My son is 22 and wants to start investing. But I don’t have much experience with it, so I don’t think I can help him much. Can you share some advice?
Of course! We’re happy whenever a young adult shows interest in investing and long-term planning. And quite honestly, that’s the first distinction we want to make: Your son needs to understand there’s a difference between long-term investing and stock picking (or day trading). It’s likely he’s heard of certain apps and websites that allow him to buy and sell stocks (or cryptocurrency) from minute-to-minute. But in this case, short-term profit is all that matters; in our eyes, this is akin to gambling. At Allworth and on our Simply Money radio show, we promote long-term investing – having a goal, making an investment plan to reach that goal, then sticking with it.
Additionally, he should think about both short term and long-term goals. For any goals within two to three years, just a plain-old bank account is fine (that money shouldn’t be exposed to any market risk). Same goes for an emergency fund – he should use a savings account for this money, and it should cover at least three months of critical living expenses.
For longer term goals such as retirement, a simple index fund that tracks the S&P 500 (the 500 largest companies in the U.S.) is a good starting point. And at this age, it’s OK if he’s stock-heavy since he has decades to ride out the ups and downs of the market. (Plus, with markets currently down, he'll be ‘buying low’ – he should consider himself lucky!)
And if he has a 401(k) through work, he should save at least enough to get the match (if offered). If his employer offers a Roth 401(k), saving in that is an even better idea since he’ll get tax-free growth. If he doesn’t have a retirement plan through work, he should open up a Roth IRA through a brokerage firm like Vanguard, Fidelity, or TDAmeritrade (he can also do this even if he does have an employer plan). And he should never take money out of retirement accounts early.
Here is the Simply Monet point. Your son should focus on time in the market, not timing the market. Consistency and time will do more for him in the long run than anything else. And while there may be temptation to get fancy with his investments, simple is usually best.