Personal finance expert Humphrey Yang’s advice for first-time investors

A young adult tracks and trades stocks on a computer.

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Investing is a smart financial habit, as it is one of the most reliable ways to build wealth. But getting started can be a little confusing and intimidating. There are all kinds of investment options out there, and when you put your own money on the line, you don’t want to choose the wrong one.

Former financial advisor Humphrey Yang has posted several videos on how to get started with investing. These contain a lot of valuable advice, so here are the best tips for first-time investors.

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Cover your financial bases first

It’s only natural to be excited to jump into investing and start growing your money. One important piece of advice from Yang is to cover your bases financially first. There are two things he recommends:

  • Pay off your debts. Specifically, make sure you get rid of high-interest debt, such as credit card debt. Low-interest debt doesn’t necessarily have to be paid in full to start investing — Yang says that’s a judgment call.
  • construction emergency fund. This must be at least three to six months’ worth of living expenses.

Completing these steps ensures that you are in a good position to invest. If you pay, say, 18% interest on your credit cards, paying that interest would be a better use of your money now than an investment. And every adult needs emergency savings. If you decide to invest your money instead, you may have to sell those investments to cover any unplanned expenses.

Invest in index funds or ETFs

Yang gives a lot of advice on investing in stocks. However, he also says that “for the average or novice investor, if you steer clear of picking stocks, you’ll do almost as good.” Instead, suggest any of the following:

These are mutual funds that hold a large basket of stocks, and they make investing extremely easy. All you have to do is purchase the fund of your choice. Then, you’ll have a diversified portfolio that isn’t overly dependent on one company.

Many investors put the bulk of their money into S&P 500 index funds, as this index tracks 500 leading publicly traded US companies. You can usually find these, along with many other quality fund options, with any of the best stock brokers.

Sprinkle in some individual stock – if you’re interested

There is nothing wrong with owning a portfolio that consists entirely of mutual funds. This is generally a low-risk option that offers solid returns without much work on your part.

But you probably also want to pick stocks and take a more active role in your portfolio. In this case, Yang has a strategy he calls 85:15. Put 85% of your portfolio into passive investments, such as the aforementioned index funds and ETFs. The remaining 15% is for individual stocks that you feel have growth potential.

Don’t try to time the market

A common investment mistake is trying to time the market. It seems reasonable in theory. After all, there is no more effective way to invest than “buy low and sell high”. The problem is that timing the market is nearly impossible, and people trying to do this often miss the days that bring the best returns.

Yang’s favorite method is dollar cost averaging, where you invest equal amounts at regular intervals. For example, you can invest $500 on the 1st and 15th of every month. This takes the guesswork and stress out of investing.

Maintain a long-term perspective

If there is one thing to always remember when investing, it is to maintain a long-term perspective. The market goes through ups and downs. Yang says a mistake he sees from investors of all skill levels is panic selling during market downturns. Unfortunately, 30.9% of investors who fear selling never re-enter the market.

Don’t look at investing as a way to make some quick money. Your portfolio may immediately rise in value, or it may go in the opposite direction. Look at investing as a way to build wealth over 10 years or more.

A good investment is much easier than you think. Start from a strong financial position, with an emergency fund and without any heavy debt. Pick some low-fee mutual funds and stocks that you are likely to like. From there, it’s just a matter of continuing to invest regularly over a long period of time.

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