Be Broadly Diversified and Turn Off the Ticker
I know this is not the sexy approach to investing. We all hear the cocktail chatter about how someone made a killing on this stock or that stock. In reality, the storyteller is likely using their selective memory only to mention their winners. They never mention their losers -- the Internet startup that went bust.
|There's no need for this to become your life.|
The shoot-the-lights approach to investing is oftentimes an all-or-nothing bet. The thinking is that "it is only X dollars, so it is OK if my investment goes bust." But investing $1,000 a year wisely can turn into real money.
For example, assume a 25-year-old invested $1,000 each year into a brokerage account. Also assume that investor earned a net return of 6%. After 40 years they would have about $155,000. The "it is only $1,000" mentality can cost investors real money over time. The reality is, the hot idea you put the $1,000 into generally won't pan out so well.
So how does one adopt a go-slow approach to investing? Very simply, by saving a regular amount and investing it in low-cost investment vehicles. My suggestion is to use a broad-based index mutual fund or exchange traded fund. Mutual funds may not work for young investors, as there is usually a several-thousand-dollar minimum initial investment per mutual fund.
While ETFs do not have a minimum investment amount, they typically have a trading commission for each purchase and sale -- relatively low at $8 per trade, but an $8 commission on a $1,000 ETF trade equates to 0.8%. Fortunately, many of the large financial firms, such as Fidelity and TD Ameritrade, now offer certain ETF commissions for free.