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You can invest at any point in your life, but the best time to start is when you’re young. After all, time is on your side. And with some know-how and some money, you can make sound investment decisions that will pay off for decades to come.
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Learn: 3 things to do when your savings reach $50,000
For many young people, their first investment advice comes from a business professor while in college. For this reason, GOBankingRates spoke to two of his business professors, Robert R. Johnson and Robert Byrd, about the most important investing tips they give their students. They said:
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Invest early and often
All students have a lot of life ahead of them, so please make the most of your time.
“The biggest advantage you have in investing is time. With the power of compound interest, starting early is the key to successful wealth creation,” says Robert R., professor of finance at Creighton University’s Heider College of Business. said Dr. Johnson, CFA, CAIA. Economic Index Associates.
“Often people say they will wait until they have more money to start investing. Those who invest early and often can reap big rewards,” he continued.
Johnson gave the following example to illustrate this point:
“Assuming someone invests $500 a month starting at age 35 and earns a 10% annual return on that investment, they will have accumulated $1,139,662 by age 65. Their total payments will be $180,000; You will earn $959,662 in compound interest.”
Johnson gave another example of the power of time and compound interest.
“Now, suppose instead that same person started at age 25. By age 65, they would have accumulated almost three times as much, to $3,188,390. They would have paid a total of $240,000, with $2,948,390 in interest. You will receive dollars.”
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do due diligence
Robert Byrd, a professor of business law and ethics at the University of Connecticut, teaches his students to do their homework before investing in companies or assets.
“Be wary of companies that have experienced public scandals or major lawsuits,” he said. “Such companies may have more problematic structural issues underlying the causes of litigation that are not yet publicly known.”
say yes to free money
There’s an old saying: “Nothing in life is free.” However, when it comes to investing, this is not always the case.
Another investment tip from Johnson is to participate in an employer-sponsored retirement plan, ideally one that includes matching contributions with your employer.
“If you get matched with a company and you don’t contribute enough to your 401(k) plan to get that match, you’re basically denying yourself free money,” he says. Told. “Many people don’t participate in their company’s 401(k) plan because they prioritize paying off debt.”
Maximizing your 401(k) contributions also has the added benefit of lower taxes.
Don’t invest in fads
Another tip from Johnson is to avoid fads like cryptocurrencies.
“Investing in trends is a wealth destroyer,” he says. “Throughout history, you can find examples of investing in fads and how that turned out. For example, let’s go back to the late 1990s internet bubble. Today, it’s the crypto market and NFTs. is.”
According to Johnson, while investing in cryptocurrencies can sometimes be profitable, it is not a wise investment.
“I can hardly think of a worse strategy than investing in cryptocurrencies. You can’t invest in a wide range of cryptocurrencies. You can only speculate,” he said. “There is no rational way to determine the value of Bitcoin or various other cryptocurrencies. Traditional financial tools cannot be applied to arrive at the assumed intrinsic value, or true value, of an asset. It’s from.”
As he says, investing in cryptocurrencies is all speculation.
“There is no way to value cryptocurrencies other than the Great Fool Theory, or the expectation that the Great Fool will pay you more than you paid,” he said. “This is a perfect bubble and investors should stay away from cryptocurrencies in general and Bitcoin in particular.”
avoid innovation
Similarly, avoid investing in innovation unless you are prepared for disappointment.
“People believe that spotting new trends and investing early is the path to wealth. You need look no further than the auto industry to show that this is not the case,” Johnson said. Told.
He gave the example that there were once 2,000 car companies in the first half of the 20th century. But while many investors jumped at what they saw as an opportunity to get rich, most ended up backfiring.
Because only a few of those companies still exist. Not only that, but these same car companies have lost significant value to investors.
“The problem with investing in innovation is that investors are often too optimistic about its potential,” Johnson added.
invest in what you believe in
Another tip Bird gives her students is to invest in something you believe in.
“Don’t be afraid to invest based on your values,” he said. “Choose companies that not only generate strong returns on your investments, but also work for the benefit of society.”
He also suggested investing in companies that care about people and the planet, not just profits.
“Companies in the Dow Jones Sustainability Index have outperformed companies in the S&P for at least the past five years,” he said. “What’s good for the planet may be good for your bottom line.”
Don’t try to time the market
While some may argue that timing the market is the best strategy, Johnson takes a different view.
“Many people who listen to and are guided by 24/7 financial news services believe that the key to successful investing is timing the market – getting out of stocks before they go down, and getting out of stocks before they rise. “I believe the best thing to do is to get back into stocks before we do that,” he said. . “There must be no difference from the truth.”
Instead, Johnson’s investment tip is to create a long-term financial plan and investment strategy and stick with it. “Whether the market is flat, up or down, you should apply dollar-cost averaging to a diversified portfolio of common stocks,” he said.
take some risks
While things like innovation should be avoided, Johnson also noted the benefits of taking some risks.
“Individuals need to be taught to invest for retirement rather than save for retirement. The surest way to build true long-term wealth for retirement is to invest in the stock market.” “It’s about doing it,” he said. “Mistakes start early in life. The biggest financial mistake people make is not taking too much risk, but taking too little risk.”
One way to accomplish this is to invest for the long term in a diversified portfolio of common stocks.
“There’s an old Wall Street adage: ‘Sleep well or eat well,'” Johnson said. “Putting your money into low-risk investments like money market funds or Treasury bills may help you sleep better, but your investment won’t grow much and may even have a hard time keeping up with inflation.” If you keep investing, you will be able to have a rich diet.”
be patient
Both Bird and Johnson advise students to be patient.
“I encourage my students to play the long game. Consistency and perseverance are virtues associated with accumulating wealth over the long term,” Johnson said. This means staying in the market and letting compound interest work its magic.
“Invest slowly, carefully, and for the long term,” Bird added. “Even in turbulent markets, patience often pays off.”
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This article originally appeared on GOBankingRates.com: I’m a Business Professor: 9 Investing Tips I Always Give to Students
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