Posted by Tim Stobbs on February 17, 2011
For those people just starting out with investing I’m going to make a suggestion that might go against the usual advice you hear. If you are clueless on investing when starting out and don’t know what to buy, then skip the stock market. Go straight to a GIC, savings account or something else very conservative.
Why? Well let’s face it when you are clueless and young you tend to have very little saved. So in that case a higher rate of return is nearly meaningless in the first few years. After all an extra 1% return on a $10,000 investment is just an extra $8 a month. You could save more by altering your spending habits than your investments. Also if you went straight to stocks without knowing anything, the odds of you losing some of your money is actually fairly damn high. The stock market is rather like a casino where idiots are separated from their money fairly quickly most of the time.
Of course you could potentially make more in the stock market in the long run, so that is why you need to educate yourself in the mean time and find out what investment method will work well for you. Then after a few years you can shift yourself over into the market with a vague idea of what you are doing.
So how do you know you are clueless on investing? Well that can be hard to tell since we tend to have a much higher opinion of ourselves than we should. I know I was even guilty of this in the beginning so might I present my list of you might be clueless about investing if:
- You pick a stock because you like the company name (Yes I did this with my first stock when I was a teenager)
- You don’t understand what the company does to earn money (for example, what is a junior mining company?)
- You have ever taken a stock tip from your paperboy, best friend or the clerk at the store
- You can’t read the company last financial statement to find out how much they made last year per share
- You have no idea what companies you own in your mutual funds
How about you? Are you clueless on investing? If so, when did you know that? If not, do you have any idea on when you stopped being clueless?