How to Start Investing
Investing is a great way to build savings and potential passive income that can help you realize your financial goals. However, it might seem overwhelming to get into it, and rookie investors often feel out of their depth. One of the biggest misconceptions of the investing world is that you need a lot of money or certain privileges to benefit. But that’s not the case.
With proper education and access to the best resources, anyone can start their investing journey and make sure it goes well. Sure, there’s inherent risk to the markets, but as you grow and learn more about what makes markets tick, you can be better prepared and make savvy trading decisions. Let’s go over investing for beginners, so you can feel confident you can grow your wealth and follow the right path to financial wellness. These are good beginning guidelines, but if you’re serious about investing, consider consulting an investment professional for help.
Why Should You Invest?
One of the first questions you should ask yourself is why you want to start investing in stocks in the first place. Traders have many reasons for this, but ultimately, it comes down to what you want to do with some extra income. Whether you want to save for retirement, buy a condo, or have a little more pocket change, investing can help make it happen.
Additionally, investing 101 dictates that by putting your money into the markets, you can protect your assets against inflation, and have the capital needed to procure goods and services in the future. The sooner you start investing, the better you can hedge against inflated costs. So, you can use investing to store money and have it be accessible.
How to Start Investing in Stocks and More
When you start investing, it’s important to focus on education even before you make your first trade. Knowing as much as possible about the different markets, how they operate, and what brings their values up or down will help you make better decisions with your investments. Here’s the lowdown on investing for beginners.
Your Investing Type
One of the first things to consider is your approach to investments, and your level of aversion to the risks involved with investing. So, map out your investment goals, with special consideration to your career, personal time, and willingness to put in the work. If you’re a busy person, you might be looking at more passive, low-maintenance investments. Conversely, if you have more free time, you might benefit from assets that require more attention and further research.
We’ll go into further detail about what some of these look like later, but this is still a crucial first step. Doing this can help you decide what investments to add to your portfolio and how much capital you’re willing to shell out to keep them active. That’s one benefit to investing: anyone can have a stake in the markets, regardless of their personal and professional lives.
Brokerage Accounts
Once you’ve decided what your approach will be and how much you’re willing to spend, it’s time to talk to professionals that will help you determine where to put your money. Investment assets aren’t something you can just buy online. You need a mediator that makes your trades and keeps track of their performance for you. You have different options for managing investments, and not all involve a physical person managing your trades. Here are common ways to get started investing in stocks and other assets.
- Robo-Advisor: Often touted as best for beginners and those that will only use less capital to invest, robo-advisors are investing software designed to make trades on your behalf using pre-designated parameters. One popular robo-investing app is Acorns (you can read our full review here).
- Brokerage Account: These are professional services that can handle what can be a complex process for you. They can provide more than apps or software in that you can have a dedicated advisor manage your portfolio for you or let you do more research into your investments and have you buy and sell by yourself. Research popular brokers like Fidelity or TD Ameritrade to see if they’re the best fit for you.
Creating a Plan and Budget
This step in the process is crucial, and could be decided by yourself or with the help of your broker. How to decide on a budget is determined by how aggressive or passive you want to be in the markets. Naturally, investing has a lot of costs associated with it—not just to get started, but how much you can lose. So, it’s important to find a level of spending you’re comfortable with and know when to back out. It’s crucial to know what investment assets require more money than others to get started. You have options to choose from. And, you can take set amounts and put a percentage into investments that create a whole picture of your overall strategy.
This is where asset allocation comes in. Think of it as a pie chart with wedges of percentages going to different investments. For example, you can have 3% of your investment budget in commodities, 25% in individual stocks, 20% in bonds, and so on, until you find a place where you feel comfortable. This can help visualize where your money is going, and it can be adjusted accordingly. Consider how much you’re willing to put into the markets, as well as what you need to tap into these markets, and find the plan that works best for you.
First Investments for Beginners
When creating your plan, you need to know which investments are best suited for beginners. Your first investments are a big gamble, so it’s important to understand how they work to optimize your strategy for maximum returns. Here are some of the more basic investments you can choose.
Stocks
Think of a stock as a small ownership stake in a company. The better the company performs in terms of sales, developments, and so on, the more revenue they have to distribute among its stakeholders. One of the better benefits of stocks is that you can buy individual stocks starting at under $5. Naturally, some popular stocks like Apple and Amazon are a little more expensive, so these smaller stocks are a good place to start. If you’re on the lookout for something cheaper, keep an eye out on bustling startups about to go public. One of the riskier investments assets, stocks can promise high returns in a short amount of time—and record losses all the same.
Bonds
Bonds are essentially a loan indebted to a company or government entity. This money is loaned to the institution and gathers interest based on performance. After the set time duration of the bond expires, the original debt plus any interest gained is given back to the trader. This is considered one of the safest investments, but it often doesn’t yield high returns. So, if you’re looking for something more aggressive, consider other options.
Mutual Funds
Mutual funds are a group of different investment assets, like stocks and bonds, pooled together and purchased by a group of investors. You would then buy a share of this fund along with these other investors and get a share of the returns based on unilateral performance of the fund. Usually managed by a fund manager, mutual funds offer diversified investments in one unified asset. If you’re looking for diversification with less personal management, this is a good option.
ETFs
ETFs, or Exchange Traded Funds, function very similarly to mutual funds. They are also a combined portfolio of investments assets, but usually encompass a certain index or sector. Additionally, they are traded at a stock exchange, meaning they can be bought and sold on the same day at varying prices. Much like mutual funds, their diversification of assets make it a better investment for those looking for lower risk.
More Tools to Help You Invest
With the complexities of the investable markets, it might help to have additional tools and resources to help you manage and optimize your investing strategy.
Acorns: A robo-investing app that helps take the stress out of investing, Acorns should be a consideration for new investors looking for a quickly diversified portfolio. You set up an account, complete an investment profile, and the app will recommend a portfolio for you into a micro investing account, pooling your chosen amount of money into different assets. If investing can be overwhelming for you, and you don’t want the hassle of picking and choosing stocks, funds, and other securities, Acorns makes it easy to get investing faster.
Important Disclosure for Acorns
This is an Ad for Acorns and the material may be biased. Compensation may create an incentive for the recommendation. The content is for informational purposes only and should not be considered a replacement for individualized financial advice. Investing involves risk, including loss of principal. Please consider, among other important factors, your investment objectives, risk tolerance and Acorns’ pricing before investing. Portfolio recommendations are dependent upon current and accurate financial and risk profiles of the client. Non level of diversification or asset allocation can ensure profits or guarantee against losses.
Investment advisory services offered by Acorns Advisers, LLC (Acorns), an SEC-registered investment advisor. Brokerage services are provided to clients of Acorns by Acorns Securities, LLC, an SEC-registered broker-dealer and member FINRA/SIPC.
Stash: Ideal for rookie investors looking to get a head start in their investing but who don’t have the monetary resources for larger investments, Stash offers micro investments for less than $1 each. Similar to other investing apps, all you need to do is answer a few questions that quantify your risk tolerance, and the Stash app does the work for you, choosing stocks and other securities for less. Plus, you can connect your bank account and make automatic or manual deposits into your investing account.
Start Your Investing Journey Right
The sooner you invest, the sooner you can get returns. Investing is ideal for those looking for passive income and to make the most of the income they already have to plan for the future. Whatever your reasoning for investing, the markets have something for you. As long as you focus on your education and make savvy investments with peace of mind, you can become a good investor. And with the right resources and tools to help you educate yourself better, like what we offer here at Credit.com, you’ll have a better view of your goals and have the best investing journey ever.
Disclosures
Paid non-client endorsement. Not representative of all clients and not a guarantee. View important disclosures. Promoter received cash compensation of up to $5 per cost per action for providing this endorsement. Compensation creates an incentive for the promoter to recommend Stash. Endorsements are not guarantees of future performance or success. For a representative sample, see Apple App Store or google Play reviews. Investment advisory services offered by Stash Investments LLC, an SEC registered investment adviser. Investing involves risk and investments may lose value. Offer is subject to T&Cs.
