The Motley Fool: Venture capital, explained

 Ask the Fool: Venture capital, explained

Q: What are venture capitalists? — M.B., Whitefish, Montana

A: They’re investors who often take stakes in young and small companies that need infusions of cash to help them grow. Venture capital (“VC”) investors will hear many pitches for their money, such as from entrepreneurs with startup businesses. When they decide to invest, buying a partial stake in a company, they’ll frequently offer guidance to its management as well, to help the company grow. A VC investment is generally not long-term. Ideally, the small company will grow well, and after a few years will either be bought out by another company or will debut on the open market via an initial public offering (IPO). At either point, the VC investors can cash out, netting a nice profit. For example, Sequoia Capital invested $60 million in WhatsApp early on, and exited with $3 billion when it was bought by Facebook. Meanwhile, Greylock Partners plowed $4.9 million into Airbnb — a stake worth roughly $1.4 billion at Airbnb’s 2020 IPO.

Q: Is this a decent time to start contributing to a 401(k) account? — P.W., Forest Acres, South Carolina

A: It’s just about always a good time. Sure, the market has been especially rocky lately, but when share prices are down, you’ll be getting more of them for your dollars. And over the long term, the market has always gone up. Be sure to contribute at least enough to qualify for all available matching funds from your employer, as that’s free money. Also consider saving and investing much more than that in your 401(k) or elsewhere — you might aim for 20% or more of your income — to build a hefty nest egg for your future.

Fool’s School: Six smart quotes about investing

A great way to get smarter about investing — and ideally, to enjoy better investing results — is to learn from successful and savvy investors. Here are a few insightful quotations attributed to some of them:

Burton G. Malkiel: “… put time on your side. Start saving early and save regularly. Live modestly and don’t touch the money that’s been set aside.” This reminds us how simple successful investing can be. It does take discipline, though.

Warren Buffett: “The stock market is a device which transfers money from the impatient to the patient.” Successful investing doesn’t require a lot of buying and selling. For best results, expect to wait for many years while your investments grow.

Christopher Davis: “A 10% decline in the market is fairly common — it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefitting from the wealthbuilding power of stocks.” Don’t panic, and expect volatility. Stay the course.

Peter Lynch: “Thousands of experts study overbought indicators, oversold indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supply, foreign investment … and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.” If you invest in simple, low-fee S&P 500 or other index funds, you’re likely to outperform many Wall Street pros over long periods.

Benjamin Franklin: “An investment in knowledge pays the best interest.” The more you learn, the better you can do. Aim to read widely about investing and personal finance topics. You’ll find a lot of wisdom in newspapers, magazines, books and online articles. Invest in yourself.

Benjamin Graham: “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” Amen. *

– distributed by Andrews McMeel Syndication