The stock market is currently booming and is on track to reach record highs. If you’re not an investor yet, you may feel like you’re missing out. Here are 10 investment tips for beginners to help you get started with the stock market so you can build your wealth.
10 Investment Tips for Beginners
1. Evaluate Your Finances
Investing is one of the best pathways to wealth. But if you don’t have your financial basics covered, it might not be the right time to start.
Before you invest, you should make sure you have an emergency fund in place. You should also have a plan to pay down any debt you have like student loans or car notes.
2. Ask For Help If You Need It
Investing for the first time can be scary. You might feel like you don’t know what you’re doing. You may even worry that you’ll invest in the wrong assets and lose all your money.
If you need some help to overcome these fears and get started, there are lots of resources available to you. For one, this website has lots of great investing articles you can use to educate yourself. You can even reach out to a financial advisor for extra support.
There are also investment apps like Wealthfront and Ellevest that will select securities for you based on your timeline, goals, and risk tolerance. They can help take the guesswork out of investing for a reasonable fee.
3. Don’t Try to Time the Market
You’ve probably heard stories of investors who have gotten rich from purchasing bitcoin or GameStop stock at the right time. But for every person who made serious money by timing the market, there are hundreds who lost their shirts.
That’s why financial experts don’t recommend making short-term trades, especially as a beginner investor. Buying and holding is a lower risk strategy that provides consistent returns over time.
4. Nail Down Your Financial Goals
Before you start investing, it’s important to determine what your financial goals are, as they’ll help guide your decisions. If you’re saving up for a down payment you plan to use soon, your investment strategy will be different than if you’re working towards retirement.
Experts recommend investing money you’ll need in the near future in safer investments like bonds and certificates of deposits. For goals that are further off, a mix of stocks and bonds will help you reach your goals.
5. Set an Investing Target
Now that you’ve nailed down your financial goals, the next step is to figure out how much money you need to invest to achieve them. Experts recommend that you invest at least 10% to 15% of your income. But if you have big plans like starting a business or traveling the world in retirement, you may need to set aside more money than that.
If you don’t have enough room in your budget to invest 15% of your income, start with the amount of money you have. It’s better to invest $50 or $100 per month than nothing at all.
6. Diversify Your Investments
One word you’ll hear a lot if you read investing articles is diversification. It means varying your investments so your money isn’t tied up in a single asset class or one company’s stock. This can help prevent you from losing lots of money when the stock market dips.
The easiest way for beginner investors to diversify their portfolios is to invest in exchange traded funds or mutual funds. ETFs are basically a basket of different assets that you can purchase a share of. This helps spread out your risk more than buying individual stocks.
7. Automate Your Investments
We all have busy lives, which can make it hard to remember to invest. That’s why it may be helpful to automate your investments so they automatically come out of your bank account. You can do this with your 401k, Roth IRA, and even your brokerage account so you never miss a contribution.
8. Take Full Advantage of Your Retirement Accounts
Retirement accounts have tax benefits that brokerage accounts don’t. If you invest in a 401k, for example, you’ll be able to deduct the amount you contribute from your taxable income. This will lower the amount of taxes you need to pay, which is a big bonus.
Many employers will also match the money you put into your 401k up to a certain amount. This is essentially free money, so you should definitely take advantage of this program if your workplace offers it.
9. Don’t Sell When the Market Is Down
When the stock market crashes, many inexperienced investors panic and sell their investments to avoid losing money. But you’ll lose more of your hard-earned cash in the long run if you sell when the market is down.
Historically, the stock market has always bounced back from crashes. If you hang onto your assets and stick to your investment plan, your portfolio will likely return to its previous levels and continue to grow from there.
Some financial experts even recommend ramping up your contributions during recessions if you can swing it financially. This allows you to buy stock for a deeply discounted price.
10. Start Now
The last item on this list of 10 investment tips for beginners is to start now. You may not feel totally ready to put your money in the market. But the longer you wait, the more returns you’ll lose out on.
The stock market yields an average annual return of 7%. And as your portfolio grows, those returns will compound, allowing you to earn much more money than you put in.
For example, if you invest just $100 a month for 30 years, your money could grow to over $113,000. And the best part is, you only had to invest $36,000 to get there, which illustrates the power of compound interest.
If you invest early and often, you’ll be able to reach your financial goals and have a comfortable retirement. The hardest part is getting started, but trust us—it’s worth it to take that leap!
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Check out these helpful tools to help you save more. For investing advice, visit The Motley Fool.