Something I talk to younger clients and prospects about a lot isn’t so much investment philosophy or portfolio allocation. Those are very important, to be clear. But in speaking with younger professionals, I do get a sense sometimes they want to jump the gun, so to speak. I’ve found myself on this topic probably far more than I ever expected to, so I figured it’d make a good post.
When you’re picking up a new skill, there’s a learning curve, of course. A new guitar player can’t just rattle off a “Free Bird” solo after a few lessons. There’s much practice involved, and that practice must be incorporated into their routine. That practice must become a habit. It’s the same thing with investing.
A plan is only so good as the follow through. It’s an idea, it’s a goal, but without action, it’s nothing. What’s most important for younger investors, more so than worrying about picking the perfect investment or allocation, is investing the money in the first place. As a young investor, you’ve got an advantage my older clients do not, time. Time to make mistakes. Time to learn from those mistakes. And time to build good habits. What’s not necessary is spending countless hours doing investment research, trying to pick a perfect stock allocation. For one, you’ll quickly find that’s a fruitless endeavor. And two, investing needs to be a habit before it can be expanded upon. Open that account, and start contributing $100/month. Once that’s a habit, make it $200. And so on. You don’t need fancy advice or some perfect portfolio allocation. Just start saving in small doses to create the habit.
Once you’ve developed the taste for investing and are starting to see some results, you’ll quickly realize the potential, and will in all likelihood be eager to do more. That’s when you’re ready to take the next step. At that point we can start looking at portfolio diversity, proper allocation, investment risk profiles, and all kinds of cool things. But walk before you run. Contribute a little bit this month. Do it again next month. And then for the rest of the year. Bad habits are hard to break, but so are good ones. If you’re used to going to the gym everyday, it’s tough to be away from it for a few days. Investing is no different. Take the small steps to develop the habit. Inevitably it’ll build, and your future self will be forever indebted.