Five Ways to Start Investing Your Money as a Complete Beginner

Tue, May 2, 2017

Investment

Getting started with investing is exciting, but it can also be nerve-wracking. There’s quite a bit to learn on the subject, and no matter how much research you do, you may feel like you’re not ready yet.


Once you know how investing works, the best way to learn is by giving it a shot. Keep these five tips in mind as you get started.

1. Choose the Right Online Brokerage

Every brokerage is different in terms of fees, account minimums and what they have to offer. The first factor to consider is the account minimum. Some don’t have a minimum, while others could have a minimum of $5,000 or $10,000. Obviously, you need to choose a brokerage with a minimum you can meet.

When it comes to fees, don’t just go with the cheapest option. While you don’t want to pay more than necessary in fees, a brokerage with higher fees may also have far more information available to guide you on your investment decisions, which could make it worth the money.

2. Manage Your Risk

Risk management is the most important part of investing. You should never be in a position where one trade will make or break you. One common way to do this is by never risking more than 1 percent of their money on any one trade, also known as the 1-percent rule. The benefit of this method is that you would need to make 100 bad trades to lose all your money, which is unlikely.

3. Diversify

Just like you shouldn’t risk too much on any one trade, you also shouldn’t put all your eggs in one basket. “Diversify your portfolio” is popular advice, and for good reason. If you’ve invested all your money in one company or industry, one change in circumstances could result in a huge loss.

Aim to own stocks from a range of companies in various industries. That way even if something bad happens with one of your investments, the others will be safe.

4. Think Long Term

If you’re looking at the stock market as a way to get rich quick, you’re likely going to be very disappointed. The safest and smartest way to invest is to look for lower risk options, such as index funds, that provide a stable return. You won’t become an overnight millionaire, but through compounding, your initial investment can grow considerably over 10 to 20 years.

This doesn’t mean that you need to play it completely conservative. You can look for more high-risk, high-reward investment opportunities, if you’re fine with taking on that additional risk and don’t mind losing the money you invest there. Just make sure that the bulk of your portfolio is lower risk ventures.

5. Use Logic, Not Emotions

One of the most important abilities for a successful investor to have is looking at decisions logically and keeping his emotions out of the equation. Emotions cloud your judgement and can lead to poor decisions, such as holding a stock far too long because of the misguided belief that it will turn around.

To keep your emotions in check, it’s smart to develop your own rules before your start investing. Your rules determine when you decide to buy and sell a stock. For example, you could set a rule that if a stock drops a certain amount from the price you bought it at, you’ll sell.

 

There will be times when following your rules doesn’t work out for you, but in the long run, you’ll be better off than if you had gone with how you felt.

As a beginner, you should ease into investing slowly. Set up your account at a brokerage you like, and then make one or two low-risk trades. Keep it simple and you’ll learn more about investing as you go.

 

One Response to “Five Ways to Start Investing Your Money as a Complete Beginner”

  1. Finance Utopia Says:

    Love this article! Completely and thoroughly explained.
    Thanks,
    Boban
    Finance Utopia

    Reply

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