Your 20s can be dizzying.
You may feel you're stepping off the ledge without knowing if you can fly. To make things more complicated, it's time to get serious about money. That means getting a grip on spending and saving, and learning to invest.
Investing is not just for rich people. It's not just for older people. You don't have to be Warren Buffett (though it certainly helps to know his strategies). Investing is the surest way to build wealth when you learn certain basic principles.
If you want to succeed at investing, it pays to be observant. James Grannell Jr., 20, is from a very small Michigan town in Huron County that he says has more cattle than people.
Grannell, a machine repair apprentice and part-owner of a cattle farm, invests through his company's 401(k) and as an individual investor buying single stocks.
As a teenager, he learned to evaluate livestock. He was immediately aware of environmental issues that raise and lower livestock prices.
At 16, he began working at a dairy farm, milking cattle and then raising calves. He was asked to take over calf management.
"With cattle, it's supply and demand," Grannell said. He uses the Michigan State Extension average to gauge costs for suppliers amid the market's many fluctuations. "Two years ago, Holstein calves were going for $175 apiece," Grannell said. "Right now, Holsteins are going for $35."
Grannell's ease at assessing cattle prices may have played a factor in his interest in the stock market, as well as his confidence. He studies a stock's performance before buying, and is a fan of Buffett's strategies.
"You're always going to have ups and downs [in the market]," he said. "That is one reason I enjoy dividend stocks." He purchased Coca-Cola, which he believes is stable company, at $50.17, watched it drop down to around $45. Now it is around $48.
Initially, he took the dividends but is now in a dividend reinvestment program, which he likes because it's a way to purchase stock without a commission.
As always, spending plays a big part in smart money management. Grannell says the best piece of financial advice he knows comes from his mother. "She used to always say, 'Just because you've got $10 in your pocket doesn't mean you have $10 to spend.'" Grannell took that to heart and always puts money aside.
The worst advice comes from an acquaintance: "We're all going to die. You're probably just better off buying what you want now and spending all your money."
A year ago, Grannell paid $3,000 for a 2004 sedan. "It gets me from A to B," he said. Many of his co-workers drive late-model pickups, complain about their lack of cash and occasionally borrow money.
The best thing to do if you freeze at the idea of investing is to arm yourself with as much knowledge as you can. Keep learning on a regular basis. The more you know, the more confident you'll feel.
Younger people often find investing frightening. There's fear, of course, and then there's simple lack of understanding. "The most common misconception is that investing is like gambling," said Priya Malani, a founding partner at financial planning firm Stash Wealth.
For instance, Malani says, younger investors think you pick some stocks, cross your fingers and hope you don't lose all your money. "All other misconceptions we encounter, especially about concepts like diversification and risk, trace back to this one," she said.
A simple, no-brainer investment method is through a target-date fund, either in a 401(k) or individual retirement account. "These funds are diversified between stocks and bonds across the market and balanced for a specific target retirement age," said Tony Steuer, a personal finance educator and author of a book on financial-planning basics.
Target-date funds, which are often named for the year of a targeted retirement, generally have more risk in the early years and then change their allocation as the investor moves closer to retirement.
Marsha Lofton, 25, started investing in penny stocks when she was 19. It was frustrating at first — in the beginning, she said, her goal was simply to make some money. "I didn't know much, and I lost some money," she said.
After a couple of years, she changed course and sought out a professor for investing advice. "Pick companies you know something about," he told her. Lofton opened a traditional IRA and bought some shares of Disney, Apple and Netflix.
As an associate at Amazon in Richmond, Virginia, Lofton will receive three shares of its stock if she stays at the company till next year, which she says holds definite appeal. At the moment, she is not participating in the 401(k) plan because she is paying off debt, but she plans to.
The biggest challenge was not knowing where to start. "In the beginning, I was doing what my dad did," Lofton said. Now she has a long time horizon and isn't as impatient about seeing immediate results.
The hardest thing about investing is all the variables that affect the stock market.
But those variables can work in your favor. Lofton recommends looking at the world around you. "When Obamacare went through, insurance rates sky-rocketed and stock prices went up a lot," Lofton said. "I felt it was a little immoral [to profit from]. But also good from a financial perspective."
Her friends just brush off the idea of investing. "Friends treat it like it's Chinese, too difficult to learn," she said.
Another stumbling block for people in their 20s: "They don't really see the importance of investing for retirement, but it's better to do it young than too late," Lofton said.
Her best advice for beginning investors: Look at the stocks of companies you know and understand. Read books, look at the patterns of the stock's performance, watch lectures and videos online.
In other words, don't simply throw up your hands and decide it can't be done.
In middle school, Dylan O'Byrne became fascinated with trading equities when he took a class in stock market analysis. O'Byrne, now a 24-year-old logistics transportation technician in Wood-Ridge, New Jersey, carefully researched the company GameStop, which he added to his paper trading, and says he was making more money (at least virtually) than the rest of the online community.
When he was 14, he asked his mom for some real money to buy real stock in the company.
She said no.
So he went back to his classes, continued playing the Stock Market Game and trading on paper. A year later, he showed his mother the returns he'd gotten. She wasn't sure if he'd gotten lucky or actually learned something of value, but she agreed to give him $1,000.
Because he was still underage, O'Byrne could only make suggestions for investments to his parents, the account holders, and they went over them together.
Using eTrade, he recommended some shares of GameStop. He didn't choose any other stocks, because he was already upset about the cost of the $6.95 commission.
As the portfolio gained in value over the next couple of years, his mother gave him more money. He added his own savings from his 20-hour-a-week job. Year after year, he got solid returns and, by the time he was 19, the portfolio was worth $80,000.
O'Byrne's net worth —he says it's just north of a quarter of a million — is a combination of working ferocious hours (currently 80 to 100 per week), aggressive investing and constant attention to his money. He lives with his parents in order to live far below his means, and he invests about 75% of his salary.
"Invest as quickly as possible, and for as long as possible," O'Byrne said. He believes you should learn to manage your money at any level. "If you can't manage $1,000, you'll never be able to manage $100,000 or $1 million."
It's not impossible to do what O'Byrne does. First, he said, start with paper trading. Open an account where you can practice trading, like Investopedia's stock market simulator. "You learn by doing," O'Byrne said.
Once you understand the basics, do it for real with an amount of money you're comfortable. He recommends using a brokerage firm that does not charge commissions on trades.
Financial advice to watch out for? O'Byrne says if you overhear your co-workers talking excitedly about a new cannabis stock or cryptocurrency, don't rush to buy that stock. "They probably don't know what they are talking about," he said.
Compared with other families in prosperous Bergen County, New Jersey, O'Byrne describes his own family as thrifty and careful with money.
His clothes were sometimes hand-me-downs. They used a dial-up internet connection far longer than most people. But his parents' frugality made vacations and Christmas gifts possible. What he learned: the importance of living below your means. "I realized the value of how hard my parents worked," he said.