5 Investment Tips for Beginners
Anyone can get started with investing.
I’m new to investing. How do I know I won’t make a mistake?
How do I get started with investing in a smart way?
Help! I’ve asked four people about investing and gotten four different tips. Which advice is best?
Beginner investors, it’s completely natural to feel overwhelmed. There’s a lot to learn, after all: There’s a whole set of words you may have never seen before, different timelines to figure out, and abbreviations that can be confusing. Underneath it all, there may also be an undercurrent of anxiety. You’ve heard investing involves an element of risk, and there’s a possibility you could lose money. It’s enough to make anyone want to go with just a plain old savings account.
If you feel uncertain about getting started with investing, or understanding your finances in general, you’re not alone. After all, four out of five adults say they were never given an opportunity to learn about personal finance. Perhaps not surprisingly, then, the most recent Financial Industry Regulatory Authority (FINRA)’s National Financial Literacy Study found that only 37% of respondents got high scores.
When it comes to investing, these knowledge gaps have real consequences: A 2015 survey of Americans indicated 1 in 3 participants were afraid of investing, fueled by the potential risk involved, lack of know-how, and personal financial constraints.
The good news is, with a little research and planning, there’s no need to be afraid. In fact, anyone can get started with investing and invest in a way that can help them reach their personal goals. And contrary to what you may have heard, you don’t need a lot of money to start investing, either.
Read on for five investment tips that any new investor can use to move confidently toward their future.
1. Do Your Research
Would you buy a car without knowing anything about the model? Or send your child to a college knowing nothing about its academic programs? How about hiring a designer to remodel your kitchen, without ever seeing a portfolio of their previous work?
We’re guessing you probably wouldn’t, that you’d prefer to be as informed as possible before making such a big financial decision.
The same principle applies to investing: You want to know where you’re putting your money. This means taking the time to learn about different options for how and where to invest your money, as well as the potential risks and returns associated with each. It also means deciding how long you plan to invest and learning how that will impact your investing decisions.
If you get started with your investing research and get overwhelmed, remember that you can always go to a professional financial advisor for guidance. Ideally, you’ll want to work with a fiduciary who’s committed to acting in your best interest.
In fact, when you reach out to a potential financial advisor, be sure to ask whether they’re a licensed fiduciary and/or a CERTIFIED FINANCIAL PLANNER™ professional (CFP®). These designations mean they’re obligated to serve your needs first. If they don’t have these certifications, there’s a possibility they could first serve their business’s bottom line, like pitching you unnecessary products that provide them with a hefty commission. When considering advisors, you always want to ensure your financial planner gives your specific goals and finances top priority.
When you understand the possibilities for your money, you’ll be able to make informed investment decisions, track how your investments are performing over time, and make adjustments as needed along the way.
Check out our Investing for Beginners and What’s the Difference Between Saving and Investing? blog posts to learn more.
2. Ask the Right Questions
Before getting started with investing, you want to consider both your present circumstances and where you want to go in the future. Ask yourself the following questions:
- Where do I want to be in the next 5 years? How about the next 20 years?
- How much money do I currently have to invest?
- How long should I plan on investing?
- Based on both my long-term goals and my current finances, which investment options are ideal for me to get started?
- Once I’m up and running, how should I adjust my investments over time to ensure I stay on track to reach my goals?
A major benefit of investing is how it can set up your money to grow and help you reach your goals. For example, you may want to retire at 60, buy a new home in the next 10 years, or take a gap year mid-career. Whatever you hope to do, you’ll want to make sure the timing of your investments matches when you want to access your invested money.
Let’s say you’re 35 years old and you want to retire at 60 with $1.2 million in your nest egg. Your investment portfolio should then reflect a 25-year plan, with a mix of investment vehicles and risk tolerance that reflect how you can get to $1.2 million over the 25 years ahead. This portfolio would look very different from that of a 65-year-old who has $1 million in their investment accounts and a plan to retire in the next five years. If you were to compare the two portfolios side by side, the 35-year-old’s portfolio will most likely have more risk than the 65-year-old’s, because each reflects its investor’s specific goals and timeline.
As you start to learn about different investment options, their time horizons, and risks, keep your own goals and when you want to reach them top of mind. Have at least five years before your goal? You may be able to take on more risk. Want to reach your goal in the next year or two? A more conservative approach may make more sense for you.
3. Have Enough Cash on Hand
If it’s not obvious by now, we’re big advocates for investing to help you reach your goals. But for many, the power of your investments lies in letting them grow, and if you need to tap into them for major life events or emergencies, they may diminish in value and set your timeline back. So, before you start investing, you want to make sure you have cash available in an emergency fund and/or a savings account, so you don’t have to withdraw your investment money or go into credit card debt.
We recommend having at least three months’ worth of expenses saved and easily accessible in an emergency fund. If you don’t already have one, make it a priority to build this rainy-day fund for the inevitable unexpected expenses that will crop up, like car repairs or medical bills. Once you’ve saved up for this fund, your investments can then potentially grow uninterrupted, because your emergency fund has you covered.
4. Keep Your Emotions in Check
Remember that fear we talked about earlier? In terms of investing, you always want to keep emotions at bay. That doesn’t mean you shouldn’t expect to have feelings about your investments. It can be scary to see a market downturn, and you may want to immediately cash out. Or, you may be seduced by headlines announcing a popular startup’s upcoming IPO, and consider moving your investments to go all-in. Not so fast!
With investing, staying committed to your plans is a smart strategy. Those who make informed decisions and stay the course often are rewarded with good returns and a stable portfolio over the long run, while those who try to beat the market or are swayed by trends may take on more risk than they’re prepared to handle. If you want to give yourself the best chance at mid- to long-term growth on your investments, it’s best to avoid emotional decision-making, and instead think things through based on your research, timeline, and goals.
While you won’t want to react with frequent changes to your investments, it’s still a good idea to have regular, emotion-free check-ins to make sure things are on track. Take a look at your investments on a regular basis to review your portfolio, revisit the investment landscape, consider how your circumstances and goals may have changed, and revise your plan as needed.
5. Get Your Investments Aligned with Your Values
So, we’ve gone over the importance of being informed about your investment options. Now, let’s go one step further and consider conscious investing.
What’s conscious investing? It’s an investment strategy that enables you to invest in companies that are working to make a positive impact in the causes you care about most.
Do you value gender equality in the workplace? How about preserving the environment, or making sure everyone has access to clean water? What if we told you that some of the companies you could invest in aren’t supporting the causes you care about? The truth is that some companies aren’t, and may even be doing harm.
But with conscious investing, you can put your money toward companies aligned with the causes you believe in. COIN’s automated investing platform enables you to select your Impact Areas when you set up your account, so right from the get-go your portfolio will represent investments in companies already making positive change in your chosen causes.
When it comes to investing, experience can be a great teacher. The more time you’ve spent investing, the more familiar the process. You track your investments over time, see their returns or losses, and re-evaluate your risks. As you learn what works for you, your confidence in investing builds. And before you know it, you may even find yourself offering a few investment tips to friends and family.
See? We told you there’s nothing to be afraid of.