You’ve just landed a great job and paid off your student loans. Maybe you’ve started contributing to your 401(k). Young people are ideal investors, because they usually don’t have families to support, and they have many years during which their investments will have time to grow. How should young people make the most of their investment opportunities?
Many young people are attracted to the stock and bond market. High-risk, high-return products appeal to those with time to spend on them. We’re not here to discourage young investors from trading Wall Street products; be smart about it, and you’re likely to do well. However, many young investors, especially those who work in banking, are already wary of the market. After all, they were in school when the financial system ceased to function.
Others are interested in entrepreneurial ventures and startups, which are also high-risk, high-return products. When lending to startup founders, however, remember that the rate of startup success – those who survive for more than three years – lingers around 20%. Gloomier yet, the group of startups that IPO is just a small fraction of the total pool. However, if you have a passion for entrepreneurship, now is the time to enjoy it.
A smaller number of young investors seriously consider purchasing land. This puzzles us, as young people make perfect land bankers for two reasons:
First, young people have time. In land banking, the most impressive gains happen for people who give their properties time. Young people with at least 40 years until retirement can profit immensely from land, because land in the path of development is priced differently depending on how soon it will be developed. More expensive parcels are 5 or 10 years away from development; cheaper ones are further away. Young people who buy land parcels and wait for them to be developed can see 300% and 400% returns on their investments.
Second, the most profitable land developments will take two or three decades to come to fruition. In California in particular, interest in alternative energy (solar, biofuel, and wind) is growing. All of these solutions require large tracts of land, and building them into sustainable businesses takes time. Young people who invest in land to be used for solar or wind farming today will benefit the most from land banking.
Finally, land banking is a low-maintenance, low-stress way for young people to begin saving for… whatever they need to save for. Though retirement is far away, investing in land now will make it easy to retire in the future. When they do choose to start families, young people who are invested in land will have a stable, illiquid asset that can serve as a source of funding for their children’s college educations.
As a young person, it’s natural to be drawn to risky investments that promise instant gratification. But before you build your portfolio exclusively from stock and bond investments, consider the benefit of a stable, safe investment for the long term. Diversify through land banking. For more information, please contact us!