good luck with your investing journey!