I’ll admit – the presumed learning curve even stopped me from investing sooner than I should have. But once I dove in and got started I realized that there’s absolutely nothing to be afraid of.
If you’re waiting on the sidelines and not sure how to go about investing here’s a quick start guide for beginners.
Identify Your Goal
First identify your goal. Do you want to save for retirement? Build an income portfolio? Or do you want to stash some of your savings into a personal account to get started?
Before you open up an account or choose your investments it’s extremely important to first clearly identify your goal.
Figure Out What Type of Account You Should Open
After declaring a goal it’s time to open up an account. It’s painless. I promise.
If you chose a personal account there are a number of places you can try. I prefer Sharebuilder.com or Optionshouse.com. Loyal3.com is also another place you can open up an account and they claim to have fee free trading. (I’ve never tried them so I can’t vouch for them though.)
If you’re opening up a personal account to buy stocks it’s important that you check out the transaction fees first. (A transaction fee is how much it costs you to buy or sell a stock. This usually ranges anywhere from $4-$7.) This should heavily weigh into your decision, especially if you’re starting with a small amount of money.
If you’re wanting to open a retirement account you should first figure out what type of account to open. (See the difference among retirement accounts.)
I personally use Betterment and love it. But there are many, many more places you can try.
Online Brokerages are Cost Efficient
Now you might be wondering – should you really open up an account online or is going through a traditional advisor or brokerage better? Well, it depends.
If you like having human interaction then a traditional financial advisor will suit you much better. But you’re also going to pay more in fees.
If you’re okay with a computerized advisor then online is the way to go.
Start Simple
When you’re just learning to invest start simple. Take a risk tolerance test through an online brokerage and they’ll suggest which investments will best suit your personality and goals. A good ETF (exchange traded fund) is a good place to start.
If you’re looking to buy individual stocks know that there’s much more risk involved. I started out buying individual stocks based on my “gut feeling” and lost about half of my money. After that I quickly favored ETFs.
But the choice is yours. If you insist on starting with individual stocks don’t invest too much money. Use this time as a learning experience. Because trust me – after you start losing money you’ll learn fast!
Don’t Try to Predict the Markets
Nobody can predict the market. It’s just NOT possible! Don’t listen to anyone who says they can.
Sure, you can make an educated guess looking at the past financials of the company, their debt load, and also at the current management but you can’t change outside forces. What happens if you put a ton of money into McDonalds and then tomorrow they get sued for mistreating employees? The stock’s probably going to lose its value and there’s nothing you can do about it.
Educate yourself before investing and diversify. Don’t put all of your eggs into one basket!
Tweak as You Go
Learn as you go. Getting started is the hardest part! If you commit to making an investing plan and putting money away each and every month, even if only a small amount, you’ll still be better off in ten years from now.
Do educate yourself as you go, but most importantly just start!
What other questions do you have about beginner investing?