Investing is challenging. I have made a lot of money in the stock market, but I’ve also lost a lot of money there as well. Early in my trading career, it was like a pendulum swinging from one side to the other. I would make money, then lose it all, make money, then lose it all. This cycle would repeat until I finally stopped trading.
I went to 100% cash, and told myself that I would never trade again until I figured out how to invest. I went on to spend months studying the experts, analyzing my trades and actions, and developing my unique trading strategy and plan. Finally, after a months-long hiatus from live trading, I went back into the market. This time with much more solid and consistent success.
Below are the lessons I was “fortunate” enough to learn early in my investing career.
These 10 “Quick & Dirty” tips will drastically help any professional (young or older), as they would have saved me many thousands of dollars had I known and acted on them sooner than I did.
1. Stop what you’re doing
Before doing anything, stop for a minute. Do not proceed until you take care of the basics. Investing is hard and expensive if you don’t have a plan. Essentially everyone is making money as the market roars to record highs, but do not be led to believe that this will continue. What happens if the market dips down by 20%? Are you prepared? It is easy to become lackadaisical when things are apparently “easy”. But before doing anything, you must have a plan. This will save you lots of money, as it would have for me when I started out! Holding your money in cash is not the end of the world. The stock market will be there tomorrow and the day after, but you can only take advantage of it if you are still have money in the future to invest!
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” – Peter Lynch
2. Set investing and financial goals
What are you trying to achieve? Where does investing fit into your wealth plan? Set your goals, and make them specific (I use Evernote to keep all of my goals)…
How much do you want to stock away every paycheck, every month, every year? Where do you want to be in 5 years financially? If you could have one financial accomplishment for this month, what would it be? And out of your investing, what are you really trying to achieve?
Be realistic. 10% per year every year is much better than most, so don’t expect to double your money in 1 month. You can make much more than 10% per year, but it takes work to get (and stick to) a plan and also remain self-aware enough to succeed. Start with some goals, then you can develop a plan to attack those goals.
3. Take advantage of free money!
If your company offers a retirement match (for example, if you put a percentage of your earnings into a retirement plan, they match that up to 3%), at least put in that amount. You’re thinking, “Wait, you just told me to stop.” I did, but this is different. Take advantage of this great benefit. It is as close to free money as you can get, and is usually in a tax advantaged account.
4. Learn who you are
As humans, we are not built to be great traders. Actually, we are conditioned to be absolutely terrible traders. Our emotions (see: fear, greed) get the best of us, and make investing very difficult. We want to buy when everyone is buying (at the top), we want to sell when everyone is selling (at the bottom), and we don’t see things as they truly are. Before you try to be a successful trader or investor, you have to learn what style of trading fits your interests, strengths and emotional level. There is no one single way to invest. There are tons of different profitable investing strategies. Some people prefer to trade actively and make small profits (and small losses), while others prefer to take a long term approach and invest with a time-frame that is in months, not days or minutes. It doesn’t matter which way you decide to invest, you just have to be sure it fits you and your goals. You have to 1) figure out what time-frames and strategies fit for you, and even more importantly, 2) do not deviate from the plan.
“An investor’s worst enemy is not the stock market but his own emotions” – Unknown
5. Pay down any debt
Many young professionals try their hand at trading. They make a few good guesses, get lucky, and think they’ve got it figured out. Investing seems easy. Then, when conditions change and the market drops, they lose all of their profits and then some. Meanwhile, they are paying interest on credit cards and student loans. So, not only do they lose money in the stock market, but they “lose” money by paying interest when they could have put the money they were investing down towards this debt. I’ve seen it countless times, and continue to see it happen today. You cannot be financial free with debt, so pay this off and you are well on your way to massive wealth!
6. Don’t be a hero
Investing is hard. There are professionals and computer programs that are more than happy to take your money. With that said, success is easily achievable with a plan and some patience. Don’t expect overnight success, and don’t try to get your retirement money in one big bet. Add, and continue to add to your investments. For young professionals, it is so important to realize this. Slow and steady is the best way to investing wealth. The keys are to take advantage of time and compound interest, and avoid the major losses. By not trying to be a hero, you can surely conquer these keys!
“The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham
7. Turn off CNBC
CNBC is just like any other television station out there. They are an entertainment business. All that they want are viewers so that they can get advertising dollars. So, please recognize this. Young professionals can easily get pulled into thinking that the folks on CNBC are right all of the time. They will say to buy a certain stock, but they don’t tell you anything on how or when to sell it. When do you take profits? What happens if x/y/z occurs? Nobody ever knows b/c they quickly move on to the next talking head. Now, you can learn a lot from CNBC, and it is really interesting entertainment a lot of the time. Just do not make investing decisions based on the advice given on any entertainment show.
8. Never listen to a hot-tip
If something ever seems too good to be true, it usually is. I hate to be pessimistic, but I see it over and over again. The quickest way to lose money is by listening to a “hot-tip”. People believe they have an “inside” source. They know someone that knows someone at this company, and they’re about to “explode!” No they’re not. The first few times you hear people tell you to invest in something b/c it is a “can’t-miss” opportunity, monitor what happens with that person and their money. We have such a fear of missing out that it is easy to get engaged and believe that it is true. It is just like the lottery. However, the way to true wealth, is to have a solid system in place. Do not let the emotions get involved, and surely, do not listen to a “hot tip”.
9. Create a plan
Now that you know who you are, let’s create a plan (to be covered in a detailed post soon). Some of the questions to ask are:
What type of time frame is good for you, what are your goals? What do you want to achieve? Are you investing or trading (there is a difference)? What are you trading? Why? When are you going to buy? When are you going to sell?
A plan eliminates your worst enemy when you’re investing: yourself.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
10. Stick to your plan
And the most important tip once you get to this point is to never deviate from the plan! Now, if your plan isn’t working in the time-frame that you lay out in your goals, then you can change the plan. But never ever deviate from the plan in the middle of the action.
- Max out your retirement benefits if you have them.
- Develop your financial and investing goals – 6 months, 1 year and long term.
- Evaluate who you are and what your investing style is.
- Pay down any debt as fast as possible.
- Develop an investing plan.
- Stick to your plan.
Justin Williams says
Great post Austin! These are some great investing tips! I know it sounds simple but love the part about having an investing plan. So many people do not have this. I was just talking to someone the other day about returns and how much money they would have to have to become “financially free” and the thought had never even occurred to them to work towards such a goal. Info like this is invaluable to so many!
Amber Hurdle says
Tell them to call me, Justin. Sounds like they need a coach. Haha!
Justin Williams says
You got it Amber 😉
So true, Justin. So few people actually have a financial plan and even less have an investing plan. Can someone build a house from scratch without some plans? Maybe, but it won’t last. The same is true for building your wealth.
Financial freedom is something we will talk a LOT about. Stay tuned!
Amber Hurdle says
Austin, kudos to another great post. I love that you just break it down into easy to digest “how to.” It takes the mystery out of it all! I had a great investment mentor who saw me as a young, single mom of two and started talking to me about it. I never asked. He was a retired GE executive and told me that if he had a daughter he would teach her such things, so he wanted to share his knowledge with me. He even gave me a book about women and finances. On that note, I would say that having a mentor of sorts would benefit any young professional. Just someone you could ask questions to that has been there, done that, but doesn’t have any financial gain from providing advice. Thanks for kick in the pants, too. I need to refocus my efforts in this area.
Amber, thanks for sharing. A mentor is an absolute must for any young professional! Especially in regard to finances. I hope that I can provide some insight, just like your mentor did, to help others!
Celest Horton says
Thanks Austin! Another great post.
I agree that having a game plan is crucial for most things in life and financial success would be at the top of the list.
Also, on the topic of free money, I once worked for an Oil Company that had a Long Term Stock Savings Plan and I was only allowed to invest 1% of my income. However, it was structured so amazingly that at the time the company paid $12 for every $1 that I invested. When I left the company the LTSSP was higher in value than my company matched 401K where I was investing 15%. Just think if I hadn’t taken advantage of the LTSSP and the money that could have ben lost?
Way to take advantage of that FREE money, Celest! That is exactly right. And kudos for putting away 15%. That is outstanding, and is much higher than average.
Thanks for sharing.
Kate | EntrepreneurOnFire says
Love the quick and dirty here – I really appreciate you sharing your experiences with us so that we can learn (and avoid) these mistakes. Investing is definitely not “easy” or predictable. If it was, then everyone would be good at it, right? 🙂 With the help of you and YoPro, I look forward to making myself a smarter and better investor. Thanks for this post!
Kate, that is what we’re here for! To make all young professionals smarter with their finances and investments!
Anthony Tran says
Great tips Austin! I’ve always been interested in investing in stocks… but you are right don’t watch CNBC. They just build up anxiety and makes me feel anxious to sell my shares of stocks… when ultimately I should be studying economic trends. Investing is a long term goal… I have to keep reminding myself.
Exactly, Anthony. Their entire goal is to get your emotions involved! That is marketing 101. Investing should NOT be an emotional thing, although it is for 99% of folks.
Thanks for your comment!
Paul Colaianni | TheOverwhelme says
This is really awesome advice! The “Hot Tips” item is especially good, because how many times do you watch a financial “guru” give you a hot tip one day. Then that tip doesn’t pan out, but he never addresses that he was wrong about it!
Watching those TV shows on where to invest your money is bogus. They know us much as we do! It’s all an educated guessing game. Love this stuff. Thank you!
You’re right, Paul! These “gurus” are never held accountable for their picks. Some are good, some are bad. Once you learn to take their advice with a grain of salt, then you’re already a step ahead of the competition.
alex harris - alexdesigns says
Oh yea, #7 got me. If Kramer can do it, I can. No way, Ill stick to the CFP. Great post Austin.