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If you’re ready to enter the market, the experts want you to know a few things.
Investing is a great way to build wealth, but you have to be smart, says certified financial planner Kathy Curtis, founder and CEO of Curtis Financial Planning in Oakland, California.
It doesn’t necessarily mean following the latest hot stock or the latest trade.
“A lot of young people have a distorted idea of how to invest in the markets,” said Curtis, a member of the CNBC Council of Financial Advisers.
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“They are investing in an IPO [ initial public offerings]businesses they find cool,” she added.
“It makes sense for them to buy these things because they see friends and girlfriends using these products, but they don’t always understand if it’s a good investment. »
New investors flooded the market during the pandemic. Some accumulated under certain names, such as meme shares, or switched to cryptocurrencies.
While the S&P 500 is up more than 25% in 2021, things are different in 2022, down about 13% for the year. Cryptocurrencies have taken a hit.
This has led to increased skepticism about markets for young investors, said financial adviser Mitch Goldberg, president of ClientFirst Strategy in Melville, New York.
“Every generation has to go through this,” he said.
“This generation is no different than what we went through during the tech crash of 2000,” Goldberg added. “People thought that with the new paradigm they understood everything. »
Steps to follow
If you have a 401(k) plan, the first thing to do is invest in it, at least up to the business level, Curtis advised.
If this is not an option, open a Roth Individual Retirement Account. (See income limits here.) The money comes after taxes, so it’s tax-free and tax-free when you take it out. You can also withdraw your contributions at any time without penalty.
When choosing an investment, it is best to follow simple rules. Start by using a diversified fund like the S&P 500 index fund, Goldberg says. Not only will this help you grow your money in the long run, but it will also help you learn more about the markets.
Remember that history shows that the stock market goes up over time. Since 2009, the S&P 500 has averaged about 15% per year.
Also, set aside money to invest in your paycheck before you start spending, otherwise you’ll be relying on your willpower, Goldberg says.
“If you save and invest money before you spend the rest of your salary, your chances of becoming an investor and accumulating net worth increase dramatically,” he said.
Finally, for now, don’t get hung up on finding out how much you need for retirement, according to Goldberg. This can be overwhelming and prevent you from getting started.
“You just have to start small,” he said. “It could be $50, $100 a month or a week, just to get used to the idea of having money in another account. »
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Disclosure: NBCUniversal and Comcast Ventures are investors in brushes.