Just a couple of months ago, the newspapers started to publish articles advocating the use of CFDs amid volatile markets. The Pros and Cons have been discussed, but the message seemed to be that CFD is a solution for people who want to short the market or have limited funds, i.e. the young adults.
Ironically, the tone was immediately changed after the collapse of MF Global. Articles cautioning the danger of investing in CFD were seen nearly every day.
There were a few articles on Sunday Times prime news featuring three “young risk takers” who started their trading in their early 20th. The stories astonished me.
In one of my earlier blogs, I mentioned that a teenager asked me for quick stock tips probably without first trying to understand the dangerous financial jungle.
Throughout my experience during my financial advice career, I met many young adults or fresh graduates who were eager to put their money to “work hard” for them. Like them, you may be sold the idea that when you are young, you can take higher risk investment because you have longer investment time horizon.
I beg to differ. Many financial institutions support the ideas because they make money when you take on risky investment with them. Young adults, being financially unstable and illiterate, are often misguided.
For example, banks, investment houses and brokers like to organize investment contests for students and young adults. Such contests, in my opinion, will always have disastrous negative effects.
I still vividly remember that just before 2008 global financial crisis, when the stock market was booming (and just before it collapsed), an newspaper article reported that a teenager, without much financial knowledge, has “outperformed” a few fund managers in a virtual stock trading contest. When interviewed how he achieved it, he said he just “buy the top volume stocks every day” and soon the investments became profitable.
What did that tell you? It is not so difficult to invest after all right? If a teenager can do it, so can you!
Now it is not difficult to see why even through “started investing in the financial market about four years ago” (2007) and lost $4,000 in his first investment in Citibank shares, the 23 years old interviewee in the article “Young investor defied his parents“, has never been so confident,
‘My parents were unhappy because people who lose money are always in the news, but they don’t hear of the instances when I make money‘
In another story “Newbie unfazed by trading losses“, “since the 21-year-old opened her trading account, her portfolio has been hit by the volatility plaguing the stock markets since August”… “Together with her equities, her portfolio, funded by her savings, is now worth about $30,000. She has lost about $2,000 on paper.” but she “is not deterred“.
In the seemingly encouraging article “Managing parents’ portfolio paid off“, the interviewee
‘Initially, .. lost quite a large chunk of my portfolio. Eventually I had to rethink my strategies and even managed to recoup my losses and I made a slight profit,’ he said.
When I looked at their young yet ambitious, naive yet confident photos, I can understand them, because I was taught and thinking the same way as they did.
However, being in financial services sector for nearly 7 years, I can confidently tell you this:
Obtaining financial independence via investment is not non-achievable. However, it is never easy and especially hard for young adults without proper guidance. The internet has turned modern investment battlefield into an online Casino. Sometimes you win, sometimes you lose. Don’t be too happy or too sad. At the end of the day, the Casino runs the game, you are just a player.