FollowHow to Start Investing with No Previous Experience: 7 Tips
Making your first investment is an important step on the path towards becoming wealthy. Through investing, you can make your money work for you. The sooner you start, the better. If you don’t have any experience, jumping into the investment world can be intimidating. You’re probably wondering how to start investing without losing all the money you’ve saved. It’s important to realize that there is always a risk with investing, and just like gambling, you should never use money that you can’t afford to lose. You can’t guarantee investment success, but you significantly improve your odds when you follow a few key tips.
The Best Tips on How to Start Investing
Why invest? By investing, you’re able to use the money you already have to make more. With wise investing, your money will steadily grow at a higher rate than it would in a bank account.
There are quite a few different investment options available, with stocks and bonds being two of the most popular options. You can choose all your stocks yourself, or put your money in a fund that includes a group of stocks. Your investment decisions depend on your goals, the amount of time you wish to commit, and how aggressively you wish to invest
Tip 1: Play It Safe
When you’re learning how to start investing, the first important thing to realize is that it’s not a get-rich-quick scheme. If you’re planning to go the high risk, high reward route, then you’re not investing, you’re gambling. Look for stocks that show steady, consistent growth. If you want to take risks, set aside a small portion of the money in your account for that purpose, and use the rest for conservative investments.
Tip 2: Maintain a Diverse Portfolio
Even if you’ve never invested, you’ve probably heard the phrase “diversify your portfolio” at one point or another. Your portfolio consists of all the investments you currently hold, and you want to have a variety, so all your money isn’t tied to the performance of one company. Financial advisors recommend that you only put 10 percent of your money, at most, into any one investment. If the stock goes up, you’ve still made money. If it crashes, you can only lose up to 10 percent of your money, which is better than 50 or 100 percent.
Tip 3: Invest in an Index Fund to Keep It Simple
When you invest in an index fund, you’re investing in a group of stocks. For example, you can invest in the Standard & Poor (S&P) 500, which are the stocks of 500 of the top companies across several different industries. Some of those stocks will go up, and some will go down, but because they’re all top-performing companies, you’re likely to see growth in your investment. This is a hands-off method since you don’t have to choose individual stocks.
Tip 4: Watch Out for Trade Fees
If you decide to trade stocks, remember that trade fees eat into any profits you make. Many online brokers charge $9 to $10 per trade, although the Robinhood smartphone application offers free trading. If you want to trade individual stocks frequently, it makes sense to choose Robinhood, even though it doesn’t have the wealth of investing information that certain online brokers offer.
Tip 5: Go with What You Know
If you have extensive knowledge of a specific industry, it’s smart to focus your investing in that industry. You may be able to spot which companies are poised to grow. Remember that you have to remain objective for this to work, and you need to follow that industry closely. If you’re already a fan of a company within the industry, don’t let it cloud your judgment.
Tip 6: Contact Your Broker with Questions
Figuring out how to start investing is tricky, and even setting up your investment account properly or making your first trade is a big step. Don’t be afraid to call your broker’s customer service department for help. A representative can guide you through it step by step, and tell you where to find investing information on the brokerage website. They probably won’t give you advice on making specific investments, but you don’t want to rely completely on another person’s advice, anyway.
Tip 7: Build Your Knowledge the Right Way
There is no shortage of information available about how to start investing. The challenge is separating the good from the bad. You can find plenty of free, basic information on how investments and the stock market work online. For more advanced material, look into books on investing, particularly books that have stood the test of time and were written by successful investors. Benjamin Graham is one famous name in the investing world, and he wrote several high-quality books about the subject. When in doubt, read reviews of the book to see what other investors thought about it.
Plan to Invest Long Term
Plenty of people jump into investing with dreams of fortune, and that’s fine. It’s possible, but your focus should be on building your wealth over many years and even decades. Don’t underestimate how much you can make if you consistently add money to your investment portfolio and earn a steady 5 to 10-percent return. By the time retirement rolls around, you’ll end up with a solid nest egg.
Drawing to a Close
How to start investing is a complex subject, but if you play it safe and take it slow, you’ll be fine. As you learn more about investing and try your hand at different strategies, remember to enjoy yourself. It’s easy to get stressed out when a stock you own drops, which is why you shouldn’t overcommit. There will be ups and downs, just make sure you enjoy the ride.
What advice would you give to someone who just started investing? Tell us what you think every new investor should know in the comments.
