Wealth

For 20 years, I helped high-net-worth clients build wealth: Here’s my best advice for new investors

When I was 25, inspired by the energy and excitement of the New York Stock Exchange after a visit when I was in college, I started my own investing firm, Caffey Investment Group. 

Prior to launching my business, I worked at my father’s insurance agency for three years and then worked at two other investment firms before starting my own. I’ve personally been investing in the stock market since I was 16, and that experience served me well, especially in the beginning. 

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Being a young, Black entrepreneur in the finance world was a baptism of fire. But I had an ability to think quickly and make split decisions on my feet. I knew how to identify trends, I wanted to make my clients happy, and I wanted to learn everything I could. That mindset, along with supportive mentors, helped me grow my business. 

Over the course of 20 years, I worked with hundreds of clients, predominantly millionaires and high-net-worth individuals, as well as two Fortune 500 companies. It was always important to me to give my clients both an immediate understanding of how their investment was working for them and where it could go in the future. 

Investing can seem intimidating, but it doesn’t have to be. Here is my best advice for new investors. 

Play the long game 

An ability to hold on through dips and sail through highs is something every new investor needs to get comfortable with. 

As long as you hold onto it, a stock or currency has the potential to increase in value. But once it’s sold, unless you buy back when the stocks have hit their bottom price, the original investment amount is lost. My best advice is to not panic-sell during a dip or, on the flipside, panic-buy when a stock is trending upwards. 

When prices increase rapidly, there’s often a market correction that brings stock and currencies back to a relatively stable level. If you purchase too late in that rise, you may end up making a loss when the market stabilizes.

Take emotion out of the equation 

For me, a big part of the investing process was managing emotions: not just mine, but my clients’ as well. It can be easy to be led by your fears and feelings when you are following headlines. I’ll always remember how hectic it was, and how alarmed people felt, during the 2008 recession.

But I’ve learned that if you feel that concern when approaching an investment, take a seat, breathe deeply for a minute or so and ask yourself why you feel you need to invest or sell at that moment. If you can’t come up with a logical reason, hold onto your stocks until you can make a more measured decision. Stay focused on the big picture.

Video by Courtney Stith

Diversify your portfolio

My best advice for any new investor is to diversify your portfolio. That means having a mix of stocks, bonds, commodities, and tangible assets like real estate. 

How much you allocate for each of those categories is entirely dependent on your appetite for risk. And I would suggest investing less than 5% of your portfolio toward the riskiest and most speculative capital. 

Figure out your risk tolerance

Investing can be volatile and everyone’s risk tolerance is different. If you’re unsure about a decision you’re making about a particular investment or your portfolio as a whole, I recommend an exercise I call the sleep test. 

Simply, if you consider a scenario where everything in your portfolio considerably dropped in value, would you still be able to sleep at night with what you are currently holding? Do you have funds to offset a significant loss? Would you feel more confident if you made some changes?

If the answer to that last question is yes, go through your investments and adjust accordingly. Whether you’re more conservative, moderate, or aggressive in your investments, it all comes down to your comfort level and how your portfolio fits into your broader financial plan. 

With individual stocks, do your due diligence 

If you are new to investing and you see news about the next hot stock or currency, you might think you need to jump on board. While this kind of gamble can occasionally pay off, like with the recent rise of Dogecoin, for example, more often than not, if the investment isn’t timed properly, it can result in a loss. 

If you are looking to invest in individual companies outside of something like an index fund or ETF, it’s smart to start with household names. As you get more comfortable with the process, look for companies whose missions you believe in or that seem like they have great potential.

Take the time to read up on the current state of the business and their plans for the future, and be aware of any significant changes that could affect the price of the stock, like changes in management at the top. 

Over time, it will become easier to take calculated risks and mitigate the chance of losses over the long term. 

Ask for help if you need it 

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