A lot of us have probably become newly interested in investing, thanks to the GameStop mania the past few weeks. But if the situation taught us anything, it’s that you have to be really mindful when investing. You can be on top one minute and then come crashing down the next. The point of investing is to see a high return over time. Here are a few tips on how to get there as a young investor:
This is a Marathon, Not a Sprint
Remember that you want to invest for the long term and you don’t want to be picking single stocks. Even in a marathon, you can take baby steps to the finish line. Try index funds or mutual funds, which are combinations of different types of investments. This means that you can diversify with just one purchase. Be prepared for market fluctuations (as we’ve seen a lot since the pandemic started) and don’t get discouraged. This is normal. Just tell yourself that in the long run, your money will be okay.
Get in the Game
When you see your friends or people you know losing money, it’s easy to get dissuaded and turned off from investing. Even though the GameStop situation was an entertaining, can’t-look-away situation, the stock market isn’t the place to make trendy purchases. You don’t want to sit out just because you’re scared but at the same time, be smart when you do get in the game. Don’t invest to make a quick buck. You have to take the long view and do your research. The stock market isn’t the place to gamble away your hard-earned money or your family’s security.
One of the great things about being a newbie is that you’re still curious. Use this to your advantage and don’t be afraid to ask questions and play dumb. If something catches your attention, say an asset is trading less than its perceived value, ask why that is. There’s a reason. If you can’t figure out the answer on your own, get a financial advisor. Sometimes you have to spend money to make money and this is one of those times.
Go Low Cost
Warren Buffet, one of the greatest investors of all time, was right when he said that the best investment Americans can make is the S&P 500. This is a low-cost stock option and the S&P has an annual return of 10%, which is a really strong record. Now, once your money is in there, sit back and wait. The S&P is a popular stock for good reason. It’s low risk and a very affordable option. This is especially good for people looking to invest right now, since a lot of us are strapped for cash. This way, you can still invest even if you don’t have a lot of money.
Save Now, Spend Later
Now, even if you decide to invest in the S&P 500, that doesn’t mean you shouldn’t be saving first. In order to invest, you need money and it’s smarter to save money before you invest. And the earlier you start saving the better. That’s because your money grows over time, so if you can start now, you’ll have more money down the line. Don’t be hasty about your investment decisions.
It’s important for young investors to stay smart about their investments. Though the GameStop news was exciting to watch, it showed us that you can lose money very quickly if you get caught up in something trendy and fast-moving. If you aren’t sure how or where to start, consult an expert. And take baby steps. Start now, but don’t feel pressured to know everything right away.
A version of this article was originally published on Forbes.