David Stein
Host, Money for the Rest of Us
New investors are always looking for the best way to get started. David Stein, host of the personal finance podcast Money for the Rest of Us, says the best way to start is simply that: get started.
“The beauty of investing is that you learn by doing,” he said. “You don’t need to be an expert to be a good investor, but one of my first rules is just know what you’re investing in.”
Stein said a good rule is to be able to explain to someone else what it is you’re investing in.
“Often new investors get caught up in whatever’s hot in the moment, be it Tesla stock or Bitcoin, and they buy, but they don’t know how it works or what has to happen for it to become a profitable investment,” he said. “That’s really the key, being able to explain it, because the act of explaining humbles us.”
Humility is key for new investors, especially if they’re investing in a bull market, such as now, and their stocks rise quickly.
“A great way to learn how hard it is to pick individual stocks is to buy one and to realize the stock goes up and down way more than you thought it would,” Stein said. “Always approach it with a sense of humility because markets are very competitive. There are ways to invest where the odds are on the investors’ side, and there are ways where you’re competing with Wall Street.”
Diverse portfolio
Another mistake early investors make is focusing solely on individual stocks.
“To build wealth, one should focus on asset classes, which are baskets of stocks and other securities to build out a diversified portfolio,” Stein said. “Then what drives the investment’s success is the cash flow of those investments over time and how those cash flows grow. When you buy an individual stock, success is dependent on making sure that the stock is priced correctly; that it’s not mispriced.”
No matter how savvy of an investor you are, there will always be volatility and unpredictability, and Stein says new investors should be prepared for downtimes.
“We’re emotional investors and we have to manage our regret,” he said. “One way to manage our regret is to take small steps. That way you’re not sitting outside, waiting for the world to fall apart and you feel bad because the market is up 50 percent. If you can take small steps, then it’s easier to manage that regret.”