All 'get-rich-quick' schemes should be regarded with suspicion, but there are benefits to investing money early
Please note: This information is general in nature and should not be seen as financial advice. Always seek independence advice suitable for your circumstances
Entering the stock market used to be a practice reserved for the wealthy.
But today, the barriers to investing have been replaced with content that encourages everyone to get involved. Podcasts, books, financial influencers (also known as "finfluencers") and more are amplifying the discussion around investments.
Twenty-year-old Caitlyn is one of many Gen Zs thinking about investing their money.
Now in her second year of undergraduate studies, the Sydney-based student knows her future financial independence should be a priority and that it will likely require investing.
But she’s still figuring out how to get started.
Debunking the investing myths
Caitlyn has been working since she was 18. After funding her own gap year travels, thanks to her minimum wage hair salon assistant job, she is no stranger when it comes to saving. However, she is yet to take the plunge into investing.
"I know how to save, I do save … But I don't know where to put the money if it’s not in my account," she says.
While saving is the first step for positive financial habits, its benefits are limited. Keeping any wealth in cash can mean that money's buying power will gradually lessen, because regular interest rates provided by banks cannot keep up with inflation. This is where investing comes in.
However, Caitlyn and other young aspiring investors still struggle with a lack of accessible information.
"I don't understand. It is like I open something up and it’s all lingo," she says.
InvestmentMarkets CEO Darren Connolly would like to debunk the myths held by tentative investors. He says the first step is an interest in and awareness of investing. And it’s essentially the only requirement it takes to start.
"There is nothing stopping people apart from exposure," he says.
Next is education. However, not all resources will work for everyone, and this is what Caitlyn has faced in her attempts to gain insight.
"It is information overload," Connolly agrees.
"It can be hard when there is so much information … What to listen in on is a challenge for everybody, regardless of age."
He says part of the effort with investing is finding a clear source of information, in addition to learning about the workings of the stock market and trading.
Another common misconception that Connolly disapproves of is the assumption that investments must be of large value or that early investors need to be earning high salaries to start.
"A lot of the time people believe they need big chunks of money," he says.
"Or they think, 'I'll wait until I have a proper job, and then I'll start'. But then when you get that job, your demands like a house [mortgage] keep that goal pushed back."
The first investment
Connolly advises all aspiring investors to start small. The first investment is simply one step towards growing wealth in the long term.
He says the most effective investing strategy is consistency.
"Be disciplined and regular. Direct debit with each pay slip. Have it become a part of your life," he says.
While it sounds simple, Caitlyn admits to feeling anxious about stepping into the loud and often complicated field of investing.
"It is daunting, when you don’t have the financial freedom of a full-time job just yet," she says. "I want to know what I am doing before I go into it. I want to know the risks and the reward."
Connolly has some advice in response to concerns of losing money.
"The get-rich-fast narrative is unrealistic … and there are people out there who will try to part you with your money," he says.
"[However], people’s worst enemies are often themselves."
He says when it comes to navigating potential scams or risks people shouldn’t let greed lead them to believe narratives that are likely too good to be true.
"If someone tells you that the returns on a product are 50 per cent and you go "I'm in!", that’s not a good thing," he says.
So, if something seems out of the ordinary, be cautious.
Gen Z’s advantage
There is one element that those new to navigating investments should pay attention to.
"The only magic in investing is compounding," Connolly says.
Compounding interest is the key principle of investing and wealth growth.
In short, when money invested earns a return, those returns can then generate their own value, accelerating the growth of wealth over time. Money can make more money; which is why people often hear the phrase: "Make your money work hard".
"It’s also the one thing that young people have [over older investors]," Connolly says.
He’s referring to the fact that time is significant when it comes to investing.
Having more time for money to grow can enhance the snowball effect dramatically: the longer money is invested, the more it grows.
Conversely, a delay could potentially negatively impact the outcomes of an investment portfolio. There are helpful compound interest calculators online to show the impact.
Connolly has some final advice for aspiring investors.
"Start early, be disciplined, and don't worry about the amount," he says. "Get into a rhythm of investing for the course of your life."
