6 Helpful Tips for Millennials Learning to Invest
For independent late 20-somethings like me, starting an investment portfolio can be one of the last and most exciting steps on the ladder to 30. Think of what it requires. First, a stable job that allows you to save is a requisite to beginning a meaningful foray into the stock market. Not only does this mean you have expendable budget to invest, but also the ability to absorb loss. Second, a vision for the future of which investment is an important part. The reason people invest is solely for future gains, whether long term or short. Third, knowledge of how to invest. It is crucial to have a strategy, to know about the ebbs and flows of markets, and to know about what you are investing in.
One of the major difficulties people like us face is knowing where to start, or even how to start. Compounding this problem is the fact that when it comes to finance-related topics, everyone has an opinion about the best way to do it. Here are a few tips to help you get started.
- What’s best for you is what’s right for you.
There’s nothing wrong with listening to others. You’ll soon discover the financial news industry has more or less made listening to others a commodity. However, no one has a crystal ball that predicts the market. No, not even Jim Cramer. No matter what you do it is crucial that you do it within your means – whether time, money, or both.
- Start with small to medium cap companies.
Unless you can afford to buy 500 shares of Netflix – which is trading at around $435 a share at the moment – you’ll need to look for companies with a small to medium market capitalization. If you own more shares of a company whose stock has risen, you stand to gain more if and when you sell the stock. Conversely, if you own two shares of Netflix and the stock rises $5, that $10 won’t be enough to offset fees charged by your broker. A.K.A. you lose money.
- Pick a manageable basket of stocks and learn about them.
Start small. Research 20-25 stocks and slim them down to a list of about 10. As a working professional, chances are time constraints won’t allow enough time to monitor 30 different stock investments. Not knowing about or paying attention to your stocks is tantamount to sin in this industry, so as a beginner think about keeping it simple.
- Have an exit strategy.
Greed ran a train over the market (and our post-degree job prospects!) in 2008. Don’t let it do the same to you. Have an idea – a soft resolve – about the price at which you’d be willing to sell your investment. Remember, it may bet higher or lower than what it was when you bought it!
- Pick an online broker and new news sources.
You’ll have many broker options such as TD Ameritrade, Etrade, Fidelity, and more. Whatever you choose, keep in mind cognitive fluency. This is a fancy word for the ease at which you are able to understand digest the information as presented. Also, understand and compare how much they charge and what they charge for. As for news sources, bigger names like Yahoo Finance, Google Finance, Bloomberg, and more, tend to have more even-keeled commentary. Channels like message board and forums can be interesting thought exercises – and certainly fun – however keep in mind what I said about crystal balls.
- Enjoy wins, expect losses.
Needless to say not even Babe Ruth hit 100% of the time, and neither will you. Obviously the goal is to see investments rise more than seeing them fall, but losses are part of the business. When you are up, keep your exit strategy in mind, and most importantly – enjoy it!