Investing in stocks for beginners
You don’t need to have a small fortune to get started investing. You also don’t need Charlie Munger’s level of expertise to build a large nest egg for retirement.
The world of investing is complex and full of risk. But by following a few guidelines, you can minimize that risk. You can also make sense of the basic investments
As a beginner, you are not going to outsmart established investors and market norms.
High-risk investment strategies get a lot of press when you search online.
Active trading strategies are those that involve you actively buying and selling stocks, trying to beat the market. Day trading is particularly romanticized in some circles. But in reality, active trading is not a wise choice for beginners, and day trading is one of the riskiest approaches you can take.
There are reasons why many people engage in active trading. Hedge fund managers are a good example. But institutional or single investors who successfully engage in them and succeed are normally well-prepared. That’s why this point ties in with the first.
When you look at historical performances by asset class, you’ll notice that short term, there is less reliability across the board. However, as time goes on (periods exceeding 5 years), large-cap stocks produce the highest and most stable returns.
Overall, tracking the market will normally yield better results than beating it. This is the case unless you are highly proficient and knowledgeable. As a beginner, safer investments like funds tracking large-cap stocks, ETFs, and bonds are safer bets.
Investment apps help make investing more accessible and mobile.
With the right app, you can make investments, study financial news, and do much more on the go.
Not all investment apps are ideal for beginners. However, many of the apps available right now on the App Store or Google Play were tailored to the needs of beginners.
You should study any app you’re considering using for its costs and its approachability. But regardless, using an app makes the transition into investing easier to start and manage.
Check out our review of 4 investing apps! Top 4 Investing Apps You Need to Try and Why
The world of robo advisors is an extension on top of using apps to start investing. Robo advisors make stock market investment for beginners even more accessible and hands-off.
Robo advisors are a new innovation that became more popular after the 2008 global recession. They are effectively an automated alternative to direct investing.
The typical robo advisor platform comes with higher costs than other options. These are mainly charged according to an “account management,” or similar fee. However, robo advisors also typically only require minimal input.
You simply answer some questions to determine your risk tolerance, and the software does the rest.
This is a budget-friendly approach to investing.
Employment-based investing normally enables you to take advantage of tax deductions. This makes contributing to a retirement account more rewarding (and less painful). You can deduct your contributions from your taxes while simultaneously increasing your future wealth.
Nothing is free in this world.
This is especially true when it comes to financial services. Regardless of where your investment account lies, you can expect to pay any combination of:
As a beginner without a huge investment budget, it’s important to consider any costs associated with investment accounts. Account providers have to make money one way or another.
So, by taking the time to vet your options for transparency and total costs, your budget will be minimally stretched and you’ll have more to invest in your future.
While economists agree that there are no free lunches, you don’t need to buy the most expensive lunch.
With the resources the modern individual has, simply investing whatever you have available will suffice.
Traditional barriers to investment, such as high investment minimum balances, aren’t a universal issue. Some retirement account providers will place high minimum requirements, but this is the exception rather than the rule.
If you’re still concerned, you can simply try the cookie jar approach. Just put your spare change in a jar for some time then use it to get started.
Lastly, if you’re considering investing in stocks for the first time, your intuition is helping you. During times of high inflation, this is particularly true.
Of all asset classes, can you guess which one has produced the weakest returns over the last 5, 10, and 50 years?
The answer is cash.
Sitting on cash for too long is probably costing you more than you’d like to know. Of all the alternatives to simply holding cash in savings, stocks are, again, the most statistically reliable choice for increasing wealth.
Going into the era of Covid-19, the Fed has been printing money at record rates. Those rates far exceed anything we’ve seen in history so far. Given this situation, the drive to steer towards more lucrative investments is stronger than usual.
But even during the best of times, sitting on cash for a long time is not an efficient way to approach your financial future.
Getting started in the world of investing can evoke many emotions.
It’s normal to be manic, extremely nervous, or anything in between. But with the right mindset and best practices for (relatively) low-risk investing, it’s easier than ever to get started investing today.
June 30, 2022