Getting started with investing can feel overwhelming. If you’re a Gen Z investor trying to learn the ropes, advice from a seasoned professional can be invaluable. To help Gen Zers figure things out, GOBankingRates consulted Stuart A. Schiffman, MBA, CFP, ChFC, the managing partner of Compound Wealth Advisors in San Diego.
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Keep reading to learn six investing tips for Gen Z from an esteemed baby boomer investor.
Also see expert tips for new investors on how to invest money.
You Will Get Four or Five Chances
“A trader once told me that I will get four or five chances in my lifetime to make a substantial sum of money,” Schiffman said. “What he meant is that the market will take a nosedive four or five times or about once every 10 years for any one of a number of different reasons.”
Schiffman said this advice was correct. “The first crash I remember happened a few years after I started working in the industry,” he said, which was in 1987.
“I will never forget that, because one fellow I knew took his entire life savings and invested in the market the day after Black Monday,” he said. “Within a week, the market recovered.”
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Don’t Act On What Others Tell You
“Another spark of wisdom came from a trader at Merrill Lynch,” he said. “He told me to always think about what circle you are on.”
Schiffman said the trader described the three circles of information to him. “The first circle is the inner circle, these are the people that hear the information first from an insider or someone closest to the actionable news,” he said. “The second circle hears the news from the first and still may have some ability to profit on the trade.” He said the third circle of people hears the news from those in the second circle.
“The information by now is fully baked into the price, and these investors are the most likely to lose money by acting on news they think is timely,” he said. “Always know what circle you are on.”
Invest In Yourself First
“For most people, I think investing is akin to gambling,” he said. “Your emotions are your worst enemy, and your investment can become a brain drain.”
Consequently, he advised Gen Z to invest in themselves first.
“Get the education you need or invest in the business you want to start,” Schiffman said. “If you can save money, invest in an index fund and let it grow, but don’t think about it too much.”
Check Your Emotions at the Door
“Humans are not wired to be investors,” he said. “Our animal spirits tell us to buy when prices go up and sell when prices go down.” However, Schiffman said this is the opposite of what should be happening.
“A 20% mark down brings out shoppers galore, not so in the stock market,” he said. “Waiting for those big pullbacks are often the best trades you will ever make.”
Given this, he said hands-on investing isn’t for everyone.
“If you are the type of person who constantly looks at your investments, you probably should not be managing your own money,” he said. “Let someone who is less vested emotionally manage it.”
Don’t Try To Time the Market
“No one has tomorrow’s newspaper,” he said. “Historically, if you miss the best up market days of the year, you probably have missed the majority of this year’s market returns.”
Therefore, Schiffman said consistency is advisable.
“Staying invested through ups and downs of the market will be your best way of earning stock market returns,” he explained.
Compound Your Money
It’s easy to be tempted to spend your earnings or interest, but Schiffman said to reinvest those profits.
“If you do, your investments will grow geometrically over time,” he said. “It may not seem like a lot the first few years, but if you are patient, your money will soon double.”
He offered a formula to calculate out how long this will take.
“Divide 72 by your average growth rate during the period, and this will approximate how long it takes for your money to double,” he said. “For example, if you expect 8% per year growth, it will take 72 divided by 8, or nine years for your investment to double.”
Knowing this can better help you plan your investment strategy.
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This article originally appeared on GOBankingRates.com: I’m a Baby Boomer Investor: 6 Tips for Success I Want Every Gen Z Investor To Know
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
