Investing in the Stock Market: Back to School Edition

Recently in the Cherries blog, we talked about using the summer to work on your kids’ financial education. With September fast approaching, the kids will be busy again but that doesn’t mean it’s the end of their training as the future investors of America. Some schools offer financial literacy classes or stock market simulation projects. But even for kids without those opportunities, some of the best lessons for investing in the stock market are things we all learn in school:

Do Your Homework

In school, on the stock market, and anywhere else in life, there’s no replacement for being prepared. No matter what kind of investing you choose, make sure to do your research in advance. Investigate your own finances to decide how much to invest and how much risk you can afford to take. After that, gather information about the risk levels of different types of investments. Only then is it time to start looking into the data on financial assets.

Read the Instructions Carefully

Did you ever spend hours working painstakingly through a set of math problems, only to find that you’d read the instructions wrong and have to start over? Don’t let that happen when you’re investing. Whether you’re investing online or through a bank or other financial institution, make sure that you understand all the terms and fees. Complicated fee structures or high fees can make a significant dent in your return and change the way you invest.

There Are No Shortcuts

You can’t skip homework all year, never study, and expect to make it up in extra credit work at the end of the year. And no matter how smart you are, you can’t skip straight from 1st grade to high school. Like school, smart investing is a long-term commitment. Buying and selling quickly may make you money sometimes but it’s wiser to buy a diverse portfolio and then hold on to it through thick and thin.

Don’t Procrastinate

If you’ve ever had to pull an all-nighter before a big exam, you’ll know what we’re talking about. In investing, you won’t lose sleep but you will lose the benefits of compound interest. Compound interest is when your investments earn interest over time and then you can begin to earn interest on that interest. At the end of many years, you’ll have more money if you invested small amounts early on than if you invested large amounts later.

Learn From Mistakes

When you got a term paper back marked up in red, it wasn’t so your teacher could justify your bad grade. It was also so you could learn from your mistakes and try again. That’s a good habit for every aspect of life. When you find that an investment hasn’t gone as you’d hoped, it’s time to check for mistakes that you might have made so that you can do better next time. Perhaps you didn’t diversify enough or chose a riskier portfolio than you could afford. Perhaps you let emotion get the better of you and rushed to buy or sell. If you can identify the mistake, you’ll know exactly what to keep an eye out for in the future.

Recess is Important

As a kid, it may have seemed like the grownups dismissed recess as the unimportant part of the day. But your teachers knew it was critical. Recess allows kids to recharge, get some fresh air, and release energy so that they can settle down and focus on schoolwork for a little bit longer. Sometimes adults need that too. When your investments are going excitingly well or frustratingly badly, it can be easy to get caught up and start making bad decisions. When that happens, it’s important to take a break. Stop watching stock movements and go on vacation.

You Need the Boring Stuff Too

Great teachers do their best but it’s impossible to make every subject interesting for every student. But that doesn’t mean that every student doesn’t need to learn some math, history, or science. You can’t have excitement all the time. The same is true in investing. Investing can be exciting, with dramatic market fluctuations and unexpected price changes. But a smart investor ignores most of that. Wise investing usually entails a lot of waiting. Create your portfolio and then walk away. It may not be the most exciting way to invest, but it will show the best returns in the end.