Are you more than ready to get into investing but don’t know where to start? If so, you are not alone. And we have got you covered with tips on investing for beginners.
There are several people out there that don’t know the first thing about investing. So don’t feel guilty if this is you. When it comes to investing money, the biggest obstacle is simply getting started. And fi you ever find yourself asking when you should start investing, the answer is right away.
“Don’t wait for the ‘perfect time’ to get in. Start now and keep adding to it.”
Nicholas J. Scheibner, wealth management advisor at Baron Financial Group
You are here to learn now so that you can start doing amazing things with your finances. So if you are ready to learn about the different ways that you can get into investing, keep on reading:
Investing for Beginners: A Brokerage Account
If you are ready to get into investing, first thing’s first: you are going to need a brokerage account. For those who do not know, a brokerage account is helpful in investing because it is used to buy and sell securities such as stocks, bonds, and mutual funds. Just like a bank account you can transfer money in and out of a brokerage account. Not only that, brokerage accounts also give you access to the stock market and other investments. Because your income from investment is taxed as a capital gain, these accounts are also referred to as taxable accounts.
Many licensed brokerage firms allow your to open up brokerage accounts online with any amount of money. Sometimes you don’t even need an initial deposit to open an account, but you do need to fund the account before purchasing any investments.
“You own the money and investments in your brokerage account, and you can sell investments at any time. The broker holds your account and acts as an intermediary between you and the investments you want to purchase.”
Arielle O’Shea, Nerdwallet
The good news is, these are very easy to set up. In fact, you can start one right away by heading over to Ally Invest to make yours now.
Once you have got that set, check out the rest of this article for the low down on the different types of investments you can make.
Stocks
You have probably heard the terms “stocks” and “bonds” used interchangeably, but there is definitely a difference.
Stocks are shares of companies that you can buy so you end up owning a fraction of a corporation. They can be a riskier type of investment because you never know for sure if the companies you purchase stocks in are going to lose value or not. But if the value of the company you have stock in goes up, you are going to be able to sell that stock for a profit.
Additionally, some stocks pay dividends, which are a percentage of earnings that the companies you have stock in will sometimes pay you regularly.
Bonds
If you’re worried about the risk factor that comes with stocks, bonds are a safer alternative.
While with stocks you actually own a share of the earnings and assets of a company, bonds are just a loan. But this loan usually gets paid back with interest. (Which typically means a fixed income payment!)
While there is still the risk that the issuer might dip out and not pay you back, it is a lot less likely when you have U.S. government or state bonds.
Mutual Funds
It’s totally understandable if you’re not down for individually researching each and every stock and bond option out there. In fact, you can totally avoid the effort and struggle by investing in a mutual fund.
With a mutual fund, you pretty much just have 1 transaction to buy several investments.
And an active manager actually invests these funds for you, so it’s much less effort.
The only thing here is that there’s typically a yearly fee you have to pay for having these investments called an expense ratio.
Index Funds & ETFs
If paying an annual fee doesn’t sound fun to you, you might enjoy index funds quite a bit more. They mostly do the same thing as mutual funds, but they don’t have the yearly fee.
This is because they do not have that active manager making the investments. Instead, index funds passively track the market index as it rises over time.
An ETF (or exchange-traded fund) is one type of index fund. But the difference is that the price of ETFs fluctuates way more than standard index funds, giving you more control over the price.
Options
Options are contracts for selling or buying stock by a specific date. These are pretty complex. But mainly, you buy a contract for a certain amount, and it says that you can sell it on a specific date.
You then can decide whether you’ll sell your stock or keep it.
For more information and tips on investing, take a look at Benjamin Graham’s The Intelligent Investor.
Other Investing Tips
Set Investment Goals
When it comes to dealing with money you should have an end goal in mind. What are you putting your money towards. An important investment strategy is knowing your investment goal.
“Lay out your short-, medium- and long-term goals, give them a time frame, and put a dollar figure beside each.”
Rob Williams, Charles Schwab’s vice president of financial planning
It is important to have tangible goals because it motivates you to keep saving and investing.
Understand Your Risk Tolerance
Your investment goals should dictate your investment risks. You can’t take more risks just because you can afford it. Your allocation to stocks and bonds determines the level of your risk. The more stocks you own, the higher the risk.
Maintain Low Costs
While you cannot control there performance of your investments and the results they will produce, you can control how much money you pay for them. You can use index funds to guide you.
“As a beginning investor, it’s very important to pay attention to the costs involved in an investment.”
Michael Pappis, founder and CEO at Amity Financial Planning
Interested in more money content?
