When I first started investing 15 years ago, I was nervous.
How would I choose the right stocks? What if I lost everything?
I was so nervous that I called my insurance agent and ask him to help me open a Roth IRA. Over time, thanks to dividends, my IRA grew. I was happy to see that it even held up pretty well in the wake of the global financial crisis.
It helped me learn about money and investing. I also learned that investing for beginners doesn’t have to be hard or scary.
So if you’re interested in investing, but have no idea where to begin, here are some investing tips you’ll want to follow.
1. Start small
One of the biggest investing myths is that you need a lot of money to get started. But thanks to technology, investing for beginners has never been so inexpensive. It’s possible to open an investing account with as little as $0.
You can invest a small amount with an app like Acorns, which allows you to invest your spare change. There are other online brokers that can show you how to start investing, even if you don’t have a lot of money.
Starting small isn’t just great if you have a small amount of money. It can also help you feel better about investing altogether. When you aren’t risking a lot of money, you don’t feel as nervous.
Investing for beginners is about starting and then learning a bit. Start small, using only money you can afford to lose, and learn as much as you can in the meantime.
2. Invest consistently
If you want the best results over time, and you don’t have a large lump sum to invest, consistency is key. Use dollar cost averaging to make the most of your investment.
Figure out how much you can set aside each month to invest. You can use your employer’s retirement plan to invest, or you can use a broker with an automatic investing plan, like Betterment.
In many cases, the important thing is to get started right away. The sooner, the better. Business Insider illustrates the difference 10 years can make when you invest $200 a month until age 65:
Find an amount you can reliably set aside, whether you have it taken out of your paycheck and put into a 401k, or whether you set something up on your own. Over time, there is very little that can beat consistently investing.
3. Try indexing
I love indexing.
When you invest in index funds, you get access to a wider swath of the market. You get instant diversity in your portfolio and you don’t have to worry about picking individual stocks.
One of the biggest reasons people tell me they are reluctant to learn how to start investing is because they’re nervous about choosing stocks.
I was nervous, too. But once I realized that my Roth IRA was in funds, I started learning about indexing. I moved my money from the high-fee fund my insurance agent had me in and moved it into lower-cost index ETFs.
When you start with indexing, you have the advantage of limiting risk, and you don’t need to worry about figuring out which stocks are “winners.”
You don’t have to remain an indexer, either. Start investing with indexing and dollar cost averaging, and then learn all you can about other strategies. You can always switch up your plan later — after you feel more confident.
4. Get help
In some cases, if you don’t have a large net worth, you might not be able to work with a full-service investment advisor. However, it’s still possible to get help.
There are a lot of brokers and robo-advisors out there that specialize in investing for beginners. Companies like Wealthfront can help you analyze your investments and suggest other, low-cost options. Robo-advisors don’t charge as much as traditional advisors, and they often provide you adequate information to get started.
You can also speak with a fee-only financial professional who can help you put together a plan that works for you. These professionals may not manage your money for the long-term, but they can evaluate your situation and make recommendations.
Finally, if you know someone who has been successful, see if they’re willing to mentor you. In some cases, for the cost of a nice dinner on occasion, you get great pointers and investing tips.
5. Realize you’ll make mistakes
Investing for beginners is all about learning. You will make mistakes.
The good news is that, when you’re younger, you have more time to recover from mistakes. You have a higher risk tolerance when you are further out from retirement.
You have time to course-correct when you start young. Plus, chances are that you aren’t risking a lot of money right now. It’s better to lose $300 now and learn a valuable lesson than to lose $20,000 later making a rookie mistake.
It’s never fun to lose and it’s never fun to be wrong. But if you use now as a time to experiment a little and fine-tune your efforts, you’ll be less likely to make costlier mistakes later.
6. Don’t get caught up in ‘beating the market’
We all like to think that we’re smart and that we love to win. So it can be easy to think you need to “beat” the market.
Investing for beginners isn’t about trying to “make it big” with a single stock. Instead, it’s about learning how to build consistent wealth over time.
The truth is that you are likely to come out ahead over time even if your performance mirrors the market. It’s why I like indexing. The following chart from EcPoFi shows an all-market performance:
You can see that stocks tend to go up over time — even if there are hiccups along the way. You can see that there are setbacks during recessions, with drops. But if you hang in there, you are likely to see a recovery.
There’s no reason to try to beat the market; keeping pace is usually good enough in the long term. Figure out your own goals and use an investing calculator to help you figure out how much you should aim to put away.
7. Boost your investments when you can
Finally, make sure you boost your investments when you can. You might be discouraged that you can only invest $50 a month. And it’s true that’s not going to get you to retirement. But it’s a start — and any amount invested is better than nothing.
Once you know how to start investing, you can increase your contributions over time. You just have to make it a point to do so. As your financial situation improves, and as you learn more about investing, you can put more money into your efforts.
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