Money-smart kids: A letter to beginning investors [View all]

[Octafish]

Great advice for young people -- and everybody, really.

There's just one problem the pundits always miss...

Money-smart kids: A letter to beginning investors

By JANET BODNAR
Dec. 5, 2015, Kiplinger’s Personal Finance

When my 20-something son, Peter, recently asked me for investing advice, I distilled the expertise of the Kiplinger staff with some thoughts of my own into an email. Peter says he found it “really helpful,” so I thought I’d share it.

Put safety first. Before you invest in anything, you should have money in the bank that you can easily get to in an emergency. Kiplinger generally recommends that you have at least enough to cover your expenses for six to 12 months. Although savings accounts are paying almost nothing right now, you can eke out 1 percent or so in top-yielding accounts.

Build a solid base. For longer-term money, such as money in your 401(k) plan or IRA, you can afford to take risks in the stock market. Stick with mutual funds, which let you diversify or spread your risk. The best funds to start out with, in my opinion, are index funds, which try to match a particular benchmark, such as Standard & Poor’s 500-stock index or a total stock market index. Another benefit of index funds: They have very low fees.

Peter, you asked about exchange-traded funds, or ETFs. An ETF is a kind of index fund. ETFs are popular because their fees are even lower than those of index mutual funds, and you can trade them throughout the day like stocks. We’ve compiled our favorite ETFs into the Kiplinger ETF 20.

SNIP...

Add a little spice. Managers of actively managed funds use their own judgment to try to get returns that beat the stock market. The trick for investors is to pick the best ones. At Kiplinger, we try to do this for you by choosing the Kiplinger 25, our favorite no-load funds. If you have index funds as a base, you can use these actively managed funds to complement your portfolio.

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Anyone spot what's missing from this advice?