Each week, one of ourexperts answers a reader's question in our InvestingAnswers' Q&A column. It's all part of our mission to help consumers build and protect their wealth through education. If you'd like us to answer one of your questions, email us at firstname.lastname@example.org and include " Q&A" in the subject line. (Note: We not respond to requests for picks.)
Question: Hi there. I need your advice. I'm only 19 and I really need to start . Where can I start? -- Tirelo M., Gaborone, Botswana
The Answer: You've definitely got the right thinking, Tirelo. Starting at such a young age, you have one huge advantage over most people as you build your wealth: time.
The earlier you start investing, the more time your has to compound and grow. Just think -- if you were to start investing $100 each month into the and you earn an average return of 8% per year, your investment account could grow to $104,241 by the time you turned 45 and to a whopping $572,477 by your 65th birthday. If you managed to sock away $200 a month into the starting today, you could potentially have $1 million by the time you turn 63, according to our millionaire savings calculator.
It's exciting to think that a little bit of your income each month can grow to hundreds of thousands of dollars in the future. But before you even think of investing your first dollar, I'd like to suggest a few ground rules.
First, make sure your finances are in order. If you haven't set aside credit card debt or if you plan to go to college in the near future, you may want to hold off on investing until those expenses are out of the way. We talk about why in our article "Take These 4 Steps Before You Invest." for emergencies, if you carry high-interest
Basically, there's no sense in tying up your in investment accounts when you're busy paying more than 12% interest on credit card debt and you don't have enough set aside to feed yourself in case you lose your job.
Second, remember that investing is not some get-rich-quick trick and that it's best to keep your stocks for the long-term -- at least five, but preferably more than 10 years. in
To prove my point, check out "How One Lady Turned $200 Into $7 Million."
Believe me, unless you're a seasoned professional, blindly placing hot-shot . If it were that easy to make trades like Jim Cramer on Mad is the fastest way to lose all of your hard-earned by buying and selling stocks right away, nearly everyone would be rich!
Finally, if you're just starting out, it never hurts to brush up on the investing basics. I'd start by skimming our guide " give you a good foundation on 101: How Anyone Can Start Today." It investing and walk you through opening an investment brokerage account, which you'll need if you want to purchase stocks, bonds, ETFs or mutual funds.
[Want to know an easy way to start investing your extra? I explain how I do it in a previous "Ask The Expert" question, How Can I Start With Just $100 A Month?]
So now that we have all that out of the way, let's talk!
Where to start? It all depends on what kind of like bonds and you wish to do. Because you're young, I'll take a guess that you want the higher returns that stocks and -based mutual funds or ETFs can provide, rather than slower-growing CDs.
The Easier Way To Start
If you're less confident about researching and choosing individual stocks and less willing to take big risks with your 401(k) plan offered at my first job and still find them much easier to invest in and manage than individual stocks., you may want to start out by in mutual funds. I personally started in mutual funds when I was 18 through a
Mutual funds are mutual fund, you're in companies or bonds. For example, if I invest in the Vanguard 500 that hold a basket of stocks or bonds. When you buy a share of a Index Fund (VFINX), I'm automatically invested in the 500 stocks that the mutual fund holds, which include Exxon Mobil, Apple, General Electric, Microsoft and several others.
The key advantage that a mutual fund gives you over individual stocks is diversification. If you're invested in the Vanguard 500 Index Fund and Microsoft's has a great year, you'll get some of the gains. If General Electric's goes up over the year, you'll get some of its gains, as well. And if one in the mutual fund has a bad year and plummets, you won't have to take the full loss because you'll have most of your in the other hundreds of stocks that the holds. In short, a mutual keeps your spread out among several at once so it can reduce your risk and keep your returns growing steadily. If this sounds like your kind of investment, read "The Advantages of Mutual Funds" and "5 Questions For Finding The Perfect Mutual ."
If you like how mutual funds work, you may also like fund manager and therefore carry much lower investment fees. I wrote about an easy way to build your own well-diversified portfolio of ETFs (based on my own portfolio) in "The Lazy Man's Retirement Portfolio."in ETFs (exchange-traded ). ETFs are almost identical to mutual except they do not have a
The Challenging, Yet Exciting Way To Start : Stocks
If you like the idea of outsmarting the rest of the pack and "beating the financial statements and financial news, then you may find excitement in good old-fashioned ." with your stellar investment picks and you don't mind spending a few hours each month researching companies'
more work if you want to be successful. The in individual stocks is much riskier than in mutual and require a is that through researching a company and its financials, you'll learn a more about how businesses operate and grow -- and hopefully you'll get to reap some of that growth and pocket some great returns. The downside is, there's always a chance you'll lose a of (sometimes all of the you invested) if you choose a bad company to invest in.
So, how do you choose the right stocks? If you have no clue, I'd start by thinking of all your favorite brands, companies that you think really dominate their industries -- the ones that really "have it down," so to speak. Maybe it's Apple, Nike, Under Armour, or Microsoft. It could even be a more under-the-radar company that no one's talking about but that's making a genius product -- such as the company Corning, which makes the scratch-resistant glass on the super-popular iPhone.
Once you've thought of a few good companies, it's time to do your homework to see if they're doing well financially. Don't worry, it won't be that hard. I've outlined exactly what to look for in "The 8 Most Important Facts To Know About A Company Before You Invest."
The eight items mentioned there help you determine if a company is financially sound, profitable and growing -- the key features to a potentially great investment that could deliver solid gains year after year.
After you've invested in some great companies, there's one more tip I'd like to share: Take a look at your stocks from time to time and have an exit strategy if things don't go well for one.
That doesn't sell your stocks when everyone else does. In fact, as a buy-and-hold investor, I'd suggest fighting the urge to sell at all if you think you've found a good . But, you should always be monitoring the financials of the companies you hold and be prepared to sell. If you want to know when it's time to sell a that you feel leery about, our "4-Minute Checklist" help make your decision easier.
Congratulations again on choosing to invest at such a young age! You'll thank yourself when you hit your first million not too long from now.
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Read more of our Ask The Expert Q&A responses:
- Should You Still Contribute To An Underperforming 401(k)?
- The Quirky And Brutal Origins Of The Terms ' ' And ' '
- The Cardinal Sin Of Beginning -- And How To Avoid It
- The Financial Wisdom of our Fathers: A Father's Day Tribute
- What To Do When You've Missed the White Whale
- Ask The Expert: What's The Best Way To Start Investing When You're Young?