The stock market has had an interesting start to 2016, to say the least. The S&P 500 was down over 7% year-to-date after Wednesday’s close. Twitter, sadly, has had a tough start to the year as well, and I would advise you not to look at your P/L on Tesla if you happen to have some in your portfolio. Unless you’re an active trader, please try not to stress out over daily, weekly or even monthly moves in the stock market. But I am not here to tell you what stocks to buy or sell. I am not certified to do so, and you are not silly enough to take my advice (I hope). My message today is to invest in… something.
If you’re completely new to investing, the concept of watching an underlying financial instrument increase or decrease in value is important and underappreciated. Investing in a company or product will also help you understand the value of money, learn about interesting companies and business trends, and global themes like foreign exchange. Investing will also help you realize how little most people know about managing their money. If everyone had the same skills, the same information and the same risk appetite, there would be no market (you do need a buyer and a seller for a trade to work).
Investing, in general, can be intimidating because dealing with money often tends to be emotional and stressful for many people. Most importantly, you should not be making investments with money that you cannot afford to lose on any time horizon. Just like you would not place all of your Vegas trip money on red at the roulette table, you should not allocate your 401K portfolio entirely into one risky asset class. Sure, making a few speculative bets can be fun and might make sense given your particular financial situation, but please do not make disproportional allocations into the GoPro’s of the day. Today’s camera on a stick could be tomorrow’s Kodak. Technologies change.
Investing is not typically about getting rich. For most people, they make investments as an efficient way to manage their money. This can be in the form of a stock, a bond or a CD at your bank (though CDs typically offer very low returns due to our current low interest rate environment). If you want to include options, you can try a covered call strategy to seek additional income from your sideways-trading stocks. You will have a better idea which of these asset types and strategies makes sense for you after you determine your threshold for risk and your expected return on your investment.
Whether you have $100 or $25,000 to spare, there are plenty of opportunities to learn about investing; emphasis on learn. There are services that allow you to buy fractions of shares in companies in gift card-like formats. There are also many different brokerages that give you the freedom to make volatile day trades. I will leave it to you to decide where you fall on this spectrum, but the point is that there are many ways to get your feet wet in the world of investing. Down the road, the lessons learned from hobby-like investing will prove helpful in your career, in your housing search if you choose to take that route, in retirement planning, and maybe even in your not-quite-developed entrepreneurial endeavors.
There are many things to learn to be a more sophisticated investor or trader, such as a particular stock’s daily volume and liquidity, earnings fundamentals, debt levels and so on, but you can still learn a lot and participate in investing without being well-versed in these components (just be careful). Seek help from an investment professional or personal finance expert if you’re ready and want more specifics about how the process of opening a brokerage account works, but my free advice of the day is to always look for ways to keep learning (in all sectors of life).