Is this good advice for those just starting to invest?

November 15th, 2008 · 1 Comment

This week, one of my younger co-workers and I were having a rare discussion about financial matters when I lamented that I wished I had started investing earlier in my life.  He immediately asked “Do you have any advice for me so that I can have a bit of a head start?”  Well, I don’t consider myself much of an expert financial planner but I started to spout out thoughts anyway because I really wanted to help him.  It didn’t take long for me to realize he wasn’t absorbing much of the content of my acronym-heavy sentences.   I had to find a different way.

The corporate jet for the young investor

The corporate jet for the young investor

After a little background investigation, it turned out he had a serious amount of cash sitting in a savings account because, as he admitted, he knew almost nothing about investing, or IRAs, or 401Ks, or whatever.  In fact, he didn’t even know what an IRA was.  (I recommended using Wikipedia to look up terms.)  I then spent some time talking about emergency funds, high-yield savings and checking, retirement savings vs retail investing, Roth vs. Traditional retirement savings, the importance of low investment expenses, etc. — which I’d like to think helped him get the lay of the land.  But he then pointed out that he still felt unsure of what to actually *do* with his investment money once it was committed to the right type of account.

A number of thoughts rushed through my head.  First, providing advice on explicit investments to a beginning investor makes me a little queasy.  After all, I’d rather teach the man to fish than give him some fish.   Second, I may not know a lot, but I do know that I don’t possess the proverbial “silver bullet” that solves all investment problems. Third, I didn’t want his investments in my recommendations to tank and end up in a bitter fight about it at some point in the future.  Fourth, I wanted to help this guy somehow.

So I did what I imagine any rational person would do and went off to search the internet for someone else’s advice that I could piggy-back on. 🙂  I ended up finding what I consider to be a really good article called “Start Investing With Just $100” by Richard Jenkins.  The thing I like most about this two-pager, besides its being concise, is that it really shows how anyone can get started with just small monthly amounts.  Also, it does a great job of explaining the rationale behind the advice it’s giving.  And finally, it’s well aligned with my own personal thoughts on how to maximize your return and minimze risk when investing for growth: low expenses, diversification, and the discipline to keep contributing to it over time.

In my co-workers case, there was some additional information I passed along.  I pointed out that starting small like this, even though he has a large chunk of savings he could invest immediately, gives him the opportunity to do something *now* while still giving him the time to learn and explore his options.  He’ll learn from his own experiences without risking too much money and thus without feeling anywhere near as nervous about the actions he’s taking.  I also pointed out that his second priority, after opening his first investment account and making that first contribution, should be to create an emergency fund account, and maximize the yield on both it and the rest of his savings.  We talked more about emergency funds but I think that’s a topic for a separate post.

Do you think I did my co-worker any favors or did I push him off in the wrong direction?  I’m serious about asking for help here because I feel like I’m almost in the same boat as him, just older.  By which I mean I’m still learning as well.  At what point should you start to learn about investing for income vs. growth?  And at what point does it start to effect your investments?  By how much?

Tags: Brokerage · Investing

1 response so far ↓

  1. 1 TJ // 2008.11.15 at 10:22 am

    Not sure if it would apply in this case but I usually direct people to “The Wealthy Barber” by David Chilton as a place to start. It doesn’t give specific investing advice (which may be what he needs) but it does give a good, easy to understand, high-level context for getting your financial house in order.

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