Investing 101: get the most bang for your buck

USD finance professors share tips for successful investing

Jessica Mills / Asst. Feature Editor / The USD Vista

From stocks, mutual bonds, real estate, cryptocurrencies, and retirement funds, the world of investing holds a variety of potential for novice and experienced investors. Many investments can generate long-term growth, provide a regular income, and adapt to one’s changing needs. However, many fear the possible financial loss and ambiguous nature of the investing industry. 

In a previous article from The USD Vista, Clinical Professor of Finance Daniel Roccato shared his insights to the world of cryptocurrency. Now, Roccatto continued the digital asset conversation and shared tips on success for new investors. 

“The easiest way for a young investor to get started is to graduate USD and get a terrific job,” Roccato said. “Once you start your career, focus on your 401(k) plan. Contribute money from your paycheck, your employer may even match that amount, but don’t touch the fund, just let it sit.” 

According to Roccato, retirement plans are the most efficient way for young investors to get in the game. A 401(k) is an investment used to fund retirement, and employers typically provide the benefit. With each paycheck, money automatically transfers into the retirement fund, meaning the return on the investment increases over time. 

There are three fundamental concepts for investing. Roccato referred to the first as “risk and return.”

  “You have to look at how much risk you’re willing to accept for investments in exchange for a potential return,” Roccato explained. “You accept more risk if you have more potential for a higher return.”

Determining one’s appropriate amount of risk can help decrease financial losses. For example, if one is younger, unmarried, or has fewer financial responsibilities, they may have a higher tolerance for risk than someone married or older.

The second concept addresses asset diversification. This is the process of spreading money across multiple investments, decreasing risk. Owning a wide variety of assets removes the risk of an individual stock going down in value. 

“Building a solid, diversified portfolio of investments that fits your risk profile is foundational,” Roccato said. “Your mix of stocks, bonds, and real estate should look very different from another person’s. We each have different investment goals, strategies, and risk levels.” 

Assistant Professor of Finance William Beggs explained the value of maintaining diverse assets. 

“If you buy and hold diverse investments you’re going to do just fine.” Beggs said. 

The third foundational concept Professor Roccato addressed is time. 

“Traders think short-term while investors think in terms of decades,” Roccato explained. “So ask yourself, ‘am I a trader or an investor? Young investors naturally have a longer time to build investment portfolios so they can take more risks.” 

Because investment markets are now accessible on mobile devices, popularly in app form, Roccato explained that new investors are at an advantage.  

“You can download a trading app on your smartphone like Robinhood or TD Ameritrade, open an account, and scroll through potential investments,” Roccato said. “This can include mutual funds, stocks, bonds, crypto, gold, oil. There are so many different options to look at and the power to do so didn’t always exist. It’s all on your phone and a lot of it is free.”

Roccato shared that a key step in choosing where to invest is being knowledgeable on the market and company one plans to invest in. Typically, most of this information is available online. 

“Start with gathering as much knowledge as you can about the markets and individual companies that you’re interested in investing in before you do anything,” Roccato recommended. “You should look at a company’s profits, growth, and whether they’re worthy of your hard earned dollars.” 

Along with a retirement plan, Roccato recommended beginners invest in a mutual fund. Professional money managers manage mutual funds and invest one’s money into a diverse set of stocks, bonds, and other assets. Rather than choosing individual investments, mutual fund managers make the decision for the investor. Consequently, investing in mutual bonds guarantees a diverse portfolio. 

“Many mutual funds have a zero minimum, so you can get in for any amount of money you want,” Roccato said. “Because it’s a competitive market, those mutual fund companies want investors to come in, so they offer you free entry in the hope that you stay for the rest of your life.” 

The cryptocurrency investment route is typically more expensive than mutual bonds since individual cryptocurrencies have a restricted supply and increase demand. 

Because cryptos don’t contain any diversification, they also hold more risk for investors than a mutual fund. While fraud remains a possibility with mutual bonds, their diversification decreases the likelihood of scams. 

Professor Beggs shared two mistakes beginners should try to avoid when investing, which emphasize the importance of patience. 

“Don’t sit around and make trades all day,” Beggs recommended. “Constantly buying and selling securities just creates more transaction fees. Just buy and hold your investments.” 

The second mistake is “panic selling.”

“People get out of the market because they’re afraid it’s going to go down,” Beggs said. “But then it goes right back up and they miss the rebound. There’s no way to time the market.” 

For many, the possibility of increasing assets is a considerable incentive to invest in the world of stocks, bonds, and crypto. With access to investment opportunities on mobile devices, new investors have the ability to browse before committing. While financial loss remains plausible, assessing one’s risk level and conducting research before investing can help ease fear for novice investors.