6 Investing Tips For Beginners
Investing can be a new and exciting activity that can have good payouts in the future; if you know what you’re doing. As a beginner, you won’t know the ins and outs of investing, which can lead to some pretty poor decision making without the right guidance. Poor decisions in investing mean only one thing: losses. Here are six investing tips for beginners.
1. Start With Saving Up
So you want to invest, but how much do you really have available? Before starting to invest money, you’ll want to be sure you’ve got enough saved up in an emergency fund to cover expenses for three to six months. This will help cover things like rent/mortgage, car payments, and other living expenses in the event of a lay-off, accident, or some other event that keeps you from working.
You’ll want to put this emergency fund into a high-yield savings account, so as to maximize your interest and start building more money from the initial amount. Once you’ve got this covered and you’re certain that your finances are in good standing, you can begin to think about moving to other investment platforms. To be clear, this fund isn’t for your vacation to California; it’s for emergencies only.
2. Fund Your Retirement
Naturally, the next thing you’ll want to do is invest in your own retirement. If you’re under 30, there’s a good chance you haven’t even thought about retirement, but you most certainly should! In fact, you should already have a small percentage of your annual income saved for retirement by the time you’re 25.
Whether you’re 25 or 45, retirement is something that should be on your financial radar. Investing sooner rather than later ensures that your money has time to grow, maximizing your savings so you can live out your golden years in peace and financial security.
Many employers offer a company 401k plan, where they’ll match a portion of your contributions. This means for every dollar you put into your retirement plan, the company you work for will also contribute a percentage of that dollar to the plan. 401k plans allow for contributions of up to $19,000 if you’re under 50 and up to $25,000 if you’re over.
A 401k acts as an automated savings option, which you can increase at your discretion. The money is taken directly from your paycheck, so you’ll never have to manually do anything. This helps reduce the temptation to not contribute and automates a portion of your investments.
3. Investment Apps
Investment apps are quick tools to help beginner investors get their feet wet. Acorns, for example, rounds up the amount you spend on debit or credit purchases and invests the change for you. This automated service doesn’t require much maintenance, and since you’re investing change, you can’t expect a huge return. However, it’s still a good way to get started in the investment world and learn how things work.
There are dozens of investment apps available that can help teach you how investments work, such as Etoro. Many of these personal apps have low minimums and fees, so you can “test the waters” so to speak before you invest any large sums of money. It’s better to try with $5 and lose it than to try with $5,000 and come up at a loss.
Many apps act like robo-advisers; managing investment portfolios for you so you can take a hands-off approach to your investments. Robo advisors are generally cheaper than human advisers, though there’s something to be said about being able to have a conversation with your financial adviser.
Many robo-advisers require no account minimum and will charge only a small percentage of the total investment amount; usually anywhere from 0.25% to 0.50% of the yearly account balance.
While they’re certainly more affordable than their human counterparts, they’re run almost entirely by computer algorithms. This leaves room for error or tampering, so be wary of the risks.
If you’re looking for a financial adviser to help with your investments in a more human way, you can compare the best financial advisers on Carefulcents.com.
5. Understand the Risk
Understanding the risk is half the battle when it comes to investing. Many people enter the investment world thinking they understand the risk factor, but don’t understand why they lost everything. Understanding your risk can not only encourage you to make more informed decisions, but it can also help keep you on track even when losses occur.
Risk tolerance is a trait that is influenced by many factors, including wealth, age, and more. This is how well you tolerate risk, and it plays a crucial role in your investing career. If your risk tolerance is low, you won’t be taking many risks with your investments, but if it’s too high, you may make unnecessarily risky moves. It’s all about finding a balance between the two. Understand the risks, make informed decisions, and never let an investment keep you up at night. Some things simply aren’t worth the stress.
Investing in different stocks across different industries and markets allows you to minimize your overall risk. The old saying “don’t put all of your eggs in one basket” certainly applies in the investment world, as one bad move can cost you everything. Diversifying your portfolio will help minimize your risk and your losses, and leave you with a more secure investment platform to work with.
If you’re not sure how to diversify your portfolio, talk with your adviser about expanding your options. They’ll have the best knowledge on the subject, and will be able to point you in the direction that’s right for your investment goals.