6 simple investing tips for beginners

Business Insider

Investing correspondent Laila Maidan offers six simple and effective tips to level up your investing game.

Transcript

00:00 Depending on where you are in your career, don't panic if you don't have money saved up or if you

00:05 haven't started saving towards retirement. Over half of U.S. households don't have any retirement

00:11 savings, but what you can do is start thinking about it now so that you can somehow get ahead.

00:17 My name is Leila Maiden and I'm going to tell you six ways of how you can level up your investing.

00:22 Diversification. You want to have a diversified portfolio. This way, not all of the assets that

00:29 you're invested in are going to move in the same direction, especially when that direction is

00:34 downwards. What does diversification look like? Well, it could look like having a portfolio that's

00:40 60% stocks and let's say 40% bonds, or it could look like having some real estate or having some

00:48 commodities or having some exposure to foreign stocks as well. And so as the economy changes,

00:55 let's say we have high inflation or interest rates rise, certain asset classes will either go down

01:01 or up. And so when you're diversified, you remove the risk of losing a lot of your portfolio.

01:08 Invest regularly is the second tip. So a good way to do that is to set something in your account so

01:15 that every month when you get your paycheck, it pulls a certain amount, whether it's $50 to $1,000,

01:21 however much you think you can allocate. And that number will grow substantially over time.

01:25 Think about it as money that you might invest in a pair of pants that you may throw away

01:30 in a year. If you invest that in stocks, you'll see great returns. I'll give you an example. I

01:36 had a source of mine that I interviewed that years ago was advised to buy shares of a company that he

01:44 spends money at. And so for him, one of his favorite things to drink was Coca-Cola. And so

01:49 he would invest $5 to $10 a week in Coca-Cola stock instead of just buying Coca-Cola. And when

01:56 we looked at his account years later, when I was interviewing him to see what his retirement fund

02:01 looked like, he didn't even realize that that investment grew to $50,000 just from those shares

02:08 alone. Now, I'm not telling you to go and buy Coca-Cola stock. But what I am saying is something

02:13 as little as $5 to $10 could be a really surprising amount years down the line. Tip number three is

02:20 one that a lot of people can overlook because it's often in a fine print of a fund that you're

02:24 investing in. And that's the fees that come with these funds. And those fees can look really small

02:29 at first, anything from 0.02% to 1%. But in the long run, that variation could have a huge

02:37 difference in how much a fund can cost you. Let's say you have a fund that costs or has fees of

02:43 almost 1%, depending on how much you've invested and for how long, that cost could amount to six

02:49 figures from your retirement account. You really need to pay attention to that. But at the end of

02:54 the day, if you don't have an option to have access to a low fee fund, let's say because your

02:59 401k has limited options, it's still better to invest even if the fees are a little higher

03:04 rather than not invest. Our next tip is consider short term treasuries. When you buy a treasury or

03:10 a bond, you're the one that's loaning the money to a government, for example, and you're getting

03:16 paid the interest on that. For the longest time, treasuries had a very low interest rate. And so

03:21 the yields weren't really high. And a lot of investors didn't really pay attention to them.

03:25 But basically, right now, we have yields close to 5%. And so let's say you need your money soon,

03:32 and you don't want to buy, let's say a bond that's 10 years long, you can invest in treasuries as

03:37 short as a month to a year. Compounding essentially means is that you're not relying on your primary

03:44 investment alone. As let's say your investment returns 7% a year, that 7%, you're not going to

03:51 withdraw it, you're going to keep it in the account. And so that number gets bigger over

03:55 time. A lot of people don't invest because they think that well, they don't have enough money or

03:59 make enough money to invest enough that there's going to be an impact on that money. But in

04:05 reality, if you really look at the long term outcome of investing, say, over 10 years, let's

04:12 say you invested $1,000. And then from there, every month, you invest another $100 over a span of 10

04:19 years, that could amount to $23,000. Just by looking at the historical performance of the S&P

04:26 500 alone, it's important to remember that all investing comes with risk and past performance

04:32 is no guarantee of future results. You want to avoid the concentrated risk that comes with

04:37 investing in individual stocks. I know that can be an eye roller. But in reality, it's really risky

04:44 when you're investing in single companies as a big chunk of your portfolio. Imagine a hedge fund

04:49 manager or even a fund manager, they spend hours on end and they have a whole team that looks into

04:55 individual stocks and their earnings releases. And even they don't get it right. So imagine

05:00 the disadvantage that a retail investor could be at when the majority of their portfolio or a big

05:06 chunk of it is concentrated in investing in individual stocks. It's just not the best way

05:10 to go about it. It's really important that you think about investing towards a retirement fund

05:17 at an early age. I know it's not something that maybe a Gen Z will think about and maybe some

05:23 millennials as well. But you know, a lot of people think that Social Security is going to have their

05:28 back when they retire. But if you really look at what you get per month from that, it's not enough.

05:34 If you start today, it'll be easier because you can invest less and see more of a return,

05:39 as opposed to if you wait until 30s or 40s, you're going to have to invest a lot more money

05:45 to see the same amount later. And so that's really important to remember.

05:49 All the way down to the cutting board, all the way down to the cutting board so you can see it.

05:56 Sounds good. Pour it in? Yeah, pour it right in that little hole.

05:59 We did it wrong. Let's cut. No!

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