At this point, I’ve been investing in stocks for many years, and I’m at a point where I’m more than comfortable doing it. But that wasn’t always the case. There was a time when I knew next to nothing about buying stocks, and saving for long-term goals was the furthest thing on my mind. Instead, I was focused on shedding the loans I’d taken out for college and funding whatever trip I was planning.
But now that I’m (thankfully) a bit wiser when it comes to buying stocks, there are certain things I wish I would’ve known in my early 20s. Here are some key tips I wish I could’ve given my younger self.
1. Start right away
I didn’t begin to invest in stocks until I was almost 30, and while I had my reasons for waiting, it also set me back a lot in terms of growing wealth. If I could go back, I’d start buying stocks at a younger age.
To illustrate the importance of doing so, let’s say you decide to invest $300 a month in the stock market — namely, the S&P 500 index. Let’s also assume that in the course of your lifetime, the S&P 500 delivers an average annual 9% return. That’s a reasonable assumption given the index’s past performance.
If you were to invest over a 40-year period at that return, you’d wind up with $1.2 million — clearly, a nice pile of cash. But watch what happens when you start investing five years earlier. If you extend your investment window to 45 years, you get an ending balance of almost $1.9 million. That’s a substantial difference — which is why I wish I didn’t miss out on almost a decade of investing.
2. Don’t be afraid of stock market volatility
Early on in my investing career, I sold some stocks out of panic when they started to tumble — and took a loss in my portfolio as a result. Looking back, I realize how silly that was. While it’s true that some stocks can simply be underperformers, and that unloading them can be a smart choice, in my case, I reacted to a bout of stock market volatility.
Now, I know better. In fact, I generally make a point to not check my portfolio too often. This especially holds true during stock market crashes. The way I see it, I don’t need to be tempted to panic-sell, and while the logical part of my brain knows that’s the wrong thing to do, it’s better not to put myself in that situation in the first place.
3. Don’t worry about scoring the lowest stock price
At several points years ago, I tried chasing stocks on my watchlist during market downturns in an effort to snag them at the lowest price possible. That was a mistake, and in several cases, I wound up losing out on solid buying opportunities.
In fact, as much as I’d like to chalk up market-timing to being a rookie mistake, the reality is that I’ve fallen victim to it more recently as well. But the thing I do try to remind myself is that when buying a stock, I shouldn’t question whether it will continue to go down. Rather, all I really need to do is ask myself whether I think it will go up. If it will, then it’s a buy — even if I’m not getting the absolute lowest price.
We all make mistakes, and in the course of investing, there are certain choices I regret. Thankfully, though, I’ve learned from them. Well, almost — I do have to work on not trying to time the market, which I’m tempted to do on occasion. But for the most part, I’m happy to be past the newbie phase of investing, because now, I can work on building a portfolio from a place of confidence.
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Original source: The Motley Fool
