When you’re young, your biggest asset is time, thanks to the effect of compound interest.
But how exactly do you leverage time most effectively, and where should you put extra money as a young investor?
Jim Cramer, co-founder of financial website TheStreet.com and host of CNBC’s “Mad Money,” answered this in a recent episode of Farnoosh Torabi’s “So Money” podcast: Invest your first $10,000 in index funds, he says.
Index funds are a type of mutual fund pegged to a stock market index, like the S&P 500.
Before the financial crisis of 2008, he says he would have told you something different — to take your first couple thousand dollars and invest in four or five different stocks.
“Now I’ve changed my tune a bit,” he tells Torabi. “I want the first $10,000 in index funds because I feel that the market is so unforgiving, and that if you have two bad stocks out of five, you could get hurt. But once you’ve saved $10,000, then you have some mad money, and then you can be diversified with some stocks.”
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