Reducing Risk for First-Time Investors: 7 Vital Tips to Keep in Mind

I was a first time investor in 2014. I recall feeling nervous, but also excited and overwhelmed.

Technically I had a 401k that I had for an entire year, but I didn’t know what it was or even what it was.

Opening my first Vanguard account and creating a plan to begin saving and investing money was an entirely new experience.

It can be smart to invest your money, but if you’re not sure what you’re doing you could still face financial risks.

Here are some tips that I believe everyone should know to get a good start in investing.

Even the most successful investors can experience market fluctuations (stocks, real-estate, etc.) and lose money. Even the best investors make mistakes. You will not be immune to this. Do not be afraid to start, but do not get too excited without reading the tips below.

  1. Investing in the stock market? Get informed before you invest
    You should educate yourself before investing any money in the stock exchange or real estate.

You can make costly errors if you don’t know the basics.

You can, for example, become familiar with some terms related to stock market investing, or learn how you can read a prospectus. Or, you could read books on finance and investing. Every week, you should set aside time to read and learn.

Ask questions and consult your mentor if you have one.

You will be putting your money at risk if you invest blindly. It’s not investing if you get lucky.

Related: If your money is tight or you want to try it out, you can use spare change to invest in stocks. Visit the popular Acorns app for more information. You’ll also get $10 when you sign up.

  1. Get rid of the “get rich fast” mentality
    First-time investors are often overly idealistic, and they start to see dollar signs everywhere. You need to step back.

Many people want to be rich quickly, but this mentality can burn through your pocket…FAST.

You may be lucky and strike gold, but there will always be more lows in your life than highs.

Consider investing in a way that will allow you to grow consistently and effectively.

You can avoid investing money traps such as random emails with investment tips, the latest trends or media headlines that appeal to your emotions.

99% of times, investing sounds too good to true. If getting rich quickly was possible, wouldn’t more people be successful?

  1. Consider your investment goals
    What is the goal of investing your money, just like any other investment? You need to ask this question before you put your money to use.

Do you plan to retire? Diversifying your investments? Are you looking for passive income? Combining things?

You can better understand your investment goals by writing them down. You can then decide if your investment strategy should be conservative or aggressive, depending on the timeline.

You may change your goals as you begin a family or experience different life events.

  1. What fees are involved?
    First-time investors often make the mistake of not understanding the costs involved, particularly if they are investing in the stock market.

Many financial institutions charge high fees, which can eat into your gains.

Many people don’t know about these fees or ignore them, or think that it doesn’t affect their profits much.

Many mutual funds may charge 1-3% in fees. If you made 8% in returns, your actual return is only 5-7% after weighing the average fees.

You’ve lost out on thousands of dollars over the years. You could have used that money to reach your retirement goals faster or achieve your goals.

I had a 401k with my company, and every fund charged recurring fees between 1.2 and 2%. It may not seem like much, but the fees can eat into your gains. No thanks!

Search for index funds and ETFs that are low-cost, such as those offered by Vanguard or Fidelity. These can be more cost-effective. It is important to look at any fees that are associated with a fund.

Blooom is a great tool to help you manage your 401k. Get a free 401k Portfolio Analysis with recommendations that will help you discover hidden fees. Start here for free.

First-Time Investor

  1. Diversify your investments – don’t just go for the big one.
    There are two main parts to this for the new investor. I will go into more detail below.

Never spend all your money
When you’re just starting out and learning about investing, you don’t want to use up all your cash.

You will make mistakes (I did) but you can cause serious financial harm by spending all of your money.

If you do not have a 401k, you can invest a portion of the money you save in your checking and savings accounts.

After saving more money, I expanded my investment portfolio to include IRAs.

It’s okay if $500 seems like a lot to you right now.

Stash allows you to test the water by investing fractions of shares for as little as $5. Stash is not a long-term investment solution but it’s a good way to learn and start investing with little risk.

Diversify your investments if you decide to invest.
Don’t put all your eggs into one basket when you start investing more money. Ugh, super cliche statement. It is necessary to say.

If you plan to invest in the stock market make sure that you have a diverse exposure to both stocks and bonds.

Find a balance that won’t ruin you in a bearish market.

When you have more money to invest, consider investing in alternative investments, such as real estate, art or businesses. Mix up your investments.

  1. Keep your emotions out of the way
    When it comes to investment, you should leave emotion behind.

Your investment portfolio and your pocket can suffer if you make emotional decisions and invest.

It sounds easy, right?

Can you remain calm and rational when the stock market falls?

You may have to sell your investments or reduce losses at times, but it is important to know how to ignore the noise.

Although I knew what I was doing, I still sold or moved funds around when it didn’t work right away.

What? I lost money, and I would have made it up 9/10 of the time if I had stood my ground.

You may also want to hold onto a stock because you have sentimental attachment to it.

I can understand your reasoning, but you should not invest based on emotion or sentiment unless you review the investment thoroughly and find it to be a good one.

You should not make any rash decisions.

  1. Reassessment of your goals and investments
    Don’t become complacent once you have started investing.

Even if you think something is working, it’s still a good idea to reassess your goals and investments.

You may find that your personal life has changed, the timeframes of certain things have been altered, or you may be able to take on different risks. Over time, all of this can and will likely change.

You should therefore review your investments on a regular basis to see how they are progressing in relation to your goals.

You don’t, however, want to get caught up in obsessive tweaking as this can put your financial gains at risk. Finding a balance between reassessment and re-evaluation is the real art.

Final Thoughts
You’ve taken the right steps to improve your financial situation.

You cannot start investing blindly, or you will end up in serious financial trouble.

These tips will help you to minimize your risks and make sure you are in the right frame of mind before you invest your hard-earned money.