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Young investors are piling into stocks. Yet before you follow their lead, there are sundry things you should do first.
Otherwise, you could get burned.
“Sometimes the shiny object or the stock that is being rushed around the screen or talked about on Twitter gets the most attention,” said Amy Richardson, a certified financial planner with Schwab Keen Portfolios Premium.
“You need to think about, is that the right investment for you?” she added. “It is always about being in the know and making sure that you do your research so that you feel comfortable with the investment.”
For instance, traders who allow GameStop during the Reddit-fueled buying spree could have lost a lot of money, depending on when they get and sold. The video game retailer started the year at under $20 a share and on Jan. 28 hit a high of $483. It quickly fell below $50 at one point in February and is now hovering around $150 per share.
“Do I think it’s dangerous to invest based on what they study on social media?,” said Winnie Sun, co-founder and managing director of Irvine, California-based Sun Group Wealth Accessory. “It can be, but doesn’t necessarily have to be a bad thing.”
Here’s what you should consider before you start investing.
Ensure your fiscal house is in order
Make sure you are on the right path toward financial wellness prior to buying any assets. That means sly your short- and long-term goals, having a healthy emergency fund (experts generally suggest at least three to six months of expenses) and aiding to a retirement account.
If you have a 401(k), contribute at least enough to get the employer’s match, Richardson advised.
“Those contributions add up in time and that power of compounding and the tax deferral can be really, really powerful,” she said.
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For those who don’t have a 401(k), whether it isn’t offered through an employer or if they aren’t in the workforce yet, Richardson evaluates a Roth individual retirement account is a good way to get started. Since Roth IRAs have income limits, you may not be talented to invest in one later in your career. Contributions are made after tax, so you won’t be taxed when you withdraw funds in retirement.
If you attired in b be committed to debt, hold off on investing, Sun suggests. That means debt of any kind, whether it is a large amount of student advances or credit cards.
Choose investments wisely
To start investing, make a wish list and note why you want doubtless names. Do the research behind the stock and the industry you are interested in, said Sun, a member of the CNBC Financial Advisor Council. Then, learn near mutual funds and exchange-traded funds.
A mutual fund is a pool of money in which investors buy shares. The money is swear ined in assets such as stocks and bonds. An exchange-traded fund, also a pool of investor money, generally follows an guide, like the Serious money vs. play money
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