I think we can all agree that the E-Trade baby is entertaining. He is cute, witty and has really cool gadgets. He is a clever little infant that makes invest- ing and making money look fun and easy. So is E -Trade’s message really true? Is investing really so easy that a baby could do it? I can assure you it’s not.

The E-Trade baby got rich by timing the market, which is a perfect example of bad investing practice. It’s true that some investors using investment tools and research can make money by placing individual stock trades; however, research shows that the normal in- vestor can’t continue to make money long-term us- ing this method. This week I want to help you identify investment products that might be suitable for you as a student about to enter the workforce and discuss in- vestment strategies to help you meet your long-term goals.

Before we get into what does work, let’s take a min- ute to discuss why “market timing” doesn’t. Many individuals believe that the market can be timed and they can buy a stock when it is undervalued (or at a low price) and sell it when it is high.

First, let’s look how realistic this investment strategy is using some historical statistics. Sup- pose you, as an investor, were fully invested in a fund or investment in the S&P 500 index, a measure of the U.S. stock market, for the 10-year period from 1994-2004. This means that if you had $10,000 to invest in 1994, you put it all in the mar- ket at that time and never bought or sold additional investments for the next 10 years. Based on this strategy, you would have earned an annual return of 12.07 percent, growing your initial $10,000 investment into $31,260 by 2004. Not bad, right?

Now let’s say that instead you tried to time the market, meaning that at times you pulled your money out of the market when your stocks were high. By doing so, you may have avoided some bad days in the market, but you also likely missed some good days. Suppose that from 1994- 2004, your investment strategy caused you to miss the 10 best investment days. Only 10 days of not being invested in the market over a 10 year period doesn’t seem like it could do much damage.

But in this case, just those 10 days caused your annual return to drop from 12.07 percent to 6.89 percent. That’s pretty substantial. Take a look at the “Market Timing” table. If you had missed the best 30 days during the same 10- year time period, you would have actually lost money. So how do you know which are the best days to have your money invested in the market to maximize your return? That’s the point – you don’t. Market timing is a long shot at best.

The truth of the matter is that a normal investor doesn’t have time to do the research required to make great investment picks. Furthermore, the average investor is at a disadvantage when it comes to choosing investments because bro- kers, hedge fund managers and other professional investors have better tools and receive information about stocks and the economy much faster than the average person. So at this point you should understand that market timing is difficult and should only be tried by true industry professionals.

It’s not something you want to play around with if you’re trying to achieve long-term financial goals like planning for retirement. So if this type of investment strategy isn’t good for the average investor, what is? Here are my top four thoughts when it comes to investing for the long-term:

1.
Take a risk tolerance questionnaire to help identify what type of long- term investor you are. Are you an aggressive investor or a conservative investor? This questionnaire will help you identify what types of in- vestments you will be comfortable with keeping your money in long-term.

2. Consider using target date mutual funds rather than picking differ- ent stocks or funds. A tar- get date mutual fund is a diversified investment port- folio in a single fund that changes its allocation from aggressive to conservative as you get older. This is a very hands-off approach to long-term investing, which works well for a lot of people who aren’t well versed in the market.

Furthermore, these funds typically have low expenses and are offered in virtually all retirement plans. The main downside to a target date fund is that it may not meet your risk tolerance level, meaning it might put you in a riskier investment then you are comfortable with. Overall, though, it is still a great choice for someone just starting out in investing. Some funds are now even providing target date funds with aggressive, moderate or conservative risk options.

3. When you first be- gin saving in 401(k) or other investment accounts, don’t try to save too much at one time. Think about saving in your 401(k) or retirement plan like working out in a gym. If you are out of shape and just starting out, it’s not the best idea to give 110 percent on your first few exercises. You might burn yourself out and give up too soon. However, if you start out slowly and gradually in- crease your work out time as you get more comfort- able, you’re likely to stick with it long-term. The same concept can be used when it comes to saving. Start off at a relatively small percentage of your income and gradually increase it quarterly, semiannually or annually. This way you still have money for living expenses and entertainment.

4. Investing for the long-term is a marathon, not a sprint. Logging into your 401(k) or brokerage account on a daily or weekly basis actually does you more harm than good (psychologically speaking), especially in a roller coaster market. It is best to revisit your long-term investments no more frequently than on a quarterly basis.

Remember that investing strategies and goals are different for everyone. The point of this article is sim- ply to make you think and possibly give you some ideas about investing that you may not have thought of on your own. None of the information in this article should be taken as investment or financial planning advice. If you are interested in learn- ing more about financial planning, consider taking a class from the Naveen Jindal School of Management. We have fun and practical financial planning classes for both graduate and under- graduate students. If you have any questions, please contact the author at jared.