If you didn’t grow up around people who invested, then chances are that you still may not know a whole lot about the process. It may seem like something you should do as an adult but otherwise difficult to wrap your head around. Particularly for young adults who entered the job market during the Great Recession, the idea of investing heavily in the stock market still carries a certain level of fear.
Yet, with the right knowledge and guidance, young investors are quite capable of successfully creating a portfolio that will deliver solid returns. To help you gain that crucial insight, 15 members of Forbes Finance Council share the most important things young investors should know about getting started with stocks.
1. Educate Yourself First
Get to know the basics of the stock market before jumping in. Financial metrics, stock selection and different investment accounts can have an effect on your investments. Knowing how the stock market works is the best way to ensure you don’t suffer big losses to start. Start with what you know, keep your options open and diverse, and be vigilant with your choices. – Greg Herlean, Horizon Trust
2. Build An Emergency Fund
First, a young investor needs an adequate emergency fund — covering six to nine months of expenses — prior to investing. Then, determine what the risk tolerance is and what the allocation of types of investments should be. I would recommend young investors keep equities in retirement accounts, such as IRAs, or 401(k)s, where there is tax-deferred growth and compounding for a long time. – David Frisch, Frisch Financial Group, Inc.
3. Find A Fiduciary
There are four main ways to create wealth: save, invest well, own equity in a company or inherit. Saving is easy. Live below your income every step of your life. Invest those savings in a well diversified portfolio. Understand investment fees and performance so you are making smart decisions. Don’t get your advice from the internet; find an adviser who is a fiduciary. – Sharon Bloodworth, White Oaks Wealth Advisors
4. Start Saving Now
The most valuable asset you have when you start young isn’t your ability to pick the right stock or pick the right time to start investing. It is time in the market. Don’t worry about the daily volatility of the markets, just start saving now. Start with your employer 401(k) plan (especially if there’s a match) and just choose a diversified fund like the Vanguard Total Market index. – Scott Bishop, STA Wealth Management
5. Take Advantage Of A Longer Runway
One of the primary advantages individuals gain by investing at an early age is a longer runway. This may sound counterintuitive, but a healthy appetite for risk can be rewarding for young investors. You and the market both have a longer time to recover from any setbacks. Consider investing in a highly-rated aggressive growth fund. You can always calibrate your exposure to risk as you age. – Ismael Wrixen, FE International
6. Don’t Be Afraid Of Taking Risks
Without taking some risk, you will reap no reward. The best time to get involved in the stock market is when there is a recession. People are scared and selling valuable assets for a fraction of their worth. If you are cash rich and playing a longer-term game, this is the best place to make some serious money. – Khurram Chohan, Virtual CFO Group
7. Conquer Fear With A Rational Process
When markets are volatile, investing tends to be scary, whether you’re a first-time investor or a seasoned veteran. You can mitigate some of that fear by investing for the long run using a consistent, rational process and by bouncing ideas off of people you trust. Learning from the experience of those around you can be a great way to stay grounded and build conviction. – Bernard George, Nvstr
8. Choose A Good Brokerage Firm
Getting started doesn’t require you to be an expert in stocks. Learn as much as you can, and choose a good brokerage firm to guide you. Most of these offer digital investment systems that you can easily follow. If you choose a few stocks that aren’t major winners, remember that time is on your side right now. You are learning by experience, and that will serve you in the long run. – Danielle Kunkle Roberts, Boomer Benefits
9. Only Invest What You Don’t Need
The beauty of the stock market is that one person has the ability to diversify an individual portfolio — whatever it is you want to do. You can invest as little or as much as you want in huge companies and really be a part of someone else’s journey. Investing always has and will continue to pay dividends with patience, but only invest what you don’t need today. – Sal Rehmetullah, Fattmerchant
10. Start Slow, Then Pick Up The Pace
Young investors feel professionals aren’t truthful about risk. Evasiveness and incomplete information only serves to keep this group frozen in cash. Young investors want the truth about bear markets and should begin with a conservative allocation including bonds until they understand how volatile stocks are. Start slow. With experience and time, young investors can increase allocations to stocks. – Richard Rosso, Clarity Financial LLC
11. Avoid Penny Stocks And Do Your Research
As someone who’s personally gotten involved with the stock market during the 2008-09 economic crisis, it’s important to conduct a lot of research into companies. Avoid penny stocks and other over-the-counter stocks that may be volatile. Start by investing in ETFs and mutual funds that analyze companies across a multitude of industries. – Ben Jen, Ben Jen Holdings SLLC
12. Start Networking
If you are a young investor who wants to get started with stocks, start networking and use your resources. Find people in this field and ask them to recommend educational resources that can bring you some comfort and confidence as a beginner in this market. You can also research for online courses that will teach you the basics and gradually learn everything needed to master your new skill. – Geanette Rodriguez-Ojeda, ARRI Rental
13. Spread Risk And Seek Dividends
The two most important things when investing in stocks is to spread your risk and invest in companies that give dividends. By spreading your risk and investing your funds across a number of different securities, you mitigate your risk if one or two stocks perform poorly. Also, look for stocks that pay out dividends on a regular basis. It’s a great perk on top of any stock gains. – Jared Weitz, United Capital Source Inc.
14. Don’t Let Emotions Drive Your Strategy
Don’t let market volatility (which is normal and cyclical) deter you from investing in the market. As a new investor, your investment strategy and plan should be designed to help you reach your long-term goals. Having a plan that accounts for these future goals, coupled with a well-diversified portfolio, can help mitigate some of the anxiety that can come along with market swings. – Jay Shah, Personal Capital
15. Learn How To Make Sound Decisions
Many view the stock market as a roller coaster, but they ride it the wrong way. Instead of a quick ride full of highs and lows, start the ride early, travel through the small bumps and know it will go back up in the decades between today and retirement. Remember, though, the key to financial success doesn’t depend on the market’s performance but on the sound financial decisions you make each day. – Jeff Motske CFP®, Trilogy Financial