5 investment tips for people 20 and over who don’t know where to start
- If you are new to investing, it can be difficult to know where to start.
- Financial planners recommend starting with some research and then automating your investments to make things easier.
- They recommend starting as early as possible and keeping it simple.
- Read more stories from Personal Finance Insider.
Over the past year and a half, the topic of investing has been making headlines and capitalizing on conversations among friends, colleagues and family. During the pandemic, we have seen a surge in the economy, an increase in the number of cryptocurrency-conscious people, and more than 15% of people investing for the first time.
However, a group of people, the Gen-Zers (those born between 1997 and 2012) did not rush to invest. According to a GOBankingRates survey, 34% of Gen Z respondents haven’t invested their money at all, and 62% of survey respondents say their financial situation warrants professional advice.
So if you’re new to investing, here’s what five financial advisors consider a good place to start.
1. Automate your investments
According to financial planner Adam Scherer, a key point to consider when investing is consistency. That is why he recommends setting up an automated recurring deposit scheme. It’s not as difficult as it sounds: Most online banking and investing portals allow you to set up a recurring payment to your investing account, just like you would a bill payment.
This strategy has the added benefit of creating an investment strategy called the dollar cost averaging, which regularly puts the same amount of money in the market regardless of market patterns, thus resisting the impulse to “synchronize the market.” Or withdraw money as it goes down and put money in as it goes up. Only the professionals have business trying to time the market – and it is still extremely difficult for them.
âWhether you’re directing a portion of your paycheck to an investment account or making periodic, recurring investments in an app, making it easy to save,â says Scherer.
2. Keep it simple
When you first dive into the world of investing, financial planner Joseph Favorito says it’s best to keep your strategy simple.
âBuild your portfolio around low cost passive index funds where possible. Wall Street is constantly trying to play on the fears and emotions of investors with new products like annuities, ESG funds and equity-linked CDs, âsays Favorito. âThese are all ways to make you pay more to buy the same investments and feel better with a mirage. You’d better stick with traditional index funds that offer consistent performance and wide, diversified market exposure. “
3. Take the time to learn
Even though it seems tempting to rush out and take the plunge, financial planner Jay Zigmont recommends investing only in things you understand.
âTake the time to learn about investing before you start,â says Zigmont. âYou can work with a CFPÂ® professional to learn more about investing or learn on your own. Either way, you need to understand what you are investing in before you buy. “
Scherer also recommends taking the time to research the costs associated with your platforms, accounts, and investment funds. âThese have the potential to create a ‘drag’ on your overall investment gains which, in turn, impact the likelihood of success for your financial planning goals,â Scherer explains.
4. Start as soon as you can
When you feel like you’ve done enough research and are ready to start, financial planner Jay Karamourtopoulos recommends starting as soon as you can because delaying your start can have a long-term impact. This is through compound interest, in which interest earns interest on itself. The longer your money has been in the market, the more it can earn – and even a few years make a big difference.
âInvesting and saving early in your life and career will have a huge impact on your long-term and retirement savings,â says Karamourtopoulos. âStarting now will prevent you from having to catch up later in life. “
5. Diversify your investments
One final tip that financial planner Jason Field says is important for newbies to know is the art of having variety in your investment portfolio. This is called diversification.
Just like you wouldn’t keep all of your proverbial eggs in one basket (what if you drop the basket?), You shouldn’t plan to keep all of your money in one stock or in the same market. By investing your money in different ways, you protect yourself against any loss if a stock or market falls.
âDiversification plays an important role in risk management. Many people use mutual funds or ETFs to gain broad exposure to different markets and diversify their portfolio from a single stock, âsays Field.