Before you start investing, here’s what experts want you to know

If you are ready to jump into the market, there are a few things experts want you to know.

Investing is a great way to grow wealth, but you have to be smart about it, said certified financial planner Cathy Curtis, founder and CEO of Curtis Financial Planning in Oakland, California.

That means not necessarily following the latest hot stock or trade.

“A lot of young people have a distorted view on how to invest in the markets,” said Curtis, a member of the CNBC Financial Advisor Council.

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“They invest in IPOs [ initial public offerings], companies they think are cool,” she added.

“It makes sense to them to buy those things they see friends and girlfriends using those products, but they don’t necessarily understand if it makes a good investment.”

New investors flooded the market during the pandemic. Some piled into certain names, like meme stocks, or jumped into cryptocurrencies.

While the S&P 500 Index ended up more than 25% higher in 2021, it’s a different story in 2022, with the index down about 13% so far for the year. Cryptocurrencies have taken a beating.

That has led to a surge in skepticism around the markets for young investors, said financial advisor Mitch Goldberg, president of ClientFirst Strategy in Melville, New York.

“Every generation has to go through this,” he said.

“This generation is no different than what we went through in the tech wreck of 2000,” Goldberg added. “People thought they had it all figured out with the new paradigm.”

If you have a 401(k) plan, the first thing you should do is put money into it, at least up to the company’s match, Curtis advised.

If that isn’t an option, open a Roth individual retirement account. (See income limits here.) The money goes in after tax, so it grows tax-free and isn’t taxed when you withdraw it. You can also take out your contributions at any time, penalty-free.

When choosing investments, the best thing to do is keep it simple. Start by using a diversified fund, like an S&P 500 Index fund, Goldberg said. Not only will it help you grow your money long-term, it will also help you learn more about the markets.

Remember, history shows that, over time, the stock market goes higher. Since 2009, the S&P 500 has averaged gains of about 15% a year.

Also, set aside money to invest from your paycheck before you start spending, otherwise you’ll be relying on sheer willpower to get it done, said Goldberg

“If you save and invest the money first before you spend the rest of your paycheck, your odds of becoming an investor and accumulating a net worth goes up substantially,” he noted.

Finally, don’t get caught up in knowing the number you need for retirement at this point, according to Goldberg. That can be overwhelming and prevent you from getting started.

“Just start small,” he said. “It could be $50, $100 a month or a week just to get used to the idea of having money in another account.”

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.