Investing 101 for young adults: The basics

If you’re like me you grew up watching a lot of movies and TV shows where fast-talking men in sharp suits were buying and selling stocks.

Pounding their desks, screaming into their phones and frantically running around the trading room floor – they certainly made it all look very dramatic and exciting.

But other than picking up a lot of fancy stock market lingo like stock swap and bull market, I really had no idea what was going on.

I wasn’t the only one. My colleague Jennifer risked great embarrassment by confiding to me that when she was a kid she thought purchasing investments required a literal trip to the “stock market”.

But as it turns out, there’s a lot more to investing than playing the stock market anyway. In fact most people probably won’t end up buying individual stocks as part of their investment strategy at all.

However if you plan to retire, investing is a topic you’ll want to get comfortable with in your 20s or 30s. Luckily, I know the perfect person to pull back the curtain and hold our hands as we all learn together!

Kelley Long is a Personal Finance Specialist and a financial planner with financial education provider Financial Finesse. And more importantly, she has an amazing talent for making complicated money topics seem really easy.

So let’s get started!

Q1. When should people start investing?

Kelley: The earlier you begin investing, the better off you’ll be. A 25 year-old who saves $500 per month for 20 years and then stops could have about $765,000 saved by age 65, despite not saving anything from the time they were 45 to 65.

On the flip side, if you wait until you’re 45 to start investing you’d have to save around $1,655 per month to get to the same balance. That’s more than three times as much!

Q2. I think a lot of young professionals put off investing because they want to deal with their student debt first. Does this make sense?

Kelley: I would say that if your student debt is at an interest rate of 6% or less, you’re still better off investing and just paying the minimum on your debt. Unless the debt keeps you up at night. No amount of technically correct financial planning can overcome your personal values, so first make sure you can sleep at night.

Q3. So once you’re ready to start investing should you find an advisor or can you strike out on your own?

Kelley: An advisor can definitely help you learn the nuances of investing but most people usually start on their own before switching to an advisor once they’ve built up some savings. The best place to start would be with a RRSP since you can easily contribute through payroll deductions and there are tax benefits1 as well.

Q4. What would you say to someone who just started investing for their retirement and is frustrated by the small returns they’re seeing?

Kelley: Well as a long-term investor, you really shouldn’t care what your account does over the next year or even five years. That being said, if your particular account is under-performing compared to the market, you might be invested too conservatively.

Otherwise, if markets are generally sluggish there’s not much you can do – no one is making much money. But you still want to be invested so when the markets do pick up your savings will start growing faster.

Q5. I’ve heard a lot of people say that when the markets are slow it’s actually an opportunity – As in, “buy low, sell high”. Is this really true? 

Kelley: This is true for people who are long-term investors. What’s most important to understand is that you generally don’t want to invest money in the market that you will need in less than ten years.

In other words, a down market is a good time to buy but if you’re just trying to make a quick buck you may be taking too much risk. A down market could go up but it could also continue to go down.

Q6. So how do you take advantage of the markets being low?

Kelley: When the market is down, it’s even more important to stick with your savings and investment plan. You’re buying low! It’s like buying $20 worth of gas at the gas station – when gas prices are down, you get more gas.

Same goes for investing. Lower prices mean you can buy more shares for the same amount of money, so when the per share price increases you’ll have more of them and you’ll enjoy a larger profit.

Q7. That all makes perfect sense, but it can still be hard to watch! Is there a point where young investors should start to feel a little nervous?

Kelley: Unless you’re five years or less away from needing to withdraw your money, I wouldn’t get nervous about your long-term investments. As my colleague once said, the stock market going to zero would mean that every single public company has gone bankrupt. If that happened, we’d all have much bigger problems to worry about than our investment portfolio.

Q8. Do you have any tips for staying calm?

Kelley: Well when the market is down, I don’t even look at my accounts. I know I’m in it for the long haul, so why torture myself?

In 2008 when the US stock market plunged more than 20% in a week, my retirement account balance fell by about 40%! I let myself look once but then I didn’t look again.

I stayed in and now the account is worth double what it was before the plunge, just from investment growth.

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Now that you’re feeling a bit more comfortable with the world of investing, let’s move onto part two of our conversation!

In part two, Kelley shares her tips for how to actually get started with investing. Topics covered include:

  • How to dip your toe into investing
  • How and where we should be investing our money
  • How to determine how much risk to take
  • How to invest money you plan to use to buy your first home

Kelley LongKelley Long is a CFP® and a researcher on the book “What Your Financial Advisor Isn’t Telling You: The 10 Essential Truths You Need to Know About Your Money.” Her daily work assisting clients with their financial planning questions informs her writing on the Financial Finesse blog as well as her frequent media appearances speaking on financial matters. Follow her at @kclmoneycoach and @Fin_Finesse.

  1. Foresters Financial, their employees and life insurance representatives, do not provide, on Foresters behalf, legal or tax advice. Prospective purchasers should consult their tax or legal advisor.

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Eric Tyndale

Eric has an extensive background in content marketing and professional writing. He loves to write about personal finance and life insurance issues for the Lifenotes blog because he enjoys the challenge of making complicated topics fun for readers! Eric also covers community outreach initiatives.