5 Tips For Beginner Investors
5 Tips For Beginner Investors
Investing your money for the first time is a daunting task. Sure, it can sound pretty exciting; the idea of putting money away and watching it multiply over time would be appealing to anybody, and if you do everything right, that’s just what will happen. But to actually confront the strategies, challenges, and mental hurdles involved with setting up an investment portfolio is different than just imagining things going well. It takes a lot of diligent work, and to some extent there’s a leap of faith required.
But never fear. Millions before you have invested, and done so successfully. As a result there’s plenty of good advice out there for when you’re just getting started. What follows is by no means a comprehensive list, but these are five general tips that can help to get you in the proper mindset to approach your first investments.
1) Invest Existing Savings
This probably sounds like an obvious suggestion, because in a way the only money you can invest is money saved. But the specific idea here, which comes from TV trading personality Jim Cramer, is to start your portfolio with money you may otherwise have put in a savings account already. As Cramer puts it, the stock market is a great way to trick investors into saving money they might otherwise spend. In other words, don’t start putting aside new earnings to build up an investment stash if you already have savings; simply apply the savings to a portfolio, where they’ll have more power (and, as he argues, they’ll be more fun) than in a savings account.
2) Pursue Education Constantly
This might also sound somewhat obvious, but many beginning investors ultimately rely more on instinct than knowledge. It can be tempting to see how you do by just diving in, but the fact is that even if you have some good early results, or generally good instincts, this is almost certainly a risky strategy. Meanwhile, as one guide for successful investors articulated, the best defence against simple mistakes is education — and better yet, constant education. That means everything from reading lists like this one, to studying the ins an outs of assets you’re considering buying into, to learning basic trading patterns and indicators. You can never learn too much about investing, and every bit of new knowledge might help you to grow your funds.
3) Find Low Fee Options
Beginning investors quickly learn that it’s not as simple as opening some online account and starting to buy and sell. For the most part, investments today are still conducted through brokers (though there are a few exceptions now that do allow something more akin to logging on and making trades without any hassle or third party involvement). And brokers charge fees to help manage your accounts and execute your trades. So when you’re just starting out, one of the important things to keep in mind is to seek out low fee options, and to get an idea of what you’re getting for your fees. Some broker services will provide a little bit more assistance while charging more, and others may provide only what you need to get your trades done, with smaller charges.
Or, as TV host and personal finance guru Suze Orman put it, don’t put all your eggs in one basket. Diversification is an incredibly important concept to grasp early on as an investor, as it’s the closest thing there is to a fundamental key for how to avoid losses. Simply put, if the bulk of your investment funds are tied up in a single asset, and that asset decreases in value, you’ve lost a great deal. However, if you spread your money out across different, unrelated assets, you protect yourself from this sort of drastic loss, and increase the likelihood of a net gain.
5) Check Your Emotion At The Gate
And finally, comes this vital investing tip. Most any successful trader or businessperson will tell you that it’s exceedingly important to leave your emotions out of investing decisions. This means a few different things. First, it means not investing with your heart or your personal preferences in mind; you shouldn’t buy Apple stock merely because you like your iPhone, for instance. Second, it means not reacting emotionally to changes in your portfolio; sharp losses or sudden gains shouldn’t cause you to analyse the market differently or make irrational, reactionary decisions.
As stated, this is by no means a comprehensive list. But if you’re just now looking into controlling your own investments for the first time, these are all important things to keep in mind while you’re getting started.