I would like to give him good practical advice, but unfortunately I don't have much experience with investing outside the TSP; so as he and I start doing our research, I would like to ask the brain trust on this site for your advice.
Here are a couple of starter questions:
1. Which online trading services should he consider for this account and what should he know to look for when comparing such services? (Fees, user interface, useful reports, access to research information, limits on trading?)
2. What sort of diversification strategy should he consider following with such a small amount of money? I'm thinking he should stick with TSP-like ETFs, and would like for him to be able to follow a seasonal strategy. But I also think he should consider picking at least one individual stock after he learns some of the basics of valuation and risk.
I don't even know what else to ask, so any and all advice is welcome.
Absolutely stick with ETFs. Either a total stock market index or the S&P 500.
Don't get into Seasonal yet. Just teach him to invest consistently (every month or even better, every check).
That is so important of a concept. Invest early and often. Way more important than what strategy he uses.
I recommend that he read "If You Can: How Millennials Can Get Rich Slowly" by William Bernstein. It takes less than an hour to get the basics, and the rest is just improvements on one's knowledge / understanding. The Kindle version is free right now on Amazon. https://www.amazon.com/If-You-Can-Mille ... B00JCC5JKI
Here's other tidbits I would tell him.
1. Investing in a buy-and-hold strategy is better than doing nothing or trusting the government to take care of you.
2. Don't overthink it. You have better things to do with your life than to spend your days agonizing over investment decisions. Sometimes the simplest strategy is the best one.
3. Just like working out, consistently working at it little by little is what wins the race in the end. Keep putting money away no matter what the market is doing or what the news is saying.
4. While he's young he can afford to take risks, but some things are just bad bets and are best avoided altogether. New start-ups that haven't proven themselves, trendy ideas and schemes, companies in foreign lands that have a history of political / social turmoil (China, Russia, etc.). Stick with the tried-and-true companies that have been around for a long time because they're doing something right or else they wouldn't still be here.
5. Playing around with individual stocks is fun, but don't put all the retirement eggs in one stock basket. An index spreads the risk around and diversifies against the risk of any individual company going under.
6. Try like hell to get an employer match if you can.
7. Every time you get a raise, put at least half of the raise toward your retirement. Eventually you'll hit the IRS ceiling and then you can either pocket the rest or invest in other things.
Recommended Reading: http://tspcenter.com/forums/viewtopic.php?f=14&t=13474
"It's not what happens to you, but how you react to it that matters" Epictetus
Dollar cost averaging with regular purchases.
Explain compound interest.
If the market falls 50 %, he should celebrate. ( buying low) Understanding this will help with the mindset to stay invested.
Invest in index funds which gives him Diversification verses buying individual stocks which will lead to less diversification.
Don’t stress him out with individual stocks. Warren buffet recommends S&P 500 index fund. Keep it simple.
Stay invested 100% in stocks. No need for bonds at his age.
Listen to Paul Merriman podcast, YouTube.
Read “How a second grader beat Wall Street”
5/3/21: Buy and Hold 30% C, 70% S if I can stay disciplined.TimboSlice wrote: "People really need to stop overthinking this."