Tips for Young Investors By: Jake Kuss

As a young investor, I am feeling the pain of the economic crisis and I’m sure many of you are too. The following is some advice by several young investors:

Can you afford to keep your money in the market for another ten years? If so, you should consider the tacks that smart young investors are taking: focusing on long-term returns, buying into low-cost funds, and picking undervalued companies. Try putting yourself in the shoes of a 26 year old – you just might make a mature decision.

Stay the course

Over the last few months, investors have fled the market in record numbers: TrimTabs, a market research firm, estimates that shareholders pulled $42 billion out of equity funds in October – the second highest outflow ever.

But despite such hemorrhaging, the Gen-Y set largely believes in staying put. Much of that bravado stems from a lack of urgency; even if stocks continue to fall, they’re likely to rise again when it’s time to pull them out. “Whether or not riskier stocks pay off, I have a whole life to work,” says Univ. of Florida’s Patel.

Ramit Sethi, 26, warns against trying to time the market on his personal finance blog, iwillteachyoutoberich.com. Sethi says that he hasn’t changed his investing behavior in the past few months. “The immediate reaction should be to do nothing,” he says.

According to Sethi, if you’ve been investing youthfully – i.e. in equities – you probably got wrecked this year. But he still encourages his 175,000 monthly readers, who are mostly in their twenties, to continue putting money into their investments. “Stay in the market so you can catch the upside,” he says. Sethi cites a recent study by Dimensional Funds, which shows that if you missed the S&P 500’s 25 best days from 1970 to 2006, your annualized returns would shrink from 11.1% to 7.6%.

The blogger advises investors to funnel their money into a lifecycle fund, which is a balanced fund that automatically shifts assets into safe territory as its holder ages. Fidelity and Vanguard both offer the funds, which are sometimes included as 401(k) offerings.

A stock-picker’s market

Many twenty-somethings are not only holding onto their investments, but also buying into companies that are trading below their value. “Right now, we have an unprecedented opportunity to buy into a market that’s been beaten down,” says Lesley Scorgie, 25.

Scorgie, who wrote a book called Rich By Thirty (like Sethi, she knows that the word “rich” is more alluring to her peers than “financially stable”), advocates sectors such as utilities and railroads. Union Pacific, for example, has dipped 19% since August; at $69, it’s hardly dirt-cheap, but it’s a decent buy-in for the profitable company.

Like many investors his age, Univ. of Florida’s Patel is drawn to blue chips such as McDonalds, Wal-Mart and Coca Cola. He has faith in the recovery of financials, which he buys through Vanguard’s value ETF, a large cap fund that has sunk 38% in the last year. In the last week and a half, however, the fund – which holds – JP Morgan Chase and Bank of America – has crept up 11%

Members of the sales and trading club at Stern are also playing the market – at a recent lunch, they offered picks such as computer seller Dell and steelmaker Nucor. David Paz, 29, is keen on stocks that have demonstrated a capacity to lead recoveries. “Nucor is trading down 70%,” he says. “Steel companies are often the first to go up when there’s a rebound. I looked at the ‘91 recession, and they were trading at $5; by ‘92, they were at $12.”

Cheap equities are alluring to the young (and young at heart), but investors that are nearing retirement should only dip their toe into the market right now, says Hepburn. “It could take ten years to recover, and ten more years to make a decent profit,” he says. “If you’ve got that time, put the pedal to the metal.”

Source: http://money.cnn.com/2008/11/06/magazines/fortune/kimes_younginvestors.fortune/index.htm?postversion=2008110707