Congratulations! Deciding to start investing is the most crucial step! While investing is a lot easier than you probably think there is no golden button to make you rich overnight. Anything that promises to get rich quick is probably a scam. Over time you will build wealth if you following a simple investment strategy.
Best Advice for new investors is to pick a low-cost ETF that tracks an index like the S&P500. Invest on a regular basis and don’t try to time the market. If you do this it will all work out! Then as your confidence grows start considering other investments you read about on Invest Like Dad! 🙂
1. What is Your Investment Style
Determining your style comes down to how much time and effort do you want to put into investing. Your interest in investing will play a significant factor, but also lifestyle, budget, and risk tolerance will help make the decision.
- Set it and forget it approach
- Reasonable returns
- Possible Tax advantages
- Potentially higher fees
- Full control over investment performance
- Time-consuming and research-intensive
- Possibility for substantial returns or losses
2. Money to Invest
- Not much Money is required
- Pay off high-interest debt first
- Have an emergency fund for unexpected costs
Many people fail to start investing because they believe that a large sum of money is required to invest. This is far from the truth, especially with many brokerage firms allowing fractional shares.
When it comes to determining what money to invest, you need to evaluate your debt situation as well as ensure that you have an emergency fund. This fund is critical for investing! It will prevent you from being forced to sell investments during a time of need, which could result in losses.
Check out my Top 3 Steps To Prepare for Investing post to ensure you get off to a strong start investing!
3. Risk Tolerance
- Determine Risk/Reward comfort level
Unfortunately, not all investments result in significant gains. Some investments will lose money, which is why all investments have different levels of risk. The higher the risk, the higher the reward should be. As an example, bonds have a lower risk but average relatively small returns of 2-3%. On the other hand, stocks have higher risk but have averaged almost 10% returns.
4. Know Yourself
- Emotions can take over and cause bad decisions
Money and emotions are tied together and very hard to separate. Be careful to separate your emotional impulses to buy or sell any investment. This is the same effect as going grocery shopping when you’re hungry. You get a bunch of junk that seems right at the time but did not actually provide what you needed to eat for the week!
5. Types of Investments
Before you put your money to work investing, you need to have a basic understanding of how it all works. Here are some comment investment vehicles:
- Stocks represent a small ownership stake in a company. Stocks tend to be volatile, but when a company profits, you also profit.
- Bonds are used by companies & municipalities to borrow money. As an investor, you are lending the organization money for a defined return. Just as borrowing money is a part of life for most people, companies, and municipalities also borrow money by using bonds.
- ETFs -this is one of the simplest investment options as it tracks a market index. This provides a well-balanced and diverse portfolio without any of the effort or research. Learn about exchange-traded funds, or ETFs, which trade like stocks.
- Real Estate -this involves purchasing property and either flipping the properties for a profit or renting them out. If directly investing in Real Estate is too expensive, there are other options such as Crowdfunding & REITs that make Real Estate more investable for ordinary investors.
- Alternative Investment Options – this covers anything that could be an investment, such as Peer to Peer Lending, Art, Commodities, Cryptocurrency, Tax liens, Farmland, Jewelry, Storage units, & Stamps.
- Index Funds are probably best for new investors to get started 🙂