What Advice Would You Give Young Investors?
What happens when you ask 7 Motley Fool reporters to provide advice to young people about investing?
- Take advantage of compound interest by investing when you are young. Here is an example they provide:
John invests $300 per month from age 40 to age 65 and earns a hypothetical 6.5% on this money every year. At age 65, John would have a nest egg of $212,000. That’s not bad, but if John starts at 25 instead of 40, that nest egg would grow to $632,287, or nearly three times as much!
- Don’t try to time the market, instead use dollar cost averaging…
Through an investment principle known as dollar-cost averaging, you can put the odds in your favor. Basically, by investing set dollar amounts over time, you end up buying more shares when prices are low and less when prices are high.
- Keep it simple, stupid…
An alternative approach, in turn, is to simply invest on a pre-determined schedule into a low-cost exchange-traded fund that tracks the S&P 500 — say $500 on the first day of trading each month. This is essentially what Warren Buffett encourages individual investors to do, and it’s the approach that people on Wall Street tend to use for their own money.
- You’re going to lose money and can’t always be right…
One of the biggest problems with investing is that emotions and ego tend to get in the way. I’m a very competitive person and I like to win – at everything. But, the thing about investing is that you’re only competing against yourself.
- Be a lifelong learner by reading…
Any investor just starting out would be well served by learning a lot about investing — and to keep learning, for the rest of his or her investing life. Read a lot. The Motley Fool has a host of helpful books, such as, The Motley Fool Investment Guide for Teens. Peter Lynch’s classic Learn to Earn is an insightful introduction, too.
You might ask your students to read the article and identify 2-3 tips that they feel they can apply to their lives as they consider investing.
Additional resource: Here is the WSJ’s panel of experts and their advice for young investors.
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.