The Problem With Investing

NEW YORK (TheStreet) -- New investors never know where to turn. They never know where to look. They hear stories about 1,000% returns overnight and are either lured into the wrong, shady investments, or are overly cautious -- as perhaps, they should be -- and hoard their cash in low-return assets, sometimes not even beating inflation.

By why is this?

My main problem with investing is how it is perceived by the general population -- and how it fails to find itself in the classroom. While I can't wholesomely speak for everyone, most high school students are required to learn about everything but finance.

Finances are private. Finance is something you talk about with your parents -- but only when the kids are old enough, of course.

That's the old adage that many of us live by. But for crying out loud, why!?

High school students -- at least those in Michigan -- are required to complete a lot of classes: Four years of math, four years of English/language arts, three years of history, two years of foreign language, one year of physical education and one year of applied arts.

The problem should be obvious here: There's no required finance! I just don't get it and I don't know why it hasn't been changed. Now I'm not trying to downplay the importance of the 'core subjects' here, but how does knowing the photosynthesis process help 90% of future American citizens? How about finding the length of a hypotenuse?

While only a fraction of students will actually need to know these processes (and countless others), everyone needs to learn financial essentials: How to balance a checkbook, the dangers of a credit card, how debt works (such as student loans or a mortgage) and how to save and invest.

While finance quickly goes from an open field to a dark, thick, twisted jungle, that doesn't mean it's impossible to tackle. Even more so, it's another reason that it should be required in school, to some degree.

Even two classes would be enough to make a substantial difference in many people's lives. A personal finance class could help with basic financial conundrums that oftentimes stump those who have no one to ask or turn to with basic questions.

An investment class could get young minds thinking about savings and retirement -- well, at least a few anyway. They would realize the power of starting early, because even $50 or $100 per month would go so much farther than most people realize. Instead, many wait until they are finally making "good money," however that's defined, before they start saving for retirement.

These mistakes go on to cost almost everyone thousands of dollars and plenty of unwanted stress. But eventually most contributing citizens catch on: We all need to save. The big question is, how do we do it?

Naturally, the stock market is one of the first places investors turn. While the young high school students have decades to save and reap the benefits of long-term capital gains -- and the time to suffer through big drawdowns -- older investors have areas and strategies that will interest them as well.

The stock market is the one place that almost any investor can turn to: Growth investors, dividend investors, aggressive investors, conservative investors or simply those looking to preserve their capital.

There's a lot of things investors need to do to figure out exactly how or what they want to invest in -- such as their age, time frame, risk tolerance, goals, etc. -- but there's one important facet they should all be focused on: Quality.

Higher quality is generally associated with less risk. Think about it in relation to buying a car. You can either buy a 25-year-old car with 150,000 miles on it, or a relatively new car, with low miles.

While the 25-year-old beater could last a lifetime with only minor tuneups, (high reward), there is a much more likely chance it will break down often and end up in the junk yard, (high risk).

The new car on the other hand will likely last a very long time, while providing consistency and dependability. Because we have to pay more for this scenario, it offers a slightly lower reward, while substantially reducing the risk.

The same is true with picking stocks. Investors can look at high growth companies that have no tangible business model. Perhaps the stock will triple in the next six months, or perhaps, it will fall by 75%. This is the like the old beater car; high-risk, high reward.

Instead, investors can look at quality growth stocks like Google ( GOOG), Mastercard ( MA) or Starbucks ( SBUX), all of which have steady profit streams that continue to grow. This is our new car, essentially.

Dividend stocks can be looked at in the same light. Investors can look immediately for the stock that yields 9% -- and will likely have its dividend cut at some point -- or can instead, pick a consistent dividend payer like McDonald's ( MCD) or Coca-Cola ( KO), which have been paying distributions to shareholders for decades.

There are millions of places to turn when starting out and it's impossible to advise any large group on what exactly you should do or where to start.

But whether you're old or young; new or experienced; looking for growth or blue-chips; using a manager or investing on your own; quality is always king.

-- Written by Bret Kenwell in Petoskey, Mich. .

At time of publication, the author was long SBUX, MA, MCD and KO.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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