Step 1: Figure out what kind of investor you want to be.
Before you start putting down money for investments, you’ll want to decide your investment goals and your risk tolerance. Some individuals might want to actively manage their investment portfolios, while others prefer a more hands-off approach.
Step 2: Start your brokerage account.
If you decide you want to take a more active role in managing your investment, you can open a brokerage account through one of the many different online brokerage services available.
You can also open a robo-advisor account that handles your investments on your behalf. All you have to do if you choose this option is to pay a fee and let sophisticated algorithms choose your stocks for you.
Step 3: Research the basics.
Before you start getting serious about investing, it’s smart to understand the basics around investing. Learning the terminology, types of investments, when to sell your stocks, and how to sell your stocks are all important details to understand. It’s also a good idea to examine your own financial abilities and your overall financial health. For example, if you’re in a ton of debt but you want to invest your savings in an investment, you may want to consider portioning out part of your savings to pay off your debt first. You’ll need to think about your investments in the context of your overall financial goals.
It’s also smart to learn about the inherent risk involved with stocks and how to avoid making beginner mistakes.
Step 4: Decide what you’ll spend.
As mentioned above, the investment money you put aside shouldn’t be at the expense of overwhelming debts and other pressing financial needs.
The amount you need to start your investments depends on what type of investment account you choose, the stock shares you want, and how many shares you want to buy. Stocks can be extremely cheap or thousands per share. Keep your budget top-of-mind before you overcommit to spending more than your bank account can handle.
You should also decide how much you want to regularly invest in your stocks. It’s important to research the minimums required by your stock fund, which in some cases, might be close to $1,000.
If you’re worried you don’t have enough money to make enough of a “splash” with your investment, don’t despair. There are some stock services that allow you to invest in just small portions or fractions of stocks, making them much more affordable.
Step 5: Start investing your money and track your progress.
Once you’ve built your budget, set up a framework for your investments, and gotten familiar with your investing service, it’s time to put money into your investments. While it’s a bad idea to follow your stock progress every single minute, you will need to regularly check-in to see what kinds of gains or losses have occurred. And remember, short-term fluctuations are normal – your investment should be set up for long-term gains. Investments are not “get rich quick” schemes, so you shouldn’t treat them as such.
One tip you may want to consider is keeping an eye on the business you hold stock in. Generally, if the businesses are doing well, then your stocks will grow in value.
Retirement Investment Accounts
Besides using a robo-advisor or brokerage online account, you’ll likely come across one very common kind of investment: a 401(k). A 401(k) is offered by employers as a retirement investment option. You can opt to pay a certain percentage or dollar amount from each paycheck that gets put into your retirement fund. Some employers will match your contributions, up to a certain percentage each paycheck. It’s in your best interest to match your employer’s contribution or invest more, to maximize your portfolio’s value.
Just like other types of investments, your 401(k) will rise and fall over time. Many retirement portfolio services allow you to type in your retirement age plus your current contributions to calculate your expected retirement earnings. Using these tools is an excellent way to track the progress of your retirement savings.
If you’re younger, market fluctuations will affect your portfolio less, because you have a longer time period to recover from any losses. If you’re nearing retirement age, however, it might make sense to ask the advice of a financial planner who can help you better strategize your 401(k) and other investments.
Your 401(k) can’t be used until you’re 59.5 years old and if you withdraw from it earlier, you’ll have to pay a penalty. Using your 401(k) funds should only happen during retirement and in very, very rare cases, you can borrow against it. The best rule-of-thumb to follow, however, is to leave your 401(k) alone until you’re ready to retire. Doing so allows the power of compound interest to do its thing.
Investment Mistakes to Avoid
Here are a few mistakes that beginner investors often make:
- Forgetting about your investments: Even if you have a robo-advisor managing your investments, it’s still important to monitor what’s happening with them – even if it’s just on a quarterly basis.
- Emotional buying or selling: Fluctuations in the market are completely normal, but if you let them guide your actions, you’ll likely make some poor choices.
- Waiting too long to invest: Many would-be investors think they need a ton of money to start investors – but that’s not true. You can start with a small investment early on and watch it grow over time.
Takeaways: Smart Investing, For Today and Tomorrow
Although investing can feel like a maze of confusing terminology, it’s a great financial tool to leverage if you’re ready to make money work for you. Remember to set out your goals from the beginning, be level-headed, and understand the terms and conditions of the investment service you choose to use. With these tips, you can create a diverse portfolio that can help diversify your income during your later years.
Samantha Rupp holds a Bachelor of Science in Business Administration and is the managing editor for 365businesstips.com. She lives in San Diego, California and enjoys spending time on the beach, reading up on current industry trends, and traveling