Harry Sit will be the first to tell you he's not a financier - he's just smart with his money. Very smart. On his site, The Finance Buff, he details how he's on track to retire in his forties. He sat down with us to discuss investing and how it's simpler than you think.
What first made you interested in investing?
I took an investing class in business school. That was the first time I learned about investing. My first job after business school was in the benefits department of a large company. I gave new hire training about our 401(k) plan and why it paid to save early and invest in the funds in the plan. I had to learn it myself before I taught others.
What are some common misconceptions about investing you see floating around?
That you must have a lot of money before you start investing. That the stock market is too risky for the average Joe. That bonds are only for old folks. That the key to investing success is figuring out which companies to buy or when to trade in or trade out. That using any financial professional is better than doing it yourself.
How financially literate would you say many investors are? Where could we improve?
I would say many are financially literate enough. Those who are not yet financially literate enough can easily to learn. Plenty of free and very inexpensive materials are available to help them. The right investment strategy does not require deep knowledge about the stock market, the economy, the industries or individual companies.
We could improve in tuning out the noise. Together with the free and very inexpensive materials that will help them, there are also plenty of materials that will harm them. The key is distinguishing the helpful materials from the harmful ones.
What advice would you have for first-time investors? What should be their first step?
Read a good book and start on the right track. 90% of investing success is avoiding simple mistakes. Don't pick stocks. Don't trade in and out. Avoid salespeople. Stick with simple index funds. I recommend The Little Book of Common Sense Investing by John Bogle and The Random Walk Guide to Investing by Burton Malkiel. The first step would be signing up for the retirement plan at work. Contribute enough to get the match and work toward maxing it out. Invest in a target date fund.
What are some ways people can save a little more that they don't realize are out there?
The best way to save money is not wanting the product or service to begin with. True needs are very few. Start with the big-ticket items. Rent a smaller place longer before buying. Buy a smaller home. Drive a less expensive car.