Marc Cuniberti I often get approached by investors who have $10,000, 20,000, or 30,000 in total and ask if they should invest in stocks.
Since the majority of Americans don’t have hundreds of thousands of dollars at their disposal, the question becomes a reoccurring one. Each recommendation depends on the specifics of the individual such as their age, income level, dependents, and expectations to name but a few.
Generally speaking, if the investor is young, they might consider investing a certain amount on a regular basis in order to establish a sound and long-term retirement plan. It doesn’t have to be a lot. Indeed, adopting a crippling commitment amount that one cannot continue for whatever reason is a sure way to derail an otherwise intelligent endeavor.
It is better to start with smaller amounts that are doable no matter what may lay ahead.
Since the young “investor” is new to the world of money, I first issue warnings covering beginning investing mistakes that are so common with new or young investors. I won’t cover them here but there are many (email me for the previous article).
Since the young investor has plenty of time to build wealth, I am of the opinion they don’t need an investment advisor (nor their fees) and instead open up a discount brokerage account and buy a well-known and low-cost index fund and then add to it on a monthly or quarterly basis. The Vanguard family of funds comes to mind but there are many other fine funds. Generally speaking, the larger the fund’s envelope of asset allocation or geographical localities, the less volatile it might be.
The reoccurring deposit into the account establishes not only a good habit one takes into adulthood, the compounding of even a small reoccurring amount can grow to a significant amount given enough time.
For older investors that might not have an extremely large nest egg, I remind them what they have is ALL they have, and it’s that amount that keeps them from the line at the local food bank. That means not losing it.
And that may mean placing their nest egg in a principal guaranteed investment. Today that could include a savings account, CDs, or a portfolio of U.S. Treasuries, all of which are 100% principal protected by the U.S. government.
Although for the past few decades, they offered only a paltry return, these products are now paying a comparatively healthy return. Today, a properly constructed US treasury portfolio might offer an investor annual yields north of 4%.
A triggered annuity might also be another option. Although annuities are not FDIC insured, they can be 100% principal protected by the underlying insurance company. Triggered annuities may offer guaranteed interest rates and possible participation in market rallies yet may avoid any downside.
Even though someone may have a modest investment amount, they may still wish to take some risk in the hopes of growing their nest egg.
If that’s the case, consider more well-known and widely popular growth stocks that have a proven track record and real profits instead of investing in wild startups with lots of promises yet no profits. Going for the gusto might work out in their beer selection but rarely pans out for the inexperienced investor when it comes to stock selection.
On the flip side, I see the most damage done by investing in what I call “privates”. These offerings are not available through a broker but are brought to the investor by an advertisement, relative or friend of a friend. Some are storylines about this or that idea or invention that sounds great pushed by some enthusiastic entrepreneur or glitzy advertisement. Other clickbait investments might be seeking money for some property, businesses, or startups.
They are great stories for sure but from my experience, instead of big opportunities, they turn out to be big holes where money disappears along with the person that’s at the bottom of the hole with their mouth open.
Great visual, I know.
Summing this up is to say don’t buy anything that’s not listed in the Wall Street Journal, which is to say whose existence is not widely known and not publically listed.
There are worthwhile and profitable investment opportunities privately available for sure. Still, I see too many dismal failures that swallow up people’s money to recommend a private to the average investor.
Avoiding some of the common pitfalls suffered by investing newbies and then considering some of the suggestions made here might go a long way in helping you reach your investment goals no matter what your nest egg.
“Watching the markets so you don’t have to”
(As mentioned please use the below disclaimer exactly) THANKS (Regulations)
This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. His website is moneymanagementradio.com, and was recently voted Best Financial Advisor in Nevada County. 530-559-1214.
