Most people think about investment as something the rich and wealthy people do. The truth is, anyone can start investing as a beginner with any amount of money in the stock market and have an average return over time. No matter your age, it is never too late to start investing. Time wasted in the stock market cannot be gained, so the earlier you start, the better it is. Investing as a beginner does not have to be complicated. So the question is, as a beginner, where do you start? What and how do you invest? Why do you invest in the first place?
If you put all your money into your savings account, you won’t get rich. You have to find a way for that savings to work for you. Even if that amount is 10 dollars a week, it will still be worth it in the long run. So what is investing?
What Is Investing
Investing is when you decide to put your money into a vehicle with the hope to receive a return on your money over time. There are many ways to start investing in. You can either invest in real estate, your own business, or the stock market. For this post, we will talk about investing in the stock market.
Why should you Invest as a Beginner
So why should you invest in the first place? If you put $1000 in the stock market, your return is about 7% over 30 years. On the other hand, your average return on $1000 in your savings account is 0.9% over 30 years. How did I come up with this percentage? Over the years, the S&P 500 has had an average return of about 7%. The S&P 500 is the economic indicator for the stock market and the United States economy.
What this means is, if you have a diversified portfolio, and you invest long term, you will average about 7% return every year with inflation factored in. As of the date of this writing, no savings account will offer you that interest. I believe the main reason everyone should invest is the ability to build wealth over time. It will ensure you have money in the future to take care of your needs without relying on someone else.
There is a reason many employers invest your money for you if you enroll in their 401k. When you put your money into your savings account, the bank invests your money and barely gives you something back. So, it is important to start investing now than later.
Where Do You Start as a Beginner
Where do you start as a beginner? The good news is, everyone these days have access to the internet. You need money (not a whole lot) and the internet to get started. It is so much easier to invest these days, and anyone can do it. The next step is to identify your level of risk. Investing comes with risk, especially investments in high-risk stocks. High-risk stocks have high returns, but also a high chance of losses. As a beginner, try to avoid investing in high-risk stocks until you have an understanding of how the stock market works.
The next thing you want to do is to open a brokerage account. There are so many out there that its difficult to pick one. They all have their pros, and cons so read and compare to pick what fits your needs. I opened my first brokerage accounts with Charles Schwab and Robinhood.
If you do not want to open a brokerage account, you can try a Robo-advisor. Especially for the people who have the money to invest but want to wash their hands from the whole situation and allow technology to invest your money based on your interest. Robo-advisors manage your investment for you through computer algorithms, and because it is mostly computer-based, they charge little when compared to human investment managers. Click here to view some of the best Robo-advisors out there.
How Do You Determine The Right Investing as a Beginner
So, you have the money, and have assessed your risk, how do you determine which type of stock to invest? Some people make this so complicated, but it does not have to be. As a beginner, you may not know how to analyze stocks and pick investments, so it is always a good idea to invest in a company you already know and like. For instance, if you have all Apple products, chances are you like Apple devices, and you know something about their business. Do you spend your summer vacation at Disney World, or do you subscribe to Disney+? That means you know something about Disney, so you may want to start investing in Disney.
Don’t Listen To Your Friends
Many folks run into problems when they invest in companies their friends or family told them about. No matter who the person is, always do your research. If it is a company you know nothing about, take the time to research how the company makes money, and how much debt the company has accumulated. Investing in companies you like provides confidence. If you cannot say in a simple sentence how a company you invested in operates, then that may not be the right business for you. Liking or knowing about a company also does not provide a full understanding of the company’s financials, which is why it is a good practice to always research.
Before you start investing, make sure you have at least 3-6 months of emergency fund saved. You do not want to sell your stocks in case of an emergency. Additionally, invest with money you will not need in the next five years. Honestly, this provides peace of mind during market volatilities.
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Talk Later,
Charly
It’s important to just get started with investing, and there are so many good books coming out right now to help people begin. One of my favorites is “The Simple Path to Wealth” by JL Collins.
I like your suggestions and the encouragement you’re providing for people to get started early with investing. One important consideration is to watch out for the fees when investing! I invest in low-cost index funds for that reason.