11 Quick Tips for Young Investors

September 10, 2020

Estimated Reading Time: 4 minutes

11 Quick Tips for Young Investors

Young professionals who are busy working their day-to-day and managing their social lives often find it hard to take on the complexity of investing. But starting to invest early is a cornerstone of financial success later in life.

We've put together a list of 11 quick tips that can help young professions get started on the right track to managing their finances and investments without too much of a headache.

1. Track Your Budget

A really smart guy named Galileo once said, “measure what can be measured, and make measurable what is not so.” Tracking your budget gives you “eyes up” on the most important numbers for your finance - income, outflow, and which categories make up the bulk of your spending. Then, you can stay mindful of your budget the next time you’re about to UberEats for the 8th time that week.

2. Focus on big purchases instead of small ones

Maybe going against the grain here, but a lot of financial advice talks about “cutting out that $4 cup of coffee.” If we do the math, a $4 cup of coffee, 4 days a week, for 52 weeks is a total of $832 each year. Sure, you could cut back on ordering coffee, but will that really be the change that sets you up for financial success?

Going back to number 1, if one of your largest expenses is coffee, then, by all means, cut down on those lattes. But, chances are good there are more efficient ways for you to cut costs than giving up a small morning satisfaction. Find a smarter way to reduce larger expenses while you drink your $4 coffee.

3. Set aside money for larger purchases ahead of time

When you’re in your 20’s and 30’s, you probably have a lot of really, really large purchases coming your way. A car, house, engagement ring, wedding, and kids are all big expenses. Take them one step at a time, don’t try to do too much at once, and start setting aside a little bit per month. Your future self will thank you.

4. Open an Individual Retirement Account (IRA) and an Individual account

If you’re looking for smart ways to get started with saving and investing, open both an IRA account and an Individual account. An Individual account is funded with post-tax dollars and is taxed on the way out. But you can invest, so you start generating a return on your investment, which (hopefully) will pay off later when you need your money for large purchases.

An IRA, on the other hand, is a retirement account funded with post-tax dollars. You can start drawing from your IRA when you turn 59½, and contributions can be tax-deductible for the year they were contributed.

5. Contribute to a 401(k)

Along with IRAs and Individual accounts, if your company offers a 401(k), you will be setting yourself up for success by regularly contributing to yours. A 401(k) is like an IRA, except your contributions to it are pre-tax (they go into your account before taxes are taken out of your paycheck). This is a great way to save for retirement consistently, and because the money is taken out of your paycheck before you receive it, it’s less noticeable.

6. Learn about stocks and bonds, and their effects on your investments

Stocks, bonds, mutual funds, ETFs, and options are some of the different kinds of investment vehicles available to investors, with options being the riskiest and bonds being the safest. There’s a risk/reward relationship in the market, and taking on greater risk can lead to greater returns (comparatively), but there’s also the possibility of losing capital, too.

Taking 15 minutes to learn about the different kinds of investments can help you understand where to place your money and, more importantly, why you should put it there instead of somewhere else. An excellent resource for this information is Investopedia.

7. Communicate with your spouse or serious significant other

Financial communication is a must-have in successful adult relationships. Talking to your spouse about your current investments, income, debts, and future goals fosters trust and strengthens your relationship. Being open about financial conversations also deters financial abuse in the future.

One word of caution: discussing your salary and investments after the first date is lame. Wait until your relationship is more grounded, or face the consequences of looking like you’re trying too hard.

8. Don’t panic sell

When investors have heavy losses, it’s often because they sell in the middle of everyone else selling. If the market drops 20% and you sell your investments, you just lost 20% of your capital, even when historically, the market always rebounds. In the financial industry, we call this a “permanent loss of capital.”

Stick to rational investment decisions, and if you feel like selling in the middle of a sudden downturn, sit on your hands or something.

9. Know when to cut your losses

On the other hand, sometimes it is wise to cut and run. If you were a Blockbuster shareholder and saw the digital transformation, it would probably have been a good idea to cut your losses after seeing shares fall 20% over two years.

Sometimes stocks do go down, and, if it’s really bad, they go down for a while. Holding onto an investment with the expectation that it will go back up is not always the best move (although during a downturn it may be the right move). Consider it a sunk cost and move your capital somewhere else.

10. Focus on the long term

Over the last 100 years, the S&P 500 has averaged about a 7.6% annual return. At this return level, your money will double every seven years. But, if you look at each individual year, you’ll see price fluctuations ranging from -20% to +20%.

Suppose your goal is to set yourself up for a successful retirement later in life. In that case, the year-to-year changes should not bother you, and you need the mental strength to persist in your investment strategy through downturns, which happen fairly regularly. Keep your eyes on the long-run and stick to rational investment decisions.

11. When in doubt, go with what you know

I heard a story about a 16-year-old girl who was given $2,000 to invest in any stock she liked. She picked a stock, and today, her initial $2,000 investment is now worth about $15,000. Her investment was in Apple, and she chose it because she used an iPhone and knew the brand.

If you are unsure about where to start looking for investment opportunities, take a look around you and at what you like to use. Chances are good that the companies that produced them are larger and more stable companies and are likely included in major indexes. Investing in what you know is a solid starting place for new investors.


Important Disclosure Information

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Chicago Partners Investment Group LLC (“CP”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CP. Please remember to contact CP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. CP is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of the CP’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.

September 10, 2020

Estimated Reading Time: 4 minutes

11 Quick Tips for Young Investors

Young professionals who are busy working their day-to-day and managing their social lives often find it hard to take on the complexity of investing. But starting to invest early is a cornerstone of financial success later in life.

We've put together a list of 11 quick tips that can help young professions get started on the right track to managing their finances and investments without too much of a headache.

1. Track Your Budget

A really smart guy named Galileo once said, “measure what can be measured, and make measurable what is not so.” Tracking your budget gives you “eyes up” on the most important numbers for your finance - income, outflow, and which categories make up the bulk of your spending. Then, you can stay mindful of your budget the next time you’re about to UberEats for the 8th time that week.

2. Focus on big purchases instead of small ones

Maybe going against the grain here, but a lot of financial advice talks about “cutting out that $4 cup of coffee.” If we do the math, a $4 cup of coffee, 4 days a week, for 52 weeks is a total of $832 each year. Sure, you could cut back on ordering coffee, but will that really be the change that sets you up for financial success?

Going back to number 1, if one of your largest expenses is coffee, then, by all means, cut down on those lattes. But, chances are good there are more efficient ways for you to cut costs than giving up a small morning satisfaction. Find a smarter way to reduce larger expenses while you drink your $4 coffee.

3. Set aside money for larger purchases ahead of time

When you’re in your 20’s and 30’s, you probably have a lot of really, really large purchases coming your way. A car, house, engagement ring, wedding, and kids are all big expenses. Take them one step at a time, don’t try to do too much at once, and start setting aside a little bit per month. Your future self will thank you.

4. Open an Individual Retirement Account (IRA) and an Individual account

If you’re looking for smart ways to get started with saving and investing, open both an IRA account and an Individual account. An Individual account is funded with post-tax dollars and is taxed on the way out. But you can invest, so you start generating a return on your investment, which (hopefully) will pay off later when you need your money for large purchases.

An IRA, on the other hand, is a retirement account funded with post-tax dollars. You can start drawing from your IRA when you turn 59½, and contributions can be tax-deductible for the year they were contributed.

5. Contribute to a 401(k)

Along with IRAs and Individual accounts, if your company offers a 401(k), you will be setting yourself up for success by regularly contributing to yours. A 401(k) is like an IRA, except your contributions to it are pre-tax (they go into your account before taxes are taken out of your paycheck). This is a great way to save for retirement consistently, and because the money is taken out of your paycheck before you receive it, it’s less noticeable.

6. Learn about stocks and bonds, and their effects on your investments

Stocks, bonds, mutual funds, ETFs, and options are some of the different kinds of investment vehicles available to investors, with options being the riskiest and bonds being the safest. There’s a risk/reward relationship in the market, and taking on greater risk can lead to greater returns (comparatively), but there’s also the possibility of losing capital, too.

Taking 15 minutes to learn about the different kinds of investments can help you understand where to place your money and, more importantly, why you should put it there instead of somewhere else. An excellent resource for this information is Investopedia.

7. Communicate with your spouse or serious significant other

Financial communication is a must-have in successful adult relationships. Talking to your spouse about your current investments, income, debts, and future goals fosters trust and strengthens your relationship. Being open about financial conversations also deters financial abuse in the future.

One word of caution: discussing your salary and investments after the first date is lame. Wait until your relationship is more grounded, or face the consequences of looking like you’re trying too hard.

8. Don’t panic sell

When investors have heavy losses, it’s often because they sell in the middle of everyone else selling. If the market drops 20% and you sell your investments, you just lost 20% of your capital, even when historically, the market always rebounds. In the financial industry, we call this a “permanent loss of capital.”

Stick to rational investment decisions, and if you feel like selling in the middle of a sudden downturn, sit on your hands or something.

9. Know when to cut your losses

On the other hand, sometimes it is wise to cut and run. If you were a Blockbuster shareholder and saw the digital transformation, it would probably have been a good idea to cut your losses after seeing shares fall 20% over two years.

Sometimes stocks do go down, and, if it’s really bad, they go down for a while. Holding onto an investment with the expectation that it will go back up is not always the best move (although during a downturn it may be the right move). Consider it a sunk cost and move your capital somewhere else.

10. Focus on the long term

Over the last 100 years, the S&P 500 has averaged about a 7.6% annual return. At this return level, your money will double every seven years. But, if you look at each individual year, you’ll see price fluctuations ranging from -20% to +20%.

Suppose your goal is to set yourself up for a successful retirement later in life. In that case, the year-to-year changes should not bother you, and you need the mental strength to persist in your investment strategy through downturns, which happen fairly regularly. Keep your eyes on the long-run and stick to rational investment decisions.

11. When in doubt, go with what you know

I heard a story about a 16-year-old girl who was given $2,000 to invest in any stock she liked. She picked a stock, and today, her initial $2,000 investment is now worth about $15,000. Her investment was in Apple, and she chose it because she used an iPhone and knew the brand.

If you are unsure about where to start looking for investment opportunities, take a look around you and at what you like to use. Chances are good that the companies that produced them are larger and more stable companies and are likely included in major indexes. Investing in what you know is a solid starting place for new investors.


Important Disclosure Information

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Chicago Partners Investment Group LLC (“CP”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CP. Please remember to contact CP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. CP is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of the CP’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.