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Finding the market tough right now? Here's how young investors can be smart with their money

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Investing was hot earlier in the Covid-19 pandemic — stock markets boomed, as did retail investing apps, meme stocks and cryptocurrency. Trading suddenly appeared fun and accessible, especially to young people.

But things are different now. High inflation and interest rates, a looming recession, the war in Ukraine, and the global cost-of-living crisis are dampening financial markets.

And investing becomes trickier because of that, said James McManus, chief investment officer at investment firm Nutmeg.

"So far, 2022 has proved to be a difficult year for investors, with bond and equity markets both experiencing volatility," he told CNBC's Make It, adding that some of those conditions will continue to weigh on markets in the coming months.

What history shows

But investing is still a good idea, Myron Jobson, senior personal finance analyst at investment platform interactive investor told CNBC's Make It.

"History has shown that investing can yield better results than cash savings over the long term," he said.

"Some people may be waiting for a better time to invest in the market, but the truth is, no-one knows when that might be and there is a good chance that you would be unaware when that time comes," Jobson added.

For many young investors, this might be the first time their portfolio is consistently making losses. That might seem worrying, but it's actually part of a normal cycle, Jason Hollands, a personal finance expert at investment management and planning firm Best Invest, told CNBC's Make It.

"Equity markets will periodically face losing streaks […] and every investor will experience these from time to time," he said.

Think long term

That's why young investors should think long term, Jobson and Hollands said.

"Investing is for the long-term. Set yourself clear goals, which should be at least three to five years in the future, only invest money that you won't need in the short-term," McManus said.

In fact, a sluggish market could even be a good thing, Hollands said.

"Long term success as an investor comes down to buying high quality companies when their share prices are relatively low and selling them when they are high," he added.

To protect your investments from market movements, it's critical to make sure you invest in a range of asset types, Jobson said.

"One of the best ways to fortify your invested cash from stormy markets is to have a balanced, global portfolio," he said.

That could include investing in different regions, types of assets like stocks and bonds, and sectors — such a mix of tech, health care and transport.

"Nervous investors can drip feed investments monthly to help smooth out the inevitable bumps in the market," one analyst said.
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It's also important to decide how many risks you want to take, McManus said.

"Risk is a natural part of investing, but it's good to understand how you will feel about seeing your money go down as well as up, and choosing a portfolio that matches your risk appetite," he said.

Take a 'gradualist' approach

There are also some more specific strategies that could ease the stress of navigating difficult markets, according to the experts.

British pound (or dollar, euro and so on)-cost averaging is one of them, according to Jobson.

"Nervous investors can drip feed investments monthly to help smooth out the inevitable bumps in the market," he said.

The approach relies on investing small amounts of money on a regular basis, whether markets are up or down. Proponents of the strategy say it makes investors less emotionally invested and more disciplined, but its critics argue that when markets rise consistently, the approach means you get less investment value for your money.

Hollands, likewise, said investing gradually can ease concerns about timing investments.

"This gradualist approach will help remove worries about getting your short timing right and smooth out some of effect of gyrating prices," he said. "You just keep on going through the ups and downs and won't be blown off you long-term course by news and market jitters," he added.

McManus agreed that the approach can make volatile markets easier on your portfolio. But there's another approach he also recommends that goes back to the idea of keeping a diverse portfolio.

"Try to avoid the FOMO," he said, adding that even though that may be boring, following trends can be risky.

"There can be a lot of hype around individual stocks or particular sectors, and while you may want to hold some of these as part of a diversified portfolio, only investing in the latest trend is, quite literally, putting all your eggs into one basket."