Someone reminded me: Back in 2006, Make it Rain, was a monster hit and it didn’t long before it was certified platinum (selling more than a million copies).
The song was about spending money fast as there was enough to go around. Fast forward three years, both the millionaire artiste and his equally rich producer, were on the hook for failing to pay their taxes.
One declared bankruptcy, the other was lucky to be bailed out. The whole episode was such an ironic twist. Moral of the story; if you’re planning to ‘make it rain’, at least secure your savings for a rainy day first. This article is for the young and reckless.
Instead of throwing your hard-earned money away on a wasteful lifestyle or high-risk investments, please consider that there are so many life challenges down the road for you that you might need that cash for.
Although you may not have reached the pinnacle of your career or earning power, I’d argue that you’re an ideal investor. Start by drawing down your investment plan.
Remember the guy with a million bucks and a plan is way better than one with 10 but without one. Here are three reasons why young people should plan for their money.
One, time. As a young investor, time is on your side in many different ways. First, young people tend to have ample amounts of free time in their day-to-day, which can allow you to dig in and research the best investments and track current trends.
More importantly, any money you invest now has more time to grow before you’ll likely need it. You also have time to bounce back if things don’t work out. If your investment fails, taking the chance when you’re young means you have time to regroup and try again.
And again. And again. Any successful entrepreneur will tell you that they only learned by making mistakes, and the same applies to investing.
Two; diversify. Diversification lowers your portfolio’s risk because different asset classes do well at different times. If one business or sector fails or performs badly, you won’t lose all your money. Having a variety of investments with different risks will balance out the overall risk of a portfolio.
Three, learn your psychology. We’re emotional beings by nature, and investing can be a rollercoaster of emotions at times.
As a young person, you will be tested to remain calm in tumultuous times. Then there’s the thrill and excitement when the market goes up.
In all this, avoid jumping in and out of stocks trying to time the markets. You don’t want to get swayed by short-term movements. It’s essential to have the same mindset and approach to investing if the market is rising, or if the market is falling in the short term.
To close, I’ll remind the young investors that it’s much better to invest a smaller amount of money now than a larger amount later to generate the same return.
You’re never too young to put your money to work for the future — whether you invest in stocks, bonds or take the leap and invest in a company. Invest now, enjoy later.
Mwanyasi is the managing director of Canaan Capital
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Note: The results are not exact but very close to the actual.
