When you first start out as an investor, it is easy to become overwhelmed. You might be thinking about retiring rich, but you have to start somewhere.
Whether you are opening a tax-advantaged retirement account, or whether you are looking to invest savings, investing can be intimidating.
However, there are some things that can help a beginner slow down, evaluate the options, and find success:
1. What are your goals?
If you don’t know clearly what your goals are it’s impossible to invest correctly. Why are you investing and when you do want to achieve your goals?
If you have long-term goals like retirement, that requires one kind of investing. If your goals are to save money over the next 5 years to have a down payment for a house, that requires something else. And if you want to build up an emergency account, that is something else entirely.
2. You don’t need to be an expert
Some people inundate themselves and collect too much information. What happens often is that they get so busy they never get off the ground and actually invest.
And because there are so many different opinions on how to invest these people often find it hard to make a decision.
Yes. You want to understand the basics. But you don’t need a Ph.D.
You can understand how the stock market works and how investment works in relatively short order. Then get going. Just don’t get stuck in the mud Pilgrim.
3. What is your strategy?
Once you figure out how long you want to invest and which investments fit the bill, consider strategy. There are a number of ways to invest for long-term growth .
You can buy and hold, invest based on your gut feeling and/or use a more sophisticated approach.
Some of these are far better than others but let me tell you one thing right here; nothing is perfect.
In order to invest well, you need a good strategy (that tells you what to buy, when to buy it and when to sell it) and you also need to accept that you will lose money at times.
If you are unwilling to accept volatility and losses, don’t invest. You’ll just be frustrated – and broke.
4. Get small and get started
Since this might be your first foray into investing or you might be getting back into it after taking a hiatus, it’s going to take a lot of courage to overcome the inertia and fear.
That’s why I suggest you open an account , fund it with a small amount and get going.
If you have larger amounts, consider interviewing a few advisors. If you want to go that route, make sure you take a little time to understand the terrain first.
If you are going to invest using mutual funds – I suggest you consider ETFs. They are like mutual funds yet far less expensive.
If you are buying stocks, make sure to open your account with a discount broker.
Either way, by far the most important thing you can do is focus on your strategy and make sure it’s a good fit.
Make your investing automatic. Whether you have money taken from your paycheck to contribute to a retirement fund before you even see it, or whether you have an investment account automatically deduct it from your checking account each month, automation can be a tool in your favor.
It ensures that you regularly investing – without even thinking about it. Regular contributions are important if you want to build wealth reliably.
This is one of the key success ingredients of wealthy people. They keep investing. It’s easy to use this tool – so please do.
6. Don’t Follow the Market Obsessively
Many experts will tell you that periodically re-balancing your investment portfolio is a good idea.
Unfortunately, many beginning investors obsessively track market movements and wind up making poor decisions based on short-term volatility.
You can protect yourself from your own panic instincts by not obsessing over day-to-day market performance and by sticking with a carefully thought-out investing plan.
Likewise, avoid placing too much faith in media talking heads that sensationalize investment news. Remember that they are paid to get people riled up.
However, it may not be the best thing for your investment portfolio if you are making decisions from a place of fear. Blocking out some of the noise can be one way to preserve your portfolio.
There is always the risk of loss when you are investing.
When you are new to investing, though, this risk can be crippling as you try to build wealth.
However, if you create an investing plan, and stick to it, making decisions with a level head, you are more likely to see success over the long haul.
Neal’s notes. Thanks Miranda for a great post. I think these are all really important tips for the person just starting out.
Once you have a little money put together, it makes sense to consider other investment strategies that work. But the most important step for people just starting is to get that money set aside and working.