According to a Gallup poll, more than 60% of Americans own stocks. With the stock market coming off a first-quarter rally and trillions of dollars sitting in bank accounts, more Americans may want to get into the market and start investing.
Wall Street Alliance Group Partner Aadil Zaman joins Wealth! He shares top tips for first-time investors looking to invest in stocks.
Zaman affirms important principles for first-time investors. “One of the fundamental principles is always to invest for the long term. With all this meme stock craze and the entry of Robinhood (HOOD) traders, we tend to see a lot of people looking for ”This is a short-term transaction. I think that's a mistake. Most people lose money that way. Take a long-term view. S&P 500 (^GSPC), he hasn't had a period in 20 years where the S&P 500 was negative. ”
For more expert insights and the latest market trends, click here to watch the full episode of Wealth.
Editor's note: This article was written by Nicholas Jacobino
video transcript
Brad Smith: More than 60% of Americans will own stocks in 2023, according to a Gallup poll. If you're in the minority that isn't, getting started can seem a little scary.
But if you're already trading, are you sure you're setting your investments up for success? For an in-depth look at how new and old traders can trade smarter, check out Wall Street We welcome Aadil Zaman, a partner at Alliance Group, to our studio. I'm glad to meet you.
Adil Zaman: Nice to meet you, Brad.
Brad Smith: Okay. So, first and foremost, for those who are entering the stock market for the first time, and perhaps for those who are involved in the stock market but have already made some unfortunate mistakes, here are some do's and don'ts. Let me explain.
Adil Zaman: Yeah. I think one of the basic principles is to always invest for the long term. So with the meme stock craze and the entry of Robinhood traders, many people tend to be looking for short-term trades.
I think that's a mistake. Most people lose money that way. Take a long-term view. S&P 500 — The S&P 500 has never produced a negative return over the past 20 years.
The average 20-year return for the S&P 500 is over 9%. To get that benefit, you need to stay invested for a longer period of time. In fact, we tell our clients that if they can't invest for five years, they shouldn't invest in the market.
Brad Smith: interesting. got it. So what are good first deals for beginners?
Adil Zaman: If you are investing for the first time, I think it would be a good idea to consider ETFs. It's an easy way to diversify.
Brad Smith: A basket containing securities.
Adil Zaman: Pick a basket rather than going after individual stocks, as this can be risky. Get a taste of the market with ETFs. And then dive further into individual stocks later.
Brad Smith: What are the strongest themes we're seeing in tracking within ETFs at the moment?
Adil Zaman: When it comes to ETFs, or index ETFs, I think the best place to start is the S&P 500 index ETF. And as your portfolio size increases, you can hold more individual stocks and create a more diverse basket.
Brad, I think one of the key things that people miss is that it's boring. However, if you are just starting out, always remember to diversify. When the tech bubble burst, many people lost their shirts because they had invested so much money in technology. And they never got their money back.
On the other hand, those who were sufficiently diverse recovered. And they have made more profits over time as the market has gone up. And the other mistake people make is when the market goes down, they say my 401(k) is going nowhere. I'm sure it'll be fine. It will come back again.
That's a mistake because the market could recover. However, you may never get back what you invest. Therefore, you need to diversify properly to recover in the market.
Brad Smith: Is there a way to take advantage of market downturns and shortcomings?
Adil Zaman: Well, as Warren Buffett said, when others are afraid, be greedy. Market drawdowns sometimes present the best opportunities. This is not only the best opportunity to buy quality companies at a 20% or 30% discount. But it's also a good time to implement certain strategies, such as tax loss recovery.
What is tax loss recovery? Tax loss recovery involves selling stocks in your portfolio that are declining. Unless you buy it back within 30 days of selling it, you can offset the loss against capital gains on stocks and real estate.
And, Brad, what a lot of people miss and don't understand is that this loss can be carried forward into the future indefinitely. So we utilized this strategy extensively in his 2008. After that, the market and real estate rose. The client was then able to use that loss to offset its profits.
Brad Smith: We are entering a new financial year. So in general, what should novice investors remember about earnings season and how can they actually trade during it too?
Adil Zaman: If you're a novice investor, I don't think you need to worry too much about short-term returns. Let's think long-term. If you are a new investor, you can sell your stocks without fear, even if the stock price is going down. Sometimes it makes sense to put a bullet in it and put your money into something else that is more likely to be more expensive.
Another common mistake people make is not wanting to record profits. For example, if you view his five-year chart of Tesla, you'll see that the stock was on a monster rally through November 1, 2021.
And since then, it has fallen more than 50%. Same thing is happening with NVIDIA, people don't want to sell it. It's gone up. I don't want to take money off the table. That's wrong. Book a profit and take money off the table.
No individual stock should represent more than 5% of your portfolio.
Brad Smith: interesting. Aadil, I'm glad you're here. It was great to meet you again. Aadil Zaman, Partner at Wall Street Alliance Group; thank you.
Adil Zaman: thank you.
