Maintain it easy whenever you begin investing, says legend Charles Ellis
When it comes to getting started in investing, it’s important to keep it simple, according to investment legend Charles Ellis.
In fact, he equates it with raising teenagers.
“Every parent of teenage children eventually realizes less is better,” Ellis told CNBC employee Jenny Harrington in an interview for CNBC Pro. (Harrington is the CEO of Gilman Hill Asset Management, based in New Canaan, Connecticut.)
“Fewer instructions work better,” said Ellis. “Fewer decisions work better.”
Ellis is the author of the legendary investment book “Winning the Loser’s Game,” which was first published in 1985 and is now in its eighth edition. He has long been an advocate of passive investing, such as index funds, versus active investing.
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Still, some new investors are trying to make trades or time the market. Many recently piled into meme stocks, including AMC, which hit an all-time high in June, and GameStop, which rose earlier this year.
Starting out slowly and understanding the real meaning of diversification and asset classes, certified financial planner Crystal Alford-Cooper seeks to impress her clients.
“This is the age of distraction,” said Alford-Cooper, vice president of planning for Glen Echo, Law & Associates, based in Maryland. “In your mind, you need to stay away from the noise and stay focused and disciplined about the things that you can control.”
How to get started
For those just getting into the stock market, Ellis recommends starting with the basics.
“It’s a bit like, ‘How do you start eating ice cream?'” Said Ellis, founder and former managing partner of Greenwich Associates. “You start eating vanilla and plain vanilla would be either the total market index or the Standard and Poor’s 500 index, which is a very significant part of the total market.”
Gilman Hill Asset Management’s Harrington agrees.
“As with most things in life, you won’t be an expert on day one, and with around 7,000 ETFs and 3,500 stocks publicly traded in the US, making a choice can be overwhelming,” she said.
Harrington recommends starting with something like the SPDR S&P 500 exchange-traded fund, which tracks the broad market.
Stay away from people who tell you what they do and what they did last year.
Vice President Planning at Law & Associates
When you buy stocks, you choose a handful that you know and where the underlying companies have a proven track record.
“Start with easy-to-understand investments and use that foundation to learn more and develop your investment understanding and vocabulary over time,” advised Harrington.
For Alford-Cooper, one of the most important things is a written investment plan that matches your risk tolerance. Then stick with it.
“You can choose a great index fund that has companies that you know and use every day,” she said. “Stay away from people who tell you what they do and what they did last year.”
TURN ON: Jenny Harrington is on “Mid-term report“Friday at noon ET.
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.