Every stage of the investing journey is full of lessons. Financial professionals have the skill and expertise to go into the weeds and be tactical and crunchy when they share their investment wisdom, but many clients are still new to investments or green in their understanding.
There can be value for even experts to reflect back on first principles, so with that in mind, some of the VettaFi Voices share their earliest investment lessons.
Lara Crigger, Editor-in-Chief, On the Power of the Compound
When I was 15, my mother opened a custodial brokerage account for me and purchased a few stocks on my recommendation. We spent maybe a couple hundred bucks, all totaled. My stock selection methodology was truly something to behold: I liked the way Mac computers looked, so she bought Apple; I liked yogurt, so she bought Nestle; and so on.
I still own some of these early purchases, and it’s been the best illustration I could have asked for in the power of compound growth. In the intense focus over which stock or ETF’s price is whipsawing this day, this month, this quarter, it’s all too easy to lose sight of the fact that compounding is where the real money of an investment is made.
What that early experience taught me is really the foundational core of investing: Buy well. Hold for as long as you can. Sell when it makes sense. It sounds so easy. But if it were, everybody would do it!
Roxanna Islam, Associate Director of Research, On Investing Small
I had just graduated from college and starting working in the financial industry, so I wanted to start getting into stocks but only had about $100 to invest.
I was hesitant, because what was the point of throwing pocket change into something? I decided to do it anyway, and it turns out even a little can go a long way after several years in the market. Those little bits can really add up!
Also, I realized that there’s a legitimate strategy behind investing a small amount every month in the same security (dollar-cost averaging). Investing regularly can help lower volatility, since it can be extremely difficult to time the market and find an entry point.
Stacey Morris, Head of Energy Research, On Rolling With The Punches
When I was around 10, I put $500 in a mutual fund. At some point, I realized it had gone down in value, and I called my financial advisor (conveniently also my aunt) in a tizzy about losing money.
She told me about the value of investing for the long term and not getting too caught up in the day-to-day moves of the market. It may be tempting to try to time the market or sell when everyone else seems to be running for the exits, but I think there is a lot of merit to long-term investing through different market environments, especially if you are relatively young and your savings are geared towards a retirement that is a long way off.
Todd Rosenbluth, Head of Research, On Time in the Market
My wife and I opened up small accounts for our nieces when they were born with the intention of adding to it regularly. While we often forgot to add to it, 18 years later there’s a meaningful amount we gifted to them because we started early. Time in the market, not timing the market, is what matters.
As soon in your life as you can start investing, start to do it and try to let the investments work for you rather than trying to determine when the right time to invest in XYZ fund is. It was probably yesterday, so get started today and let the decades you have before you need the money for retirement be an advantage for you. Yes, there are actively managed ETFs that you can use to have professionals help with the timing of what to buy, when, but being invested early makes a big difference.
I believe in the KISS principle of investing. Keep it Simple, Stupid. There are lots of products to consider, but if you don’t understand what you own, you likely own something that will not work as you intend it to. So whether that’s a portfolio of only one low-cost S&P 500 Index ETF and one low-cost core bond ETF or you also want to add in some strategies tied to small caps, or a theme like robotics or some international equities, make sure you know what you actually own by looking at the holdings and summary breakdown of the portfolio.
One More Piece of Investing Advice…
Rosenbluth shared one additional piece of advice: “Many ETFs sound the same but own different stocks. One fund which has value in the name might own what you think of as growth stocks, or vice versa. It is up to you do the homework and not just buy the cheapest or largest fund.”
For more news, information, and analysis, please visit VettaFi | ETF Trends.