The Dow Jones Industrial Average closed above 26,000 for the first time ever on Wednesday; it rose from 25,000 to 26,000 in just seven trading days.
There is an excellent chance it did that without you, since just slightly over half of American adults own stock. If so, you might be wondering if the opportunity to ride the stock market wave is passing you by while you ponder if you have enough money to invest.
If you’ve never really invested before, or you just have a small pot of money right now, what should you do? We asked financial experts that very question, and here’s what they said:
Find a fund with a low minimum investment
It’s better to “get started with something than not invest at all because you feel like you don’t have enough money to invest,” said Alexandra Horigan, a money expert at the socially conscious investment firm Aspiration.
And even $100 is enough.
“At Aspiration, our investment minimum is only $100 for our funds, including our Redwood Fund (our eco-friendly, firearm-free fund), because we want to encourage people without a ton of money to get started with investing,” she said.
Read, read, read
We loved the advice to read, which we spotted on Reddit from William Wadbrant, who is pursuing a masters degree at the Royal Institute of Technology in Stockholm and is the Reddit moderator on /r/stockmarket. He teaches math, economics and business part-time to economics students, and is self-taught on the ways of investing.
Wadbrant told HuffPost that, as always, knowledge is power. “Reading the Reddit threads are a great place to start educating yourself. The questions you have have likely been asked before.”
He recommended a few books as well ― anything by Warren Buffett, A Random Walk Down Wall Street by Burton Malkiel and Stress Test by Timothy Geithner.
“Read news, financial statements, press releases and earning calls. Read everything,” he said. “You will find hundreds of words you don’t understand, so look them up (Investopedia will have a majority of them). In the beginning you will struggle, however, as time goes by, you will start to understand. If you do not like reading, learn to like it. There is no way around this. If you find yourself investing without reading tons, you are going to lose.”
No argument here.
Go robo, and stay put
“Keep it simple,” said Jason Labrum, founder and president of Labrum Wealth Management, which has offices in California, Florida and Texas. When it comes to investing, it’s typically those people who are just investing small amounts who make the biggest mistakes, Labrum told HuffPost.
To minimize beginner mistakes, he suggests using a robo-adviser, an app or website that replaces dealing with a live person. Robo-advisers ask you questions on preferences and goals when you open an account, and then create a personalized allocation based on your answers. The pioneer of robo platforms ― and still the largest of the independent firms ― is Betterment, which launched about seven years ago and now manages about $9.1 billion in assets.
Critical to your success as an investor, Labrum said, is to stay disciplined.
“When the market turns, do NOT change your allocation or preferences. Stay put. Those who have the least transactions and changes will typically do better,” he said.
Know there is no one-size-fits-all approach
“Each individual’s investment strategy should be representative of their savings capacity, their current goals, risk tolerance and his or her overall budget,” Jack Teboda, president of the Illinois financial planning firm Teboda & Associates, wrote to HuffPost. “There is not a ‘silver bullet’ recommendation that works perfectly for every single person. This is why it is imperative that each person, or family, is working with a fiduciary advisor ― someone who has analyzed the different aspects of one’s investment philosophy and then provides a recommendation that makes the most sense for that particular person.”
Investment choices should be based on more than just your age and the number of working years you have until retirement. Many corporate 401(k)s offer you a variety of investment options based on your risk tolerance. The thinking behind most of them is that the closer you are to retirement, the more conservative your risk-taking should be. A good adviser won’t just lump you into a plan based on your age, but will also consider your other non-401(k) holdings. Balance is everything.
Find a money manager who doesn’t just serve the wealthy
“It is true that most wealth advisors are looking for the wealthiest individual, as is true of institutional managers looking for the largest institutions to manage assets for,” Alexander Joyce, president and CEO of Indiana investment service ReJoyce Financial, told HuffPost in an email. “With most of the American population statistically not saving for retirement, I believe advisors should soak up some of this fault.”
Most private advisory firms even have minimums such as $250,000, $500,000 or even $1 million, Joyce said. His firm doesn’t have a minimum at all.
“My motto is, ‘I don’t care how much money you have, if we can add value we can do business.’”
Clients can stick their toe in the investing waters in a Stock Exchange Traded Fund, or ETF, with just $1,000, for example. As Wadbrant noted on Reddit, an ETF is a basically a bucket of stocks, often with some sort of focus. It gives you instant diversification because you are buying stock in more than just one company ― meaning you can invest in a promising industry without the risk of investing in a single company and having it fail.
Still, people with assets of $1,000 definitely don’t want to lose them. Risk tolerance is important, and the ETF Endowment Series has five levels of risk/potential growth, with A being the most conservative. In 2017, the A saw a rate of return of 5.68 percent; the B, 7.97 percent; the C, 10.63 percent; the D, 14.02 percent; and the E, 16.80 percent.
“These are real rates of return that even an individual with $1,000 can take advantage of, add to and avoid sitting on the sidelines,” Joyce said.
Pay attention to fees, and give big-name ETFs a chance
Different types of investments have different cost structures, Mark Fried, president of Pennsylvania-based TFG Wealth Management, told HuffPost.
ETFs are usually lower cost than mutual funds. Mutual funds have different share classes and each share class has a different fee structure. Fried says to look to ETFs to keep costs down.
“But,” he adds, “use big-name ETFs because you want to make sure there is a market when you need to sell your ETF. The more visible ETFs have better volume.” In other words, stick to the more popularly known ETFs.
Most investment firms impose a flat management fee on their customers, so they pay a set amount no matter how well the investment does. Aspiration allows customers to “pay what is fair” and name their own fees for investing.