What advice would I pass on to a beginning investor? Is this advice applicable for a retired investor? You be the judge.
Investing does not require a finance degree from the University of Chicago. For starters, check out this video to see just how simple it really is. To broaden your knowledge, read a few investment books. There really are not that many worth your time, but this is one I highly recommend as it is short, to the point, and highly understandable.
Here are a few basic hints you will find in the above video and the recommended book.
- Save on a regular basis. Pay yourself first. If you are not saving or living below your means, all the other words of advice are meaningless.
- Begin saving as early in life as possible. Follow The Golden Rule of Investing.
- Use Exchange Traded Funds (ETFs) or index mutual funds for your investment securities. Avoid individual stocks unless you are highly skilled in stock analysis. Leave individual stocks for your mad money thrills. I prefer ETFs as I am able to set limit orders. This allows me to pick up shares at lower prices. Using limit orders also results in missing orders so one might use limit orders sparingly.
- Stick with basic low cost ETFs such as VOO and VTI. As an example from this blog, follow the Copernicus portfolio.
- Use a Roth IRA to its fullest extent. Taxes are likely to be higher in the future so pay the taxes now and max out your Roth IRA each year.
- Diversify your portfolio. I highly recommend setting up an Intelligent Portfolio with Schwab. Check out the Schrodinger portfolio as an example. Follow this portfolio for a few months and see if it does not make sense. You may wish to set up two Intelligent Portfolios where one is significantly tilted toward equities (stocks) while the second is more balanced between stocks and bonds. Then track both over time to see which is the better performer.
- Never carry credit card debt. If you don’t have cash, don’t buy it. Two exceptions: 1) First car and 2) House. Education might be a third.
- If your employer has a 401 (k) or 403 (b) plan, max it out and never touch it until retirement.
- Watch CNBC and other financial shows for entertainment only. Avoid their advice as it is generally meaningless. I refer to them as “pump and dump” shows that are designed to mislead the uninformed populace.
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