The Millennials Guide to Investing in the Stock Market

The rule of thumb in the market is you succeed not by timing the market but by “time in the market.” When you are in your teens and 20s, you have a much longer time horizon than the average investor. Because of this fact, you will want to consider different strategies than the average investor in order to get maximum returns.

Types of Investments

When you have a long time horizon, your investing strategy should be centered on high growth investments like small cap stocks and industry specific stocks. The overwhelming majority of your portfolio should be invested in these vehicles, with only a small amount set aside for less risky investments like bonds or certificates of deposit.

The reason for this is high growth investments give you a way to build wealth quickly and to get maximum return in the minimum amount of time during a period in your life when losses aren’t as much of a problem as they can be later. This is probably the most important factor in a winning investment strategy.

Cost Averaging

Because your income is probably coming from a regular paycheck in your teens and 20s, you can take advantage of a useful purchasing strategy called “dollar cost averaging.” Making regular purchases of the same stock over time means you are changing the purchase price as it increases. This means that some of your shares will lose a smaller amount of principal than others and help “hedge” your losses in the event the stock price drops significantly. This is a strategy you should strongly consider for all of your investments throughout your career.

Evaluating Your Gains

It can be quite exciting when one of your investments does well, but in order to properly evaluate your overall investment strategy, you have to take into consideration the costs involved in the money you are putting aside. Taxes and inflation are a constant drain on the value of your funds, which means if your investments are not returning an amount exceeding the combination of taxes and inflation, you are losing money over time. Make sure your strategy’s returns are high enough so you don’t find yourself with gains that aren’t really gains.

Learn the Business

While it isn’t necessary for the average investor to go out and earn a Series Seven, it is necessary for you to understand what is happening with your money as you proceed with your investment strategy. You need to know how mutual funds work, how to read a quarterly stock report and how to tell if the companies you are investing in are worth the effort. Vote your shares, talk to other investors and pay attention and you’ll find your returns will exceed the average.

Investing can seem like an impenetrable world of jargon and technical details, but it doesn’t have to be that difficult. If you can understand accounting well enough to manage a bank account, you have the potential to understand basic investing and you will find your portfolio’s value is worth the extra effort.

Jonah Engler is a financial adviser from NYC.