Dear Dagen: What I Learned While Getting Started in Investing
When I started working as a financial journalist more than five years ago, I didn't know jack.
I didn't understand the difference between the
New York Stock Exchange
and the
Nasdaq
or between the buy side and sell side. Sure, I knew what a stock was, but what was an index fund?
I used every resource (animate and inanimate) that I could find to figure out how the financial world operated. Some things worked, while some ended up in the trash with my
Dominick Dunne
paperbacks.
I have tried to come up with a list of pointers for investors who are just getting started, things that certainly helped me. And by the way, I'm still learning.
What Sayeth Thou?
Use caution when listening to anyone who's making predictions about markets, stocks or funds. It is not that everyone is wrong or biased, but skepticism never hurts. (This especially goes for online chat rooms.) Getting multiple opinions on any subject is essential.
It's Who You Know
Not all of your friends and acquaintances will know more about the markets than you. But the ones who have some investing experience may be a wise place to turn when you have a question.
Keep That Money Out of Your Hands
Every month, I try to save a few hundred dollars. Well, even $40 would be nice. At least that is what I say I am going to do. Never happens. Instead, I invariably wind up with a new pair of shoes. Now I have dozens of pairs of shoes and no savings. What I need to do is invest via automatic contributions from my bank account every month. This is a wise idea for anyone who can't avoid draining his or her bank account every month. A 401(k) plan will accomplish the same thing.
Read On
Your first thought in pursuit of a financial education might be to buy a book. That could work for you. Not me. I will end up reading about 10 pages and then picking up
Entertainment Weekly
instead.
TheStreet Recommends
Instead of a book, pick a financial publication you like, and read it every day, week or month:
The Wall Street Journal
,
TheStreet.com
,
SmartMoney
, whatever. This way, you are slowly familiarizing yourself with the terminology and concepts of investing without the pressure of poring over a book.
Join a Crowd
If you are making your very first investments, you probably are better off putting your money in a mutual fund rather than starting off with individual stocks and bonds. With a single mutual fund, you can get exposure to a wide range of stocks, possibly different asset classes. If you are trying to construct a stock portfolio on your own, you will be faced with numerous decisions that may be too overwhelming if you are just getting started. (Read Brenda Buttner's
piece on making the most of a one-fund portfolio.)
Why Bet the Farm?
If you have never invested before, you may want to start out with a relatively small sum of money. For many mutual fund companies, you need a few thousand dollars (roughly $1,000 to $3,000) to open an account. You can also start an account with a smaller minimum investment if you agree to make regular, automatic contributions into your account.
Green Says Buy
Don't base any decision on a single stock or fund rating, be it stars, numbers or otherwise. Certainly, these rating systems are helpful, but picking a stock or fund requires a broad examination. If you can't understand how a rating works, don't use it. (Contributing Editor Brenda Buttner's
guidelines on mutual fund investing are a good place to get started.)
Postpone That Trip Overseas
If you are still familiarizing yourself with the U.S. markets and investments, don't worry about learning the inner machinations of the Russian stock market. Start by investing in the U.S. first and heading overseas at a later date.
Guidance Counseling
Once you are knee-deep in cyclicals and tech stocks, you might decide you would like some advice after all. Sometimes it might pay to use an adviser or broker if you don't like doing it all by yourself. There's no shame in paying for advice, as long as you get your money's worth.
But know where your adviser is coming from. It's just like buying a car. If you are talking to someone at the local
Ford
dealership, the salesman isn't going to suggest you buy a
Toyota
. For more information, read our
piece on how to choose a financial planner.
No Rush
Focus on learning about the markets and different investments before you start investing. Take your time and don't worry that you might be missing out on the next
Microsoft
(MSFT) - Get Microsoft Corporation Report
. Instead, think of all the disasters you'll avoid by educating yourself first.
Send your questions and comments, along with your full name, to
deardagen@thestreet.com.
Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.
