Investing while you're young is smart, but a lot of young people aren't taking the right approach these days. We talked to a CFP to see what she suggests. This was originally published on The Penny Hoarder, which helps...
Investing when you’re young is one of the smartest things you can do, but here’s one mistake a lot of young investors are making this year: They’re trying to time the market.
To try and anticipate the various booms and crashes that the stock market will inevitably go through is a fool’s errand.
If you’re a novice investor, you can’t possibly have the time, resources or ability to know when investing in the stock market is “safe.” Entire departments of full-time workers in the finance world are dedicated to predicting when the market is “safe” and when it’s “not safe” — and even they are often wrong.
Instead, focus on the long term. Economic ups and downs are going to happen, and you have to look beyond that at how the stock market performs over long periods of time.
“The timing of your investment matters much less than how much time you have to invest,” says Robin Hartill, a certified financial planner who’s also an editor and financial advice columnist at The Penny Hoarder.
“The S&P 500 has delivered inflation-adjusted returns of about 7% per year on average for the past 50 years. The cost of waiting for the perfect time to invest is high. You’re missing out on long-term growth.”
Her advice: Take the long view. The stock market will grow your money over time, so you might as well get started sooner rather than later.
“If you were hoping to make a quick buck off the stock market, now may not be a great time,” she says. “We’re still in a recession, but the stock market has recovered. But true investing isn’t about making a quick buck. It’s about growing your money over time.”
Use This Strategy to Avoid a Common Investing Mistake
The best way to invest is to build a routine around it.
Hartill recommends budgeting a certain amount of money to invest each month, no matter what.
“Rather than trying to time investments based on what the market is doing, the best way for most investors to build wealth is to practice dollar-cost averaging,” Hartill says. “Budget a certain amount each month to put in stocks and automatically invest it, regardless of whether the market is up or down.”
And it’s important to note you don’t need to throw thousands of dollars at full shares of stocks at once. In fact, with an app called Stash, you can get started with as little as $1.*
Stash lets you choose from hundreds of stocks and funds to build your own investment portfolio. It makes it simple by breaking them down into categories based on your personal goals.
Plus, you’re investing in fractions of shares, which means you can invest in stocks you wouldn’t normally be able to afford.
For instance, Amazon stock has been doing pretty well, but a single share of Amazon stock costs more than $3,000. With Stash, it’s easy to buy a piece of Amazon if you can’t afford a whole share.
“Some people may not like this approach because they’re hoping to pinpoint the exact moment the market has bottomed out, but it rarely works out that way,” Hartill says. “Instead, people miss out on the best days of the market that often follow a crash and often wind up overpaying for stocks. Consistency is a much better strategy than market timing.”
If you sign up for Stash now (it takes two minutes), Stash will give you $5 after you add $5 to your investment account. Subscription plans start at $1 a month.**
Then, commit to setting aside a certain amount of money each week, paycheck or month to put toward investing.
*For Securities priced over $1,000, the purchase of fractional shares starts at $0.05.
**You’ll also bear the standard fees and expenses reflected in the pricing of the ETFs in your account, plus fees for various ancillary services charged by Stash and the custodian.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.