Investing for beginners can feel complicated.
I’m no financial expert, but I took the time to learn the basics.
You may have decided you’ve had enough of postponing planning for your financial future, and now you want to take charge of your retirement.
Here’s your guide to investing as a beginner. Take action on this advice and secure your financial future.
What’s The Best Age To Start Investing?
Before you invest your first dollar, realize you’re on this journey alone.
Don’t compare yourself with others. If you do, you’ll sabotage yourself from the start.
Some people always be ahead of you. They either started investing earlier or are more intelligent investors (sad but true.) Instead, focus only on yourself.
In the investing world, the earlier you start, the better. But this is rarely the case. Often, it’s when it’s too late that people start investing.
The average annual return of the money you invest in the stock market is 7%. According to the rule of 72, it’d take about 7 years to double your money in the stock market.
What Is Investing?
Investments and portfolios are fancy terms used by investors.
But they are simple to understand.
An investment is an asset you buy to generate higher returns in the future. A portfolio is a group of assets (i.e., bonds, stocks, etc.) To build sustainable wealth, you’ll have to invest in many assets.
The most common thing people invest in is the stock market. This is good, but a better investment is yourself. Assets include stocks, bonds, and real estate, to name a few. Before you dismiss this as cliche advice, hear me out.
Investing in yourself makes you capable of earning a higher income. Essentially, you’re betting on yourself generating a higher return in the future.
How Do I Start Investing With Little Money?
You can’t invest a little and hope for a great return.
You need to invest as much as possible to build true wealth. But what if you have little to no money?
First, start with what you can control, managing your money. Once you’re working your cash well, focus on growing your income.
Managing your money and growing your income is challenging. But, if you master both of these tasks, you’ll be a better investor.
But don’t dismiss the small amount you’re able to contribute. Invest anything you can into ETFs or index funds.
How Much Money Do I Need To Start Investing?
There’s no hard rule for how much money you need to invest.
Everyone has a reason to invest their money. To save for a wedding, retirement, or business reasons. Regardless of why you decide to invest, figure out how much money you’d need.
Use Personal Capital’s retirement planner to set your retirement goals.
Why You Don’t Need A Financial Expert To Invest
Anyone can invest.
You don’t need to be a financial expert or watch the stock market daily to be a successful investor. Some people play hard, and others play smart.
Even people who invest for a living only sometimes beat the market. Beating the market means investing in a stock (company) and making a profit. An investor’s goal is to buy low and sell high.
So how do you invest smartly?
Investing in ETFs or index funds. Doing this enables you to invest in many markets (i.e., S&P; 500) instead of individual stocks. The end result is taking an average ROI (return on investment) from many companies instead of one.
The average ROI on index funds is 7%+ after several years. The best part is not having to track the stock market or worry about paying high fees. In the end, no one will care about your money more than you.
Keep it simple and invest in index funds or ETFs.
Investing Rules To Follow
Here are some good practices to follow as you invest:
1. Diversify your portfolio
You may have heard the term never putting all your eggs in one basket.
With investing, it’s no different.
As mentioned, an index fund captures an entire market, such as the S&P 500.; But the S&P500; makes up only US companies. What if there’s another recession?
After all, recessions are cyclical (repeat) after a certain number of years. To hedge (protect yourself) against this inevitable downturn, invest overseas (outside the US.) You have many options, but common international index funds include VTMGX.
The percentage of stocks you’d have for international versus US-based index funds varies. But, having US and international index funds prepares you for inevitable market downturns.
2. Thinking long term = financial success
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”–Warren Buffet
The most challenging part of investing is thinking long-term.
Most investors panic when the market experiences a downturn. Although losing money is never good, losing money in the market is expected.
The graph above shows the market’s performance during the last 14+ years. Notice how in 2008, there was a dip due to the recession. But, after four years, the market recovers and continues to grow.
Instead of viewing your investments in the short term, understand the bigger picture. In the short time, you may lose, but if you continue investing despite the market’s performance, you’ll win in the long term.
3. Don’t obsessively track your investments
The beauty of investing in index funds is not having to track them often.
With investing, don’t make financial decisions based on your emotions. If you do, you’ll end with little returns or, worse, lose money.
Research top index funds and create your portfolio. Then, review it twice per year.
The reality is you may lose money throughout the year. But this is only a short-term loss. Your net return will be higher after 10–20 years.
4. Contribute money each month
Once you’ve adopted the “set it and forget it” mentality, contribute each month.
Whether it’s $50 or $500, contribute something towards retirement. At the least, invest the amount your company is willing to match. Take advantage of compound interest.
This type of investing is called dollar-cost-averaging.
Top Books For New Investors
Forget about letting someone completely manage your money.
Even if you decide to let someone manage your money, you must understand how investing works. Instead of searching the web for the best advice, learn from the experts themselves.
Here are some of the best investing books you should read to learn more about investing:
- The Intelligent Investor
- Think and Grow Rich
- Rich Dad Poor Dad
- The Little Book of Common Sense Investing
Top Podcasts For New Investors
Turn your car rides into educational lessons. Here are some of the best podcasts to learn more about investing:
Only Investments To Make
By now, you have an idea of why investing your money is essential. But how do you go about starting today?
Here are some ways to get started:
401K is the best way to start investing because the odds are you already have this account.
If you’re currently employed, check if your employer offers a 401k. Then, check for up to how much they’ll match your contribution.
For example, some companies will match up to 5% of the money you contribute.
Refrain from settling for the default investment options your company has selected for you. Research all your available investment options and invest in index funds.
If you need help with where to start, hire a fiduciary advisor. These types of advisors choose your investments without any conflict of interest.
2. Robo advisor
The easiest option is to let a robo-advisor handle all your money.
Because all you need to do is contribute each month, and your robo-advisor will do the rest.
A robo-advisor chooses your best investment options and manages your portfolio. Your initial portfolio’s ratio split will be off as your money earns interest. This is because your money will grow more in different ETFs/Index funds.
Some of the best robo-advisors include:
3. Index funds
You already know that index funds are a powerful investment option.
They have low fees and track entire markets. This is why building your portfolio is simple. First, determine your risk tolerance.
Then, build your portfolio.
Investing in the stock market is an excellent option for building wealth.
But, there’s a better investment.
If you continuously invest in yourself, your income will grow with you. You’ll build better businesses and be knowledgeable in many vital areas. Like investing in the stock market, you have to diversify your investment.
For example, read books, listen to podcasts, buy courses, and hire a coach. Doing this will help you grow and improve the quality of your life.
Invest To Reach Financial Success
At this point, you know investing is far from gambling.
If you’re starting to invest late in the game, don’t worry. Remember, don’t compare yourself with anyone except yourself.
Keep it simple and invest in index funds. Manage them yourself, or let a robo-advisor do it for you. But keep your money from sitting in a regular savings account.
Imagine not having to go into debt and having your financial future secured. It may be hard to believe depending on where you are in your financial journey, but it’s possible.
Continue to grow; one day, your financial future will be secured. Now go invest your money–a brighter financial future awaits.