Personal Finance

Suze Orman says that many young Americans are investing the wrong way - here's what she suggests instead

Joey Frenette

Published: November 27, 2024 1:31 pm

Suze Orman is a terrific financial finance guru to follow closely if you’re a young person who’s just getting started on your saving and investing journey. She tells it like it is and can really help someone gain a better understanding of how the wealth-creating process works over time.

According to Orman, one of the biggest mistakes young American investors are making today is trying to hit it big on individual stocks. Undoubtedly, it’s not hard to imagine that many folks get drawn into stocks from a hot tip from a friend or coworker.

Instead of trying to play stocks or searching for opportunities to make a quick couple of bucks, Orman believes young and new investors should stick with a long-term plan, one that I find boring but profoundly effective.

Implementing a dollar-cost averaging approach with index funds (think ones that follow the S&P 500) is a smart, long-term game plan that young Americans should get behind. Is it really that simple, though? I think it is.

Key Points About This Article

• Orman is right. There are way too many young people drawn into markets with the intent of trading hot stocks.
• Investing for the long term may not be as fun, but it’s a time-tested way to build wealth in the long haul.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

Young investors: Piling into exciting stock picks isn’t the way to go!

Indeed, someone bragging about their soaring Palantir (NYSE:PLTR) position may just push you to pick up your own shares at markedly higher prices. Indeed, companies like Palantir are “in” right now, with explosive momentum behind them and tremendous promise for the future as the firm rides on the back of a number of emerging high-tech trends (most notably, artificial intelligence) that could pave the way for explosive sales growth prospects for a number of years.

Of course, your mileage will vary when it comes to placing big bets on individual hot stocks that today’s young people can’t stop talking about. For now, shares of PLTR only seem to march higher in any given week or month.

That said, the name is no stranger to some pretty substantial drawdowns. And one will likely be in the cards in the future. When it comes to exciting, emerging AI-driven growth companies, it can be pretty tough to know when a valuation has soared above and beyond what’s reasonable.

If you can’t get a grasp on the valuation of a firm and pick up shares just because of the sheer momentum behind a name, you’re speculating and not investing. Of course, you could still make big money over a near-term timespan (young people today want big gains and many don’t want to have to wait years to achieve it).

In any case, Orman is right on the money when she notes many young people are trying to trade the hot individual names out there with the intent of hitting it big. Some timely investments will yield big gains, and you’ll probably hear about some of the success stories in the headlines. However, there are so many investment busts that you likely won’t hear about unless you go searching for “loss” posts in Reddit’s r/WallStreetBets.

Dollar-cost averaging into index funds sounds boring. But it’s the right way to get started.

Orman is a massive advocate of dollar-cost averaging, and it’s not hard to see why.

It takes a big chunk of the market “timing” aspect out of the game. Also, it removes the need to pick individual names you may not be familiar with as a new investor. Perhaps most importantly, however, is it keeps investing boring enough such that investors won’t get euphoric over the potential to chase red-hot speculative plays.

If you’re a new investor, I’d encourage you to check out Orman’s content. She can push you in the right direction if you’re a misled new investor who may be trading and speculating instead of investing in your future. At the end of the day, the stock market is a place to grow wealth over the long run, but for some, it’s also a lottery ticket. The key is taking the right steps so you’re investing wisely and not risking your shirt for a shot at fast gains.

And if you can afford it, I’d strongly encourage you to reach out to a financial adviser, as their support can be invaluable to a beginner.