As hard as it is to buy shares after a market plunge, young investors should be salivating right now, writes The Motley Fool.
Most of the news you've heard over the past few of weeks has focused on how cataclysmic the big sell-off in shares has been.
But one group of investors should hope that the market keeps on dropping — and be ready to swoop in to take advantage of the huge bargains that would result.
The best shares for young investors
For the first time in a while, individual shares across the board are getting cheaper, giving you carte blanche to pick up shares of the companies that interest you the most at prices you haven't seen for a long time.
But if you don't know much about shares, which ones should you pick? You can always go with a broad-market index tracking fund or ETF. But choosing individual shares has a side benefit: You get a chance to invest up close, getting familiar with companies and learning about what makes one investment better than another.
In particular, young investors should consider shares that fall into these categories:
- Pick some shares that will outlast you. With 30 to 40 years or more before retirement, you want some of your portfolio to include shares that will be there when it's time to sell. You can expect to see continued growth throughout your lifetime from companies like Woolworths (ASX: WOW) and CSL (ASX: CSL), which have stood above their competitors over time.
- Take some risks. On the other hand, with so much time, you can afford to invest aggressively. Woodside Petroleum (ASX: WPL) is one of the world's leading producers of liquefied natural gas, helping meet the demands for cleaner energy from Japan, China, Korea and other countries in the Asia Pacific region. Iluka Resources (ASX: ILU) is a major participant in the global mineral sands sector. Both already have good histories, but each has much further to go if things continue to go well in their respective industries.
- Use dividends to your advantage. Even as they're buying modest numbers of shares with their limited funds today, many young investors don't realise that reinvested dividends will eventually boost their holdings by many times. Especially with high-yielding shares like Telstra (ASX: TLS) – our top blue chip stock – Westpac Banking Corporation (ASX: WBC) and QBE Insurance Group (ASX: QBE), putting your dividend payments back into buying new shares can help your portfolio multiply much more quickly over the years.
Finally, try to have some cash on hand to take advantage of situations like the one we're in today.
Occasionally, share market drops will give you a chance to buy in on shares that were previously more expensive than you wanted to pay. With some cash on the side, you'll always be ready to take advantage.
You're never too young to get started
Fortunately, young investors are more resilient than some give them credit for. Even as others panic about falling stock prices, some young investors will turn this into the opportunity of a lifetime by taking the plunge and getting off to a great start on their investing careers. You can too.
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