We’ve all got to start somewhere. Young investors looking to get into the markets and begin saving for retirement are doing it on the heels of one of the worst markets in history. But the great news is that there are big opportunities in exchange traded funds (ETFs) right now.
Don’t let the news scare you. Yes, we’ve seen unprecedented volatility in the markets in recent years and we all know someone who’s struggling. But out of the ashes of recession tend to rise low valuations and real bargains. Snapping them up now may position you for growth in the future.
Walter Updegrave for CNN Money notes some tips for any young investor starting out (or even an older one who needs a refresher):
- Don’t begin with stocks. Why? Well, to do it right, stock picking requires that you know your way around a company’s financial statements, understand how to analyze its prospects and then figure out whether those prospects justify its current stock price. There are plenty of ETFs to choose from that can alleviate this problem. One ETF alone can give your portfolio exposure to an entire sector or country as well as an asset class, commodity or currency. [Here are other things to consider when starting out.]
- Build A Portfolio: Because the investing world focuses so much on the performance of specific investments, it’s easy to get the impression that success as an investor depends on being able to predict which funds will generate the biggest returns for the year. But that’s impossible to do on a regular basis. Don’t chase performance. If you want to keep things really simple and don’t want to spend time thinking about your investments, you can get pretty much all the diversification you need with just three funds: a total U.S. stock market index fund, a total U.S. bond market index fund and a total international stock index fund. That trio will give you exposure to domestic and foreign equities, large and small stocks, value and growth shares and developed and emerging economies, and bonds. [All about the BRIC economies.]
- Don’t listen to the media: Monitor the progress of your investments and keep tabs on the economy and the markets. But don’t let one bad day or a small dip steer you off course – keep your focus on the bigger picture to ensure that you’re on track to meet your goals. [How to stop predicting and start trend following.]
- When to invest. Dollar cost averaging doesn’t necessarily work as well with ETFs as it does with other instruments because of trading commissions. For example, instead of putting $100 on a monthly basis, consider saving up your contribution and do a larger buy every three months.
- Have a strategy. This is our own contribution, and it’s advice that applies to any investor. We follow a trend following strategy that has buy and sell points we firmly stick to. [Read about trend following here.] Having a strategy and sticking to it will help you manage your emotions and position yourself for success.
- Know where to research. Visit our ETF Analyzer for information on fund performance and 200-day moving averages. Read our articles every day for news, ideas and useful tips. And to be extra sure you never miss a thing, subscribe to our completely free, daily ETF newsletter!
For more stories about trend following, visit our trend following category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.