“Your savings rate is…the biggest determinant of how you do financially over time.” Christine Benz, the director of personal finance for investment research firm Morningstar
As the stock markets plunged across the globe in March, a wave of Americans saw an opportunity to start investing. But chasing hot stocks like Apple, Tesla or Amazon, according to financial experts, is akin to making the same old ‘tried and true’ investment mistakes as our forefathers and foremothers.
“Individual stocks are terrible investments for people just starting out,” according to Christine Benz, the director of personal finance for investment research firm Morningstar.
Active investing strategies, such as buying and selling individual stocks on trading platforms like Robinhood, often underperforms over the long-term versus more passive investment strategies, such as investing in low cost index funds that simply follow a stock market index like the S&P 500.
While chasing hot stocks may seem thrilling in the short-term while you’re winning, the keys to financial success and security are incredibly mundane. They include:
- Creating and following a financial plan;
- Disciplined and deliberate savings;
- Investing for the long-term;
- Time in the market beats timing the market;
- Investing in market index mutual funds and ETFs; and
- Diversification and asset allocation.