What financial pros wish they knew about investing when they were young
For many young adults, investing can feel like navigating a labyrinth. Where do you start? Where are you going? How do you avoid costly mistakes?
The truth is, even the most seasoned financial experts weren’t natural born investing gurus. They’ve all, at some point, been beginners, grappling with the same uncertainties and anxieties all newbie investors face.
The good news? Through experience and education, they’ve learned valuable lessons that by sharing here can help you build a solid foundation for your own financial future.
Here’s a look at what a group of financial experts wish they’d known when they were young.
Day trading isn’t investing. Investing is a long game.
Many new investors, lured by the fast-paced, high-stakes depictions of Wall Street in media, might be tempted to jump into day trading stocks.
Joe Conroy, a certified financial planner and owner of Harford Retirement Planners in Maryland, says he wished he’d known the difference between investing and trading when he was younger.
“I thought investing was being hyperactive with my account,” he says. “Now I know that most successful investors are more diversified and much longer term in their thinking about what they own.”
Constant monitoring and frequent trading can be stressful and time consuming. For most new investors, building wealth through a long-term, diversified investment approach is more realistic and sustainable.
An easy way to do that is with a handful of low-cost index funds or broadly diversified ETFs. Popular stock indexes like the Standard & Poor’s 500 and the Nasdaq Composite track a large basket of the top U.S. companies, so an index fund gives you instant exposure to a wide section of the market, even if it’s your only investment.
If you’re not sure how to get started, here’s a list of the best index funds, all with low fees. Passively investing with stock funds lets you benefit from the overall market’s growth over time, without the hassle and risk of individual stock picking.
Sean Williams, a CFP and principal at Cadence Wealth Partners in North Carolina, echoes Conroy’s sentiment.
“Investing is a long-term, consistent strategy. It’s boring, but it works,” says Williams. “It’s not about picking stocks that are ‘going to the moon.’ There’s another term for that strategy, and it’s speculation, or gambling. It’s a lot more exciting, but the house usually wins.”
Save and invest first, splurge later
Landing a higher-paying job can feel like a financial windfall. Suddenly, that dream car or designer bag is within reach. You’ve worked so hard for it, too. The urge to splurge is natural, but succumbing to the temptation can trigger regret later.
Conroy remembers his first big purchase early in his career — a $1,500 flat-screen TV.
“That same TV is worthless now,” says Conroy. “If I had invested instead, it would have been a huge boost to a downpayment on my first house.”
His advice? After landing your first big job, put some money away first, and spend on a splurge second. Think of your raise as an opportunity to accelerate your financial progress, not a free pass to break the bank.
Tune out the constant stream of stock market noise
Stock market fluctuations can be nerve wracking, especially for new investors.
Matt Stagner, a CFP and a lead advisor at Foster Group in Iowa, recommends tuning out the constant barrage of market news.
“Don’t get caught up in what the markets are doing,” he says. “Spend your time learning, saving, planning and working. Leave the stock buy/sell decisions to the right low-cost advisor.”
Market fluctuations may be unsettling, but don’t deviate from your well-diversified, long-term investment plan in response to short-term news hype, says Stagner.
You do you: Leave comparisons at the door
Social media and the curated portrayal of other people’s lives makes it easy to second-guess progress on our own financial journey.
But this constant comparison game can be detrimental to your financial well-being — and your mental health.
“Comparison is the thief of joy,” says Stagner. “Everyone’s path is different. Some people inherit money, some get help from parents, some have financial hardships with no assistance at all.”
He adds: “Asking ‘how can they afford that, but I can’t’ could make you miserable or lead to overextending yourself.”
Save early
The earlier you start saving, the more time your money has to grow exponentially through compounding. Saving consistently and aggressively lets you maximize the powerful effect of compounding growth when you’re still young.
Stagner regrets not having a bank account in high school. He worked a lot of hours, especially in the summer, but cashed and spent each paycheck.
“Just saving a portion of those earnings could have given me a head start on an emergency fund or other financial goals,” he says.
Stagner now encourages his own children to save early by matching their contributions in Roth IRAs.
Not every dollar needs to go to your 401(k). Cash is good, too
Trying to max out your 401(k) retirement account at work is admirable, but having cash on hand and investing within your means is also important.
“Starting out, I was determined to invest as much as I possibly could — enjoying the 401(k) balance going up — even before I had mastered short-term cash flow and emergency funds,” says Stagner.
But life throws curveballs. Unexpected car repairs, medical bills or a job loss can wreak havoc on your finances. Without a proper emergency fund, you might be forced to tap into your investments, disrupting your long-term goals and racking up penalties on early withdrawals and taxes.
“There’s a balance between spending and saving,” says Stagner. “Tying up all your available funds in your employer’s retirement account could help you in the future, but it could lead to unnecessary struggles in the meantime.”
Don’t be afraid to get aggressive
Stephanie Genkin, CFP and founder of My Financial Planner in New York, wished her younger self had picked a more aggressive stock allocation.
After landing her first career job, Genkin played it safe with her investments. She allocated half of her portfolio to stocks and half to bonds, per advice she received from her well-intending boss.
“As a financial advisor now, that asset allocation is similar to the one I use for some of my clients the year they retire,” she says.
While this approach might seem prudent, Genkin now appreciates the opportunities and significant growth stocks can provide, especially for young investors with a long time horizon.
“I could have safely held a 90 percent stock and 10 percent bond allocation and, as a result, had a lot more in retirement savings,” says Genkin.
The stock market, while experiencing ups and downs, has historically exhibited an upward trend over the long term. By investing in stocks at an early age, you allow your money to weather short-term fluctuations and potentially benefit from substantial growth over several decades.
Get advice from an independent fiduciary
Financial advisors can be valuable resources, but it’s important to make sure they’re working in your best interest.
Williams warns against working with brokers or agents masquerading as advisors.
“My first advisor was a salesman,” says Williams. “They’re not bad people and still can provide a great service. But there will always be a conflict of interest and never a fiduciary obligation.”
He recommends seeking out independent, credentialed advisors serving as fiduciaries who don’t earn commissions for selling products.
Not sure how to find an advisor? You can find a qualified independent financial advisor in minutes using Bankrate’s AdvisorMatch.
Bottom line
Even financial experts make mistakes. Thankfully, when you’re young, there’s time to make mistakes and learn from them.
A throughline from all the experts we spoke with: Building wealth takes time, discipline and a solid foundation. By prioritizing long-term strategies and cultivating a healthy balance of risk and return, you can set yourself up for decades of financial success.
