Being 25 is great, but probably not for the reasons you’d think.
It’s actually because we have time on our side!
I’ll be honest, I used to fall into the trap of thinking I’d just “wait until I make real money” to start investing.
But I’ve since learnt that the real “cheat code” to investing is simply starting now.
Why Investing Early Matters More Than Most People Realise
Starting now allows you to make full use of compounding – something that can turn small amounts into something huge, especially if you’ve a runway of 30 to 40 years.
If you start now, you won’t need to stress out later in life thinking how you’re going to achieve your financial goals.
Plus, building healthy financial habits today will shape how we handle money for the rest of our lives.
I know how easy it is to get distracted by all the noise.
So here are the three biggest pitfalls I’ll be watching out for to make sure I don’t slow my own progress.
Mistake #1: Waiting Too Long to Start Investing
The “I’ll Start Later” Trap
I’m sure many young people also tell themselves that their paychecks are still too small right now, or that they need to save up a huge amount to start investing.
Some might even find the stock market too intimidating.
However, the longer you push investing down that to-do list, the more years of compounding you lose.
And time is the one thing you can never get back.
The smart thing to do now is to just start.
Even if you’re just putting away a small amount every month – say S$100 – it’s still better than waiting five years to start with a bigger sum.
Right now, it’s about building the habit and letting time do the work for you.
Mistake #2: Chasing Fast Money Instead of Building Wealth
Speculation vs Investing
With all the meme stocks, crypto moonshots, and “I made S$1 million in a day” stories on social media, it’s so easy to get caught up in the hype.
But one thing I know for sure is that chasing fast money relies more on random chance than on sound investment principles.
The adrenaline you get from short-term wins feels great, but it creates unrealistic expectations about investing.
Why Speculation Can Backfire
Speculative assets are highly volatile, and they tend to trigger our loss aversion instincts, which often results in decisions made based on emotion rather than logic.
Sometimes, a big loss early on can be so demoralising that you want to quit investing entirely.
My tip?
Think of investing as a plant that you need to take care of before it blossoms.
Focus on high-quality businesses like Keppel Ltd (SGX: BN4), or Exchange-Traded Funds (ETFs) like the SPDR Straits Times Index ETF (SGX: ES3), which provides instant diversification across Singapore’s 30 largest companies, and let compounding work its magic.
Mistake #3: Ignoring Risk and Diversification
Overconcentration Risk
When you’re starting out, it’s easy to want to go all-in on that one favorite stock or sector you really believe in.
But over-concentration is what kills your returns silently.
If that particular company or industry hits a rough patch, your entire portfolio goes down with it.
Why Diversification Matters
You can have a favourite stock.
But you should spread things out across different sectors and geographies to reduce your portfolio’s overall risk.
Anchor your portfolio with blue-chip giants like DBS Group Holdings Ltd (SGX: D05), which offer stability through market cycles.
You can also include real estate investment trusts (REITs), such as CapitaLand Integrated Commercial Trust (SGX: C38U), to generate a consistent stream of passive income from high-quality real estate assets.
Additionally, always remain level-headed and avoid making emotional bets based on trends you see while doomscrolling.
Key Investing Principles Young Investors Should Focus On
Returns from small, regular contributions often beat large, sporadic ones.
So there’s no need to wait for the perfect moment or a large lump sum because having a long-term horizon allows you to ride out downturns and place your focus on the end goal: financial independence.
Reinvesting your dividends is also highly recommended as this allows your earnings to generate their own earnings, growing your wealth exponentially.
Long-term wealth doesn’t happen overnight; you’ll need to have patience and stay financially disciplined for your returns to truly show.
Key Metrics Beginners Should Understand
While there is no need to be a Wall Street pro, there are still a couple of things you need to keep an eye out for:
- Revenue and Earnings Growth: You want to see the company expanding and making more money over time, rather than just treading water.
- Dividend Yield and Payout Ratio: Beyond just seeking high returns for every dollar you invest, you need to check if the company can actually afford to continue paying you without stretching itself too thin.
- Return on Equity (ROE): A high ROE shows that management knows what they’re doing and can efficiently turn your investment (shareholders’ equity) into profit.
- Portfolio Allocation: As mentioned earlier, this protects you from being over-exposed to just one industry.
- Long-term Total Returns: This is the “whole package” – the combination of stock price growth and dividends collected, and reinvested over time.
What Young Investors Actually Have as an Advantage
At this age, we often have fewer fixed financial obligations – such as mortgages or dependents – which offers a unique window to maximise our investment rate.
Most importantly, we have a long investment horizon.
Not only does this let compounding “cook”, but it also gives us the luxury of time to sit through market volatility and recover from any beginner mistakes.
Get Smart: Work Smart, Not Hard
Investing in your 20s is about avoiding the costly mistakes that would reset your progress to zero and not whether you picked the perfect stock.
As long as you start now, stay disciplined, and focus on long-term wealth creation, you’ll be miles ahead of everyone else financially.
At the end of the day, the best investment advantage we have is simply time.
This could be the fastest way to jump from a “newbie” investor to a seasoned pro. Our beginner’s guide shows everything you need to know to buy your first stock and beyond. Click here to download it for free today.
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Disclosure: Charlyn T. owns shares in DBS and SPDR Straits Times Index ETF.
