Continued from Part 1
6. Don’t worry about having to pick out your stock one by one on your own – this is what mutual funds are for. Instead of breaking your head over which stock to buy, you can buy into a mutual fund that already did all that work for you. You may also consider an Index fund, which is a mutual fund with a portfolio constructed to track or match specific components of a market index such as S&P500.
7. Once you’ve made your first million (just kidding, that’s not happening any time soon, don’t watch too much TV), you’re going to have to familiarize yourself with the Capital Gains Tax. What, you thought Uncle Sam will let you have all that cash for free?! On the other hand, over time this greedy but not too sagacious Uncle came up with many ways for you to NOT pay him too much. Therefore, get acquainted with a decent CPA (hopefully, your father’s school buddy, whom you can trust) and figure out how to structure your taxes.
8. In fact, you probably should sit down with that CPA and come up with the complete strategy for building your investment portfolio. He’ll probably tell you that you’re young, so you have all the time in the world to accrue compound interest on your investment, that’s a definite plus. He will definitely tell you that you shouldn’t invest the money you have but might need in the immediate future. He will tell you that the worst investment strategy you may pick is to invest whatever you get from home (assuming, you’re in college) into some “hot stock” you saw this morning on CNBC. Listen to that guy, he is giving you pure gold!
9. If that same reliable CPA all of a sudden starts making predictions about the market, it may be time to look for somebody else. We want to make it official that markets are unpredictable. Even the popular point of view that the way to project market’s behavior is to look at what markets used to do in the past is somewhat of a fallacy. Know this. Don’t act on it (there’s nothing to be done here anyway), just be aware. It’s actually a good way to measure your counterpart’s honesty: if they start bragging about hot tips and knowing what’s coming, dump’em!
10. Again, remember: investing is not a job. Or, rather, not your job. Investing is a multilevel, multilateral process involving complicated financial planning, wealth advising, tax consulting etc. There’s people for all that!