Want to start investing? Here’s a hint from investing legend Charles Ellis: Keep it simple

Personal finance

When it comes to getting into investing, keeping it simple is key, according to investing legend Charles Ellis.

In fact, he equates it to parenting teenage children.

“Every parent of teenage children realizes at some point or another, less is better,” Ellis told CNBC contributor Jenny Harrington in an interview for CNBC Pro. (Harrington is CEO of New Canaan, Connecticut-based Gilman Hill Asset Management.)

“Fewer instructions works better,” Ellis said. “Fewer decisions work better.”

Ellis is author of the legendary investing book “Winning the Loser’s Game,” first published in 1985 and now in its eighth edition. He’s long been an advocate of passive investing, such as index funds, over active investing.

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Yet some new investors are looking to make trades or time the market. Many recently piled into meme stocks, including AMC, which hit all-time highs in June, and GameStop, which ran up earlier this year.

Starting slowly and understanding the true importance of diversification and asset classes is what certified financial planner Crystal Alford-Cooper tries to impress upon her clients.

“This is the age of distraction,” said Alford-Cooper, who is vice president of planning at Glen Echo, Maryland-based Law & Associates. “In your mind, you need to stay away from the noise and stay focused and disciplined about the things you can control.”

How to get started

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For those just getting into the stock market, Ellis advises starting with the basics.

“It’s a little bit like ‘how do you start eating ice cream?'” said Ellis, founder and former managing partner of Greenwich Associates. “You start eating vanilla, and plain vanilla would be either the total market index or the Standard and Poor’s 500 Index, which represents a very substantial fraction of the total market.”

Gilman Hill Asset Management’s Harrington agrees.

“As with most things in life, you’re not going to be an expert on day one, and with around 7,000 ETFs and 3,500 stocks publicly traded in the U.S., it can feel overwhelming to make a choice,” she said.

Harrington recommends starting with something like the SPDR S&P 500 exchange-traded fund, which replicates the broad market.

Keep away from people telling you what they do and what they made last year.
Crystal Alford-Cooper
vice president of planning at Law & Associates

If you are buying stocks, pick a handful that you know and where the underlying companies have proven track records.

“Start with investments that are easily understandable and use that foundation to learn more and to develop your investment understanding and vocabulary over time,” Harrington advised.

For Alford-Cooper, one of the most important things to have is a written investment plan that works with your risk appetite. Then, stick with it.

“You can pick a great index fund that has companies that you know and use every day,” she said. “Keep away from people telling you what they do and what they made last year.”

TUNE IN: Jenny Harrington will appear on “Halftime Report” Friday at Noon.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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