Investing 101 for the Passive Investor

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The benefits of investing are plentiful: it helps grow our income, it aids in providing for retirement, and it can even teach us a thing or two about business. But investing can also be intimidating and seemingly a lot of work. I’ll share tips from some financial experts, as well as my own experience, to help you passive investors out there get started.

First, Start Now!

Tackling the world of investing can seem daunting to even the bravest of souls. But none of us is getting any younger, and one of the most basic concepts of investing is that the longer you’re doing it, the better your returns will be.

When I first started investing, I was tempted to wait until I had a certain amount of money before actually buying a fund. But that’s only reducing the time my money has to grow.

“The most common regret among older investors is wishing they had started earlier,” says Michael Banks, founder of Fortunate Investor. “Get out there and invest – however you feel comfortable doing it.”

“If I could give my younger self some advice, it would be to invest as much as I can as often as I can,” adds David, founder of Zero Day Finance. He emphasizes that just a single year of waiting can make a huge difference – even if you’re only investing $50 per month, putting off investing for a year could cost you more than $10,000.

“Even if you can only invest a small amount each month, do it,” he says. “You’ll be surprised how well you’re doing 10 years down the line.”

The most common regret among older investors is wishing they had started earlier.

Online Investing Makes Things Easy

Gone are the days where you have to pick up a phone, call a broker, and place a trade. You can now easily make investments online through reputable companies, including Vanguard, Capital One, Charles Schwab, TD Ameritrade, and E*TRADE. I use the first two for my investments and find them both to be quite user-friendly, but they’re all great places to get started with investing.

These sites allow you to pick from a variety of investments, such as stocks, bonds, mutual funds, index funds, and ETFs – exchange-traded funds, which are similar to stocks but include a diverse mix of assets as opposed to just focusing on one company, as an individual stock does. These online investment companies also provide research and news while offering the ability to develop a portfolio based on risk, growth, and sector. It’s worth doing your homework and seeing which funds fit your investing style.

In the past few years, micro investing has become more popular, too. Banks suggests looking at apps like Acorns and Betterment, which can get you up and running for as little as $5. 

investing 101

Don’t Fall Hard for Individual Stocks

You’ve likely heard a story of an investor striking it rich by getting in on the ground floor of some hot company. While it’s true that you’d have made a good chunk of money if you invested in Amazon, Google, or Apple when they were just getting started, there are far more stories of companies fizzling out and investors losing money trying to find the next big thing.

One of the first stocks I invested in was a company in the oil and technology sector. I had read an email (that I later realized was a sponsored post paid for by the company) that recommended it as a “must buy.” Foolishly, I bought into the hype and put some money towards it. Within a week, the company had been suspended by the SEC for a variety of reasons, but primarily because they were falsifying how well the organization was doing.

I sold the stock as soon as the suspension lifted, and I lost more than half of my initial investment. Today, the stock trades for below one cent per share – it’s effectively worthless.

Since you’re investing for the long term, it’s best to avoid individual stocks. Rather, focus on investments like a Roth IRA, 401(k), or other index or mutual funds. These will help you build up a nest egg for retirement and are far simpler (and less risky and time-consuming) than individual stocks. Timothy G. Wiedman, D.B.A., PHR, SHRM-CP, and a retired Associate Professor of Management & Human Resources at Doane University, recommends that young beginning investors open a Roth IRA targeting the Vanguard Target Retirement 2060 Fund.

“For a novice investor with limited funds who seeks peace of mind, that would be a very sensible approach,” Wiedman says. “While you may not have many exciting investment stories to tell at backyard cookouts, it will rarely result in any loss of sleep.”

Staying invested over the long run is the best strategy.

Don’t Try to Time the Market

While many investors may preach the goal of “buy low and sell high,” there’s a better adage to follow: time in the market is more important than timing the market.

“All active trading does is lessen the return to the average investor,” says Robert R. Johnson, PhD, CFA, CAIA, President and CEO of The American College of Financial Services. “Staying invested over the long run is the best strategy.”

It’s easy to overreact when the market is down. I’ve had investments that have dropped quite a bit over a span of weeks or even months, but unless I’ve known there’s something fundamentally wrong with the company or fund (as was the case with my suspended stock), I’ve learned to channel my inner Aaron Rodgers and just R-E-L-A-X.

Selling your investment on a whim isn’t the way to go. Remember: until you actually sell, you haven’t lost any money at all. You can ride out a few bumps in the road to reach better gains.