Advice for Starting Out as a Young Investor
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The time to plan for your future is now. In reality, the next stages of your life are right around the corner. Planning cannot be put on hold. Perhaps the greatest part of life's journey is financial security. Being financially secure allows one to maintain a comfortable lifestyle, be stress-free, and live a full and prosperous life.
Start saving early and often. Use a spreadsheet to calculate and track your spending, or find a percentage of the money you receive that you would like to put toward savings. Consider getting a job you can handle- it can range from babysitting or mowing lawns in the summer, to an involved internship at a company. Be frugal, and put the majority of your earnings toward savings.
You might ask: now, what should I do with my accumulated savings? Certainly don't store them under your mattress. Inflation, or the general rise in the price of goods over time due to a decrease in a currency's monetary value, occurs at a rate of about 3% per year. The goal is to overcome this rate of inflation, and to increase the value of your savings. Even putting your savings into an account at a banking institution won't do your money justice. The key is creating an investment portfolio. Most people fail to remember that investing is saving.
Before you start investing, it may be a good idea to use a mock investment platform like CAPS to get a feel for how the stock market works. This way, you can gain some valuable experience without risking any real money. Create a portfolio with familiar stocks like Apple, Facebook, or The Coca-Cola Company. Once you have a feel for basic investing, it is a good idea to think about forming your own portfolio.
First, you will need to find a trading platform that fits your needs. Once again, stay away from banks for trading- their fees are generally too high. You've probably seen ads on TV for E-Trade and Scottrade, but these aren't the only ones out there. Smaller sites, such as TradeKing will often times have a decreased (or no) commission and low flat fees, giving you the best bang for your buck.
Now you need to decide how dedicated you want to be to the portfolio. There will certainly be times when the market goes down, but you need to always think about the long term. Statistically, there are two of three years that will be good, with one bad year. The odds are still in your favor. The stock market as a whole doubles around every 8 years on average. Occasional downturns can also create a great buying opportunity, as you can purchase things at a highly discounted price. Often the time when everybody else is getting out of the market is the time when you want to become even more involved.
You certainly don't want to put all your money into the market at one time, so be diligent with your choices. One recommendation I might make is to invest in a general stock market ETF (exchange-traded fund), such as Vanguard's Total Stock Market ETF (NYSEARCA: VTI). A fund like this encompasses nearly every part of the U.S. market as a whole. By investing in the whole market through a single ETF, you can safely diversify your investments with the ease of having just one ticker symbol to track. Once you learn more over time and research, you can add other investments to develop your portfolio.
Hopefully this advice has given you an idea of how to properly manage and accumulate savings. Remember, time is key and start investing now! Then sit back, and watch your savings grow with the market and enjoy the feeling that your money isn't losing value as time passes! By investing responsibly at a young age, you are setting yourself up for a lifetime of financial security.
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