5 Things Every Young Investor Needs to Do
Elizabeth is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Of course, every young investor should religiously follow Warren Buffet’s famous advice to “Read everything you can.” But what comes after that, once you’ve exhausted your city‘s supply of library books and the Internet’s supply of grossly conflicting analyst opinions? Here, I share five lessons I learned firsthand from my early days as an investor.
1. Invest something. It doesn’t have to be all the money you’ve ever earned, and it doesn’t even have to amount to much. Invest your birthday money, or your bonus, or your tax return- it doesn’t matter, as long as it’s something. What’s important is that you’re stepping it up from the stock market game you played (and probably lost, if it was around 2008) in high school, because “investing” $10,000 of Monopoly money is nothing like the real thing. What’s at stake with 10,000 Monopoly men versus 10,000 of your hard-earned, sweat-stained cash? As Warren Buffet once said, following the market is like holding hands, but investing with real money is something else entirely.
2. Stop checking your stocks every fifteen minutes. Seriously. I partly blame Apple (NASDAQ: AAPL) for infecting young investors with ants-in-the-pants every time we’re waiting in line, on lunch break, or bored in class- the Stocks app makes up-to-the-second quotes way too available to the average investor. Even Yahoo! (NASDAQ: YHOO) Finance is just a click away from your sneezing panda video. Unless there’s big news hitting the ticker that day, like an earnings report or a statement from a CEO, resist that undying urge to check your portfolio’s gains just one more time before the market closes. I know how fascinating it is as a first-time investor to watch the market volatility before your eyes, but you’ll drive yourself mad and have nightmares that stock price graphs are strangling you if you’re there to witness every market drop of the day. Speaking of that...
3. Your stock dropped 5 cents today. Get over it. I know that when you’re making minimum wage TA’ing organic chemistry, losing $50 in a day feels like the worst thing ever. Don’t forget the reasons why you started investing when you watch your roommate drop his paycheck on XBox 360 games: you’re making an investment both for your growing portfolio and for your education. Sure, if you make a profit of $150 off the $1,000 you made from participating in round-the-clock psychological experiments at your university, that’s awesome. But if you lose everything (which I really doubt you’ll do, but in which case you might want to hire a stockbroker or something), that’s still a fraction of what you’d pay for a corporate finance course. Consider it worthwhile either way, and chill out.
4. Beware of trends. There’s a series of questions I always get when my fellow investors realize I’m the only person in the room under the age of 50. Are you going to follow the Facebook (NASDAQ: FB) IPO? Did you follow the Facebook IPO? Did you lose a truckload of money with the Facebook IPO? Why’d you youngsters convince me it was a good idea to invest half my portfolio in the Facebook IPO? Okay, so no one said that last bit to me, but somewhere, I’ll bet someone my age is getting hit over the head with a cane by an angry social media investor. No, I did not invest in the Facebook IPO, nor did I encourage any of my more experienced counterparts to dump their life savings into something as stable as a social media site under routine web maintenance. And if you’re a young investor, you should probably steer clear of the hordes of hype-lovers. No one says you need to invest in the trendy stock of the season just because you’re young and hip. (Maybe try Urban Outfitters (NASDAQ: URBN) instead?)
5. Don’t know what you’re doing? Good, ‘cause neither does anyone else. You can read every financial statement ever issued, use Google (NASDAQ: GOOG) to look up everything Warren Buffet said in his entire life, and pore over Benjamin Graham’s The Intelligent Investor until you’re blue in the face, but in the end, the experts are just as bad at predicting the market as you are. While it’s definitely a must to thoroughly research companies, read up on different investment strategies and historical practices, and learn what the difference between earnings per share and earnings per diluted share is before you invest, you’re going to make mistakes. And that’s okay, because every investor ever has. And if you know what a hedge fund is, you’re probably already ahead of the curve.
LizPowers has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Facebook, and Google. Motley Fool newsletter services recommend Apple, Facebook, Google, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.