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Lauren Young on Smart Investing
Lauren Young knows a thing or two about investing—she's a personal finance expert that readers have come to rely on! She is a department editor at BusinessWeek, covering all aspects of personal finance and was also a senior writer at SmartMoney. Young covered mutual funds and capital markets for Dow Jones News for three years and was a frequent contributor to The Wall Street Journal. Here, she shares simple tips for getting started with investing that makes it seem, actually, not so hard after all!
Why should people invest?
Because if you don’t you will have nothing for your future. The average person has a balance of about $60,000 in their 401(k) when they reach their retirement. I don’t think that many people can live on $60,000 from age 65, and we know that most people are living well into their 90s now. Even if you add in social security, I don’t think that will do very much for you.
How does a smart investor begin?
I think you can’t be totally freaked out and think that you need tons of money to get started. The best thing to do is set aside a small amount of money every month and as you get older or feel richer, add more to it over time. Start by investing $50 or $100 dollars a month into a diversified mutual fund.
If you don’t have any investment I would recommend something called a target date mutual fund, which is an asset allocation portfolio that mixes stocks, bonds, cash appropriate to your age, it gives you some international exposure. That’s the easiest way to get started. Financial services firm will happily take your money. They’ll happily suck it right out of your bank account if you’ll set it up. Just put it on autopilot.
How can people find the right investments?
I don’t think everybody can tell that easily. If you’re pretty new to investing, it’s going to be hard to discern whether or not it’s the right investment for you. We know that people have a tendency to be too conservative. That’s why I recommend a target date mutual fund, because the asset allocation is already done for you. You say, “I’m 40 years old, I plan to retire in 25 years,” and the fund literally has an expiration date 25 years from now.
The other thing is that if people want to buy stocks and bonds, they can buy stocks in the company they own, which is one the oldest tricks in the investing book—know what you own. If you go to Starbucks everyday, and you think it’s a good investment and want to buy Starbucks stock, buy a few shares. Start small. The thing about investing in stock is that if you start getting nervous and checking your portfolio incessantly, it’s not really a good thing. You really don’t want to be monitoring your portfolio minute to minute. Unless you’re a professional trader, that’s just not healthy. If you can’t sleep at night because you think you made a bad investment choice, that is definitely not a good thing.
What do people need to know about stocks, specifically?
You have to be really careful about fees, and how much things cost, because over a 30-year time span it can be a difference of tens of thousands of dollars. The average mutual fund has an expense ratio of about 1% of assets. For every hundred you invest you pay about 1 dollar. You’re paying a professional to manage it. That’s pretty good. You pay a mechanic to fix your car, I don’t think they’re only going to charge you 1% of the price of your car to maintain it. So you really need to be mindful.
What is the belief you personally go to during times of change?
Change is good. I believe everything happens for a reason. I really do believe that if it’s meant to be it’s meant to be.
The best thing about change is...
...It kicks you in the butt.
What is the best change you have ever made?
I moved to Europe not long after college. It was so different. The best change was putting myself in a totally foreign environment. I lived in Hungary and Budapest, and it was very seminal. Sometimes you need to take the road less traveled.
For more from Lauren Young, visit www.businessweek.com.