This past year saw a rise in young adults’ interest in investment and trading, as video platforms like TikTok and YouTube are now hosting a large number of popular financial advisors set on introducing the next generation to the stock market. As with previous generations before them, millennials and Gen Zers are now starting their investment journeys and making some of the industry’s most common mistakes. Gary Scheer, financial planner and financial educator has spent his career building client’s portfolios and helping to educate people of all ages on numerous financial topics. Today, Gary Scheer hopes to discuss some of the most common investment mistakes in hopes of helping the next generations avoid any preventable losses.
Investing Before They’re Ready
Before starting to invest, it is crucial to have built comfortable savings to fall back on, as well as have any outstanding credit card debt paid off. Investing should not be seen as the answer to paying off debt but should be used as a tool to accomplish other financial goals like retiring early or traveling. Most financial advisors will tell you only to start investing 10-15% of your income once you’ve built savings and have little to no credit card debt. To make a profit while holding credit card debt, someone would need to have annual returns averaging higher than the credit card’s interest rate in order for the holder not to lose ground. A good rule of thumb is to have 6-12 months of living expenses available and an emergency fund before investing any money in the stock market.
Using Unreliable Resources
While the internet is an excellent resource for researching financial topics, it is essential to find reliable references and sources. Over the past few years, the internet has given unreliable financial speakers a platform to recommend stocks and bad investment practices to newcomers. Although even the most experienced investor can make a bad investment, finding someone with the experience and investment know-how will limit future losses and help build a strong foundation for prospective investors.
Trading Too Quickly
It’s common practice for new investors to watch their investments hourly and to trade too quickly. Many newcomers can get caught up in the excitement of trading and may want to sell their shares in order to buy others. While it is normal to research new stock and want to invest, this practice will quickly build up trading fees and may cost more in taxes. If a newcomer is trading too quickly because they have little faith in their investment, they should avoid investing in any company they do not trust. Investing should be seen as a long term commitment, and investors should strive to wait at least a year before selling their stocks.