Getting started as a novice investor can be overwhelming. There are a plethora of investments you can buy, and each has endless potential investment strategies.
Even though it may be a lot to think about, don’t let it stop you from getting started. Instead, decide what your strategy will be and stick to it. You can always adjust things later.
But for now, it’s best to just get started. If you still feel like you haven’t quite got it together, don’t worry: these top tips for beginner investors will put you on the right track.
1. Set a clear goal
When you start investing, it is important to have a clear goal in mind. It’s not enough to say you want to make money. For example, here are some possible investment goals:
- Investing for retirement
- Save for a down payment on a house
- Save for a child’s education
- Saving for a wedding
- Save for a new car
These are just a few of the most common investment goals. However, it is important to pursue one (or more) of these goals because the amount is quantifiable. Admittedly, it can be difficult to know exactly what amount you need. For example, the cost of college can increase, and weddings can involve many small expenses. Still, you can at least estimate each cost so you can decide how much money you want to save and invest to achieve your goal.
2. Develop yourself
One of the best things about the digital age is that information is so accessible. There are books, podcasts, forums, and every format imaginable to find the information you need. Of course, not every book or podcast is the same, so look for the books and podcasts that the investing community recommends.
3. Start small
As the Chinese philosopher Lao Tzu once said, “A journey of a thousand miles begins with a single step.” Nowadays you don’t need a lot of money to start investing. Nowadays, many online brokers allow you to start investing with small amounts. For example, you can invest $50 per month in your two or three index funds. You may decide to increase your contributions later, but just getting started is the most important step.
4. Diversify
One of the easiest ways to invest is to buy shares of a company. However, buying shares in just one company can be a recipe for disaster because share prices can vary widely. Fortunately, you can easily diversify your portfolio with index funds. A simple way to do this is to invest in an equity fund, a bond fund and, if you prefer, an international equity fund. This approach allows you to invest in hundreds or even thousands of companies, making it easy to diversify and improve your long-term performance. Pay attention to the costs, because some funds can be expensive.
5. Have a long-term plan
When you start investing, it is important to have a long-term plan. This relates to the first point about setting a clear goal, because you need to achieve that goal in the long term. This is important for several reasons, but the most obvious is that financial goals generally require a lot of money. That is why a long-term commitment is necessary. For example, to retire comfortably, you may need to save hundreds of thousands of dollars.
A long-term plan has other benefits, such as better investment performance. This comes in two forms: amplifying and overcoming volatility. When you invest, you can reinvest the money you earn, earning even more. Moreover, returns can be volatile in the short term, but you can overcome that volatility to some extent by investing for longer.
6. Consider a financial advisor
Finally, it is always a good idea to consult a financial advisor. While these points will help you think about investing the right way, you need to take the next step now. But once you’ve completed these steps, you already know your investment goals, and a financial advisor will use them to help you develop a personalized plan. Use Bankrate’s free financial advisor matching tool to find an advisor near you. Now you’re ready to get started and build a better financial future.
