Some young adults are ambitious and prepared to take risks to build wealth early. What are their options?

One approach that may not require a lot of capital if they are very lucky is to buy small company shares that may one day make the big time. This is very risky. For every big winner there will probably be twenty that go broke, and another twenty that survive but remain small. 

On rare occasions big successes can occur. Computershare Ltd cost 11.25 cents at its share market float. Six years later it hit $9 per share, a return of eighty times the original investment.

Appen Ltd shares cost 50 cents initially. Five years later they were worth $30, a return of sixty times the original investment. This strategy requires thorough research, persistence and tolerance of losses. It’s also very difficult to decide when to sell.

Another less risky strategy is borrowing to buy appreciating assets such as residential or commercial properties, hobby farms and perhaps later, larger farms. A portfolio of major company shares also qualifies, or share funds investing in them. 

This approach requires more capital to begin with as only a portion of the purchase price can be borrowed. Great care must be taken in selecting the best property at the right price. Strong growth potential is essential, and a high rental income can help pay the loan.   

A share portfolio should include major Australian or international companies or both. Diversification across a large number will manage the risk best. Share funds do that very well. 

The lowest risk method of building wealth is slowly, without borrowing, using the power of compound interest over a long term. There may be an initial deposit but regular small ongoing contributions over many years are essential.

That is how superannuation works, but saving into a non-super growth fund that will be accessible when needed, also works well. Suppose a savings plan is started with $2,000 initially, has $400 per month added to it, and earns 8 per cent per annum. After five years it will be worth $32,370.

After ten years it will grow to $77,617 and after twenty years $245,461. That is compounding power at work. Adding a little extra regularly will boost the balance considerably.

So will earning a higher interest return. That can be achieved by choosing more growth-oriented investments. When a very long term is involved, such as with superannuation, selecting high growth investment options is usually very beneficial.

Young people have time on their side. They should take a risk and have a go at building wealth. Professional advice can help.