Last weekend, I joined my extended family to watch my younger cousin graduate from USC. Afterwards, over dinner at a Beverly Hills steakhouse, a conversation about his plans for next year somehow evolved into a lengthy discussion of value investing. As a graduate of USC’s Marshall School of Business, and a member of one of their student-run funds, he’d had plenty of exposure to the ins and outs of the public markets and developed a definite perspective on his own investment strategies and goals.
It made me wonder how many of his 5,000 classmates, or how many of the millions of graduates in the Class of 2010 across the nation, are similarly prepared to face their financial futures. I suspect many recent or soon-to-be graduates have never considered learning about investing, thinking “what’s the point? I don’t have enough money yet anyway” or “oh, someday I’ll just hire a financial advisor”. But as with most things, knowledge is power, and lacking the financial resources to play in the market is no reason not to start learning so when that vague “someday” rolls around, you’ll have the tools to do it yourself. We’ve already covered how brokers make their fees. Financial advisors similarly get paid based on commissions, percentages of your accounts’ values, and flat or hourly rates for other projects. Paying an advisor often amounts to buying guidance from resources which are readily available to you anyway.
If you’re not ready to put to work that graduation cash from your parents, or the remaining change from your last summer job, there are still plenty of resources out there to learn about strategies and research companies, from the simple to the complex. You can begin building your own strategy, even if you can’t implement it, by asking yourself about your goals, your tolerance for risk, and how actively you expect to manage your investments. Tools such as Marketwatch’s Virtual Stock Exchange offer a risk-free way to test out scenarios and get more comfortable.
Don’t forget, regardless of how you build your portfolio, your first step should be to build and maintain a cash reserve for emergencies.