You’ll want to invest your money as you begin saving and establishing a solid financial foundation. If you want to build wealth and a nest egg, it’s important that you invest your money.
Most people know that investing money in their retirement plans is a smart move.
There is currently no class called “Investing money for beginners” in the educational system.
You can do some basic things on your own, and put your money to good use while you sleep.
It’s important not to let your money sit in the bank.
You need to be aware of some key things before you start investing. This is not a guide on how to start, but more of a list of important things to know.
Table of Contents
It’s important to have money saved up before investing.
Learn to Invest Literately
Repay high interest debt before
You should only risk what you can afford.
You Shouldn’t Prioritise Getting Rich Quickly
You can make small mistakes in investing
Understanding Why You Want to Invest
Some additional tips for investing beginners
How much money do I need to start investing?
It’s important to have money saved up before investing.
Even if it seems foolproof, you should never invest all your money. You should always have some cash in your account. It’s best to mix your savings and checking accounts.
You can call this your “rainy-day” fund or an emergency fund. Before investing, build up an emergency fund of 3-6 months’ expenses (I tried to aim for 6-12 months).
If your company has a 401k plan, you should take advantage of it. Save your money before investing.
Investing literacy is important
To me, the key to investing for beginners is to become educated on investing. You don’t have to be the next Warren Buffett but you do need to understand how investing works.
Learn about the basics of investing, including what to look out for, what terms are used, and how the stock exchange works. You will find a lot information, but it is not difficult to understand if you take your time.
It is important to spend some time each week reading trusted books and publications. If you are new to investing, this will be the most important thing for you.
Repay high interest debt before
Take advantage of a company 401k that offers a matching contribution. Before investing, pay off any debts with high interest rates, such as credit cards.
No investment can beat the interest rates on many credit cards, which are often as high as 20%. Simply pay off the debt.
If you pay off your debts, you will feel much better. You can still start your 401k, but you will have more money for savings (or future investments), since there won’t be high interest rates eating up your cash.
You should only risk what you can afford.
You may remember that I mentioned earlier in this article about building an initial savings foundation, which is not intended for investment.
Even if you decide to invest the remaining money, you should still understand your risks.
What can you afford to lose if something goes wrong with your investments, or the economy?
It is crucial to understand that you should never risk your entire investment portfolio.
You should be more calculated in your approach to investing. You can be aggressive if you want to, but make sure that the stakes are high and that you will not be left without anything if the worst happens.
You Shouldn’t Prioritise Getting Rich Quickly
All of us want to be rich over night. Imagine? Imagine how wonderful life would be.
It is not the right mentality when investing your money. It’s true that sometimes you can have a huge investment win, but they are rare.
What do you think Warren Buffett did to become a multi-billionaire? He was not only smart but also patient and took a long-term approach to investing.
People who have the “get rich quick” mentality usually end up losing most or all of their money.
Beginners to investing often see dollar signs too quickly.
You can make small mistakes in investing
Even the most successful investors make mistakes. It is important to make sure that they are small mistakes which can provide valuable learning and lessons.
You can see that my Vanguard snapshot for 2014-2016 was quite a mess and I made some mistakes which cost me money.
Was I broke because of it? Nope. Was I stressed when I lost part of my investment? Nope. Why?
It was because I wasn’t willing to risk everything on something that I was learning. All of these mistakes taught me a lot, and helped me when I had money to invest.
Seeking more information? The worst mistakes that every new investor should avoid
Understanding Why You Want to Invest
It’s important to understand why you are investing your money. Write down your goals in five, ten or twenty-five years.
It helps you to visualize your investment goals, makes it easier to make decisions about what to invest in and keeps you on track.
Before I began (other than my 401k), I wrote down my goals and the reasons why I felt investing in certain assets was important for my finances.
It was useful to know this information before making any purchases.
This was helpful in adjusting my 401k as well as the amount that I contributed. Do not underestimate the power of planning and goals when it comes to investing.
What you need to know before investing money for beginners
Some additional tips for investing beginners
There are also additional tips to keep in mind as you begin. As you begin, keep these tips in mind.
Contribute Consistently – Maintain a consistent schedule of investing, whether the market is going up or down. Dollar-cost averaging is what you do. When compounded over time, this will help your investments to average out in the future.
Fees to watch out for when investing – Be aware of fees whenever you choose your platform or work with a lender. Negotiate bank fees to the best of your ability and choose financial platforms that have low fees. Even a small amount can have a major impact on your future investments. Sign up for Blooom to get free recommendations for your 401k and IRA portfolios.
You should diversify your assets. Just as you wouldn’t bet all your money on a single asset, neither should you. Diversifying assets can help you ride out tough markets and protect your money over the long term.
Do not monitor your investments every day – If your goal isn’t to become a financial advisor or a day trader, then you shouldn’t be checking your investments each and every day. You will become agitated, your emotions will be affected, and you may make rash decisions based on what the market is doing that day. You will want to check-in every now and then, but limit it. You may want to begin with 1x per month.
How much money do I need to start investing?
There is no set amount to start investing. To get off to a good start, you should aim to invest a few hundred bucks. Many investing apps, like Acorns and Stash, allow you to start with fractional shares for just a few bucks.
M1 Finance is a great option for those who want to invest without having to be involved. M1 Finance can help you automate and create your investment portfolio, allowing you to easily manage your wealth and money. Click here to learn more.
