Joe Duarte has been an active trader and widely recognized stock market analyst since 1987. He is the author of Trading Options for Dummies, and recently updated the second edition of The Everything Guide to Investing in Your 20s & 30s.

I recently sat down with Joe to get his thoughts on the steps young investors can take to start building a solid financial foundation.

Motivation

Jim: As the parent of two millennials, I know how difficult it is to get them thinking about their long-term financial situations. They don’t yet have a lot of money to invest so they don’t really see the point in giving it much thought. In your opinion, what’s the best way to get people in their 20s and 30s really motivated about investing?

Joe: That’s a tough question for sure! It’s not easy, and I’m speaking from personal experience since I’ve got my own 23-year-old to contend with (laughs). But I’ve found the best way to motivate young people, anyone between the ages of 20 and 40, is to listen to them speak about their interests. For example:

Young person: “Hey dad, I love that guy’s Maserati.”

Dad: “Great. How are you going to get it?”

Once you’ve got them talking about the things they want to own, you can hone the mechanics of getting there via savings and investing.

Certainly, there is no substitute for an education, academic or vocational, which has given them the skills to make a living and thus able to save and invest. Once that step is assured and life begins to assert its effect on their lives, they often become more receptive to talking about investing and it’s actually a wonderful thing to watch.

Organization

Jim: In your book, you recommend “give your finances a physical” before taking action. Are there any budgeting or financial planning tools that you specifically recommend for investors just starting out?

Joe: The first tool is the resolution to get organized. After that, you can use anything from pen and paper to phone apps which help to list income and expenses before prioritizing the things that need to be dealt with on both sides. Two great phone apps to help in getting started and financially organized are Mint and MoneyBook.

Inflation

Jim: At the moment, a lot of attention is being paid to the Fed and its plan for managing interest rates and inflation. How important is understanding the long-term effects of inflation for young investors?

Joe: Understanding the Federal Reserve and how its actions affect real life, financially and otherwise, is the number one lesson for everyone who has to make decisions in this world, especially for investors. Think of it; the actions of the Fed can affect anything from your job, your healthcare, the ease of buying a home, and your retirement.

Regarding inflation, which is essentially how expensive it is to live, the key factor is to know that if your savings don’t at least keep up with inflation, it will be a more challenging path toward retirement and it will take longer to reach your financial goals.

Stocks

Jim: Are stocks appropriate for inexperienced investors? If so, are there any sectors or types of stocks that you feel should be avoided?

Joe: Stocks are more suited for investors with some experience. That said, beginning investors can invest in stocks through investment clubs, which use the team approach to analysis and committee decision making before buying and selling stocks.

By taking this approach, over time, beginners gain experience and can eventually move onto more aggressive trading approaches. It’s a good idea to start investing careers with stable companies that pay dividends before moving onto growth stocks.

Furthermore, sectors such as biotechnology and events such as initial public offerings are best suited for those with high levels of experience. A great way to learn about trading stocks is to trade them on paper without risking money.

Bonds

Jim: Are bonds appropriate for investors with a long-term time horizon or should they only invest for growth? If so, what type of bonds do you recommend for investors in their 20s & 30s?

Joe: Bonds make sense for all investors as long as they understand the mechanics of bond investing and are well versed in the risks associated with different types of bonds, such as Treasury bonds vs. corporate bonds, vs. junk bonds. Bond mutual funds can be used as substitutes for individual bonds and are the simplest way to invest in bonds.

Mutual Funds

Jim: You devote four chapters of your book to mutual funds. Are mutual funds better suited for inexperienced investors since funds are professionally managed? Are there any negatives to investing in funds?

Joe: Mutual funds are the inexperienced investor’s best friend because they allow them to participate in the market’s trends. The risk of mutual funds is that as with all investments a mutual fund is only as good as what it invests in and who manages it.

Consequently, it makes sense to know as much about your fund and its manager’s history as possible, especially how well the fund does when the market is not doing well.

Editor’s Note: Later this week, we will run Part 2 of our interview with Joe Duarte, where we will discuss investing in real estate and saving for college.

But there’s one financial goal we didn’t cover in our two-part discussion with Joe: how to make 18 times more than buy-and-hold investors.

The man who can do that for you is Jim Fink, chief investment strategist of Options For Income and Velocity Trader.

Jim Fink has come up with a system that turns small stock movements into market-crushing winners. He’s sharing how this powerful tool works… and how you can use it to make $125,000 in the next year… at the Ultimate Profits Summit.

Learn Jim’s investing secrets by clicking here.