Investing can seem a challenging world to break into, or even understand sometimes. There are ETFs, stocks, bonds, mutual funds, CDs…and who could forget the good ole annuity? However, investing for beginners doesn’t need to be so complicated.
Becoming an investor is simply preparing your money for the future. Whether that’s investing in stocks or moving your money into other investments, your money should be working towards your future.
Investing For Beginners
One of the first questions that most new investors ask is, “How much do I need to start?” Historically this would vary, as access to investments was limited to brokers and financial planners. However, over the years, with the onset of online resources such as robo advisors and other similar institutions, you can typically start with less than $100.
In addition, it’s also important to begin to acquire some basic knowledge on investing and money. Doing this will allow you to feel more comfortable with the process. This is a perfect time to ask questions and find a little help, if needed.
At the same time begin to take a look at where you are financially.
- Are there some areas with your money that you have to fix before you start setting money aside for the future?
- Do you have significant debt?
- Do you have reliable resources like food, water, shelter?
- Are you working?
- Have you built an emergency fund?
- Do you have health insurance?
- Will you be able to consistently follow a plan to set aside money into a savings account?
Once you’ve been able to get some of these issues resolved, you’ll be able to invest more comfortably. Establishing yourself in a healthy financial situation is a solid start to make sure your money works for you.
This is where it can become overwhelming for some, but it doesn’t have to be. You are just trying to get a realistic mental picture of what you want to do.
When do you want to use the money? Investing strategies typically involve a long-term timeline. The sooner you start, the more time you can allow your money to grow and the more you will have.
At this stage you are also dividing your money into “time frames” and “risk.” Shorter term money (1-5 years) should be invested for safety like money markets, CDs, bonds, etc. While longer term money (10+ years) can be invested more aggressively, such as individual stocks or mutual funds.
Choosing a Path
Now that we have our goals in hand, it’s time to decide what channel we will use to invest.
This is also where beginning investors overthink their next step. They spend too much time trying to find that “perfect investment” right off the bat. But the perfect investment doesn’t exist.
My recommendation is to find the easiest place to start. Whether it’s just a traditional savings account at the bank or through your employer’s 401(k), just start! Getting used to saving and training your behavior is the hardest thing to do.
After you begin, have a little bit of education, and have built a good base in your account, you can branch out and seek additional help. However, if available, your employer 401(k) is the best and easiest place to begin, especially if your employer matches your contributions.
Plan on letting your money sit for a while. As a great many studies have shown, time reduces risk. Letting your investments sit for as little as five years can significantly decrease the chances for loss, so don’t let the day-to-day volatility of the market scare you off.
Diversify! Creating a robust portfolio is a smart step for beginners. Consider looking into index funds that can provide greater diversification across the market and are very inexpensive.
If you decide to go with an investment advisor, go with someone you can trust. Beyond your peace of mind, individual advisors specialize in different goals.
Investing for beginners doesn’t need to be a scary process. Investing is a fantastic experience and an intelligent plan for your future.
For more information about how investing could be right for you, feel free to contact us today.