Investing Advice: Everything First-Time Investors Need to Know

Are you thinking about joining the 55 percent of Americans who own stocks? Or maybe you’re interested in other types of investments, like bonds or even annuities.

Even with the current market fluctuations, investing is one of the best ways to build wealth. But, now more than ever, you’ll want to make sure you know what you’re doing before you dive in. Read through this important investing advice for beginners before you get started!

1. Start with a Plan

Investing is serious business, so you should always start with a plan. Ask yourself important questions like:

  • How much do I have to invest?
  • What goal am I trying to achieve?
  • How long can I stay invested?

The answers will help you decide on the type of investment that’s best for you. It will also help if you can focus on whether you’re on track toward reaching your goal, rather than your return numbers.

2. Don’t Be Afraid to Start Small

If you don’t have a lot of money, you can still invest! Many brokerage firms will allow you to open an account with as little as $100. Other “micro-investing” apps, like Acorns, Stash, or Robinhood, allow you to start with just a few dollars and save a ton of money on fees.

3. Understand Your Risk

Every type of investment comes with some type of risk. This means there’s at least a small chance that you could lose the money you’ve invested. Even sitting in cash comes with some risk, because inflation could eat away at your purchasing power.

Before you make any type of investment, it’s critical that you understand the risk that it brings and ensure that you’re comfortable with it.

4. Don’t Chase Tips

There’s no shortage of people who are more than happy to give you investment advice. This includes television hosts, experts online, and your cousin’s brother-in-law’s uncle. Resist the urge to chase these tips. Remember, if it sounds too good to be true, it probably is.

It’s true, sometimes you can find some good advice, but if you’re constantly buying based on “hunches” you’re likely to lose more often than you win. Instead, it’s better to build a solid portfolio and stick to the plan.

If you absolutely must, set aside a small amount of “fun money” for speculating. Keep it in a separate account and avoid putting more than 10 percent of your portfolio in any single investment.

5. Diversify

No single investment type goes up all the time. You can reduce your risk by diversifying your portfolio so that you have different investments. This may include equities, treasury bonds, and some high interest yielding investments. The idea is that when one sector falls, others may rise. This will even out the highs and lows, giving you a more stable portfolio.

6. Continually Add Funds

Adding money to your investment account regularly allows you to take advantage of an investing phenomenon known as dollar-cost averaging (DCA).

For example, imagine you decided to invest $100 a month. Each time you make a purchase, you’ll spend the same amount of money. When investments are expensive, you’ll buy fewer shares and when they’re trading at a discount you’ll buy more

The end result is that you’ll end up paying a lower average cost than you might if you invested all of your money at once. If you set up a program to automatically pull this money from your paycheck or your checking account, soon you won’t even miss this money and your account will continue to grow.

7. Reinvest

Your investments are likely to pay you dividends or interest. While you could take this money out and spend it, you’ll get ahead a lot faster if you reinvest it. In almost all cases this will improve your long-term investment returns.

8. Track Your Progress

Investing isn’t something that you can just “set and forget.” While you may not want to make frequent adjustments, it’s always smart to keep an eye on your investments. You’ll also want to reassess things periodically to make sure you don’t need to make any adjustments.

Some of the reasons you may need to adjust your approach include:

  • A change to your personal situation (job loss, promotion, marriage, the birth of a child)
  • A change to your risk tolerance
  • A change to your investment time frame

If you find that you’re going to need your money sooner than you thought or that you’re no longer as comfortable with potential losses, then it might make sense to adjust your portfolio allocation.

9. Stick to the Plan

If you find that you have a valid reason (as listed above) for adjusting your portfolio, then, by all means, go ahead and do it. But, if you’re nervous about market fluctuations or you think you might be able to get higher returns, this is rarely a good idea to make major changes.

While it’s hard to ignore the chatter going on around you, it’s important to remember that investing is a marathon, not a sprint. Pay attention to long-term trends and to your overall goals and only make changes when you’re certain one of these warrant it. Otherwise, you’ll want to commit to sticking with your initial plan.

Investing Advice for Beginners and Beyond

Use this smart investing advice to prepare yourself to dive into the world of stocks, bonds, and more. Of course, if you really want to succeed, you’ll want to keep learning more advanced tips. Scroll through some more of our blog posts to learn more about investments, the economy, and how to grow your wealth.