You probably have that friend who is always flipping out over the stock market on the reg, and a case of FOMO probably has you itching to try your hand at it, too. Figuring out where to start can be daunting, but investing is beneficial for growing wealth while you’re young, and making sure you’re not working until you die. So consider this your sign that it’s time to get your feet wet, and here’s what you should know as a beginning investor.
Before you throw on your Gekko-level pinstripe suit and start smoking cigarettes in the office while yelling into a phone, two quick things...
1. This glossary can help you navigate investment terms. Read up first, research is key.
2. This is a simple beginning strategy guide. If you have specific questions or are feeling lost, always seek out the advice of a professional.
Understand What's What
Investing is about putting your money into financial assets to get a profit in return. Although there is risk involved, it isn’t mutually exclusive with gambling. Gambling involves a lot of chance (and of course some seasoned gamblers will argue that skill goes into it as well) and is usually only done for a short period of time for near-instant gratification. Investing, proper investing anyway, involves much more care, like devoting some research to where you’re putting your money. Additionally, institutional or professional high-frequency trading aside, it will occur over a really long period of time, with the goal of reaching a certain amount by retirement, for example. So despite those ads you see on websites about eighteen-year-olds making a million in a week, it’s not a get-rich-quick model, and it will require a lot of patience and discipline.
Know Your Own Finances Before You Start
Remember you’re committing real money here, so it’s vital to know how much you actually have to invest. If you haven’t been using one of the budgeting apps we wrote about previously, that’s a good place to start. Examine your spending and cash flow for a few months to see what spare cash is leftover what you would feel comfortable using for investments. The worst thing to do is to invest money you need or may need. You’ll also want to go even further and figure out how much of this excess amount you want to invest and how often. Like all the other financial decisions you make, this shouldn’t be entered into lightly.
You Can Have Both Long and Short-Term Goals
While it’s never too soon to start planning for retirement, you can invest with short(er)-term plans in mind, like starting a business or even traveling. In fact, you should divide goals into different sections and timeframes, and keep track of them in a worksheet in Excel. Savings can be broken down into how much money over the course of the month you’ll rack up to invest, and also the long-term and short-term target amounts you hope to have saved from your investments. There are free investment calculators all over the Internet, and using hypothetical rates you can see how long it will take for your money to grow to where you want it to be, based on your contributions and market performance. Having those long-term and short-term target amounts will help you figure out how much risk you’ll want to take on when you start buying, and ultimately help determine your personal investment style.
Join The Fintech Revolution
Investing was once seen as only something the wealthy could do because it required a hefty minimum amount to start, there were recurring fees for trading stocks and/or you needed someone expensive to manage your portfolio for you. While those are still available options and are useful if you’re focused on retirement options in addition to the 401(k) plan you get through work, fintech has made investing much more affordable and accessible. New platforms that work really well for beginning investors are robo-advisors and investment apps. Robo-advisors are automated investment services that use algorithms to manage your portfolio. Betterment, for instance, doesn’t have an account minimum and the annual fee ranges from 0.15%-0.35%, depending on how much money you keep in it. Investment apps work a lot like the ones that help you save: you can link them to your bank account and deposit amounts as small as $5 to start investing. They also make building portfolios really easy, including offering you options based on ideas you like and your interests. Obviously, for these apps with very low minimums, the key to success is to contribute regularly and increasingly over time. Also, if traditional retirement planning is part of your investing goals, keep in mind that these newer investment options might not have this type of account.
Know What You're Buying
Creating an investment portfolio is what everyone looks forward to, but there are several types of investments to sort through first. What’s available to you will also depend on where/how you’re investing, but here’s what you’re likely to see:
Stocks: Also called shares or equity, stocks are securities that represent ownership in a corporation.
Bonds: Loans to a corporation you make with your investment.
Mutual Funds: A pool of funds from several investors that a company invests in a large collection of stocks, bonds and other types of securities. They’re professionally managed and relatively low cost. Mutual funds are a really easy way to start investing because they automatically come with diversification in securities.
Exchange-traded funds (ETFs): ETFs are similar to mutual funds in that they are also a collection of securities, but they are traded like stocks.
Where To Start Your Research
Reddit: Like with most subjects, Reddit is a great place to start and r/investing, and r/personalfinance will serve you well.
The Web: Money Under 30 is our go-to source for ground-level info.
Books: If you want to kick it old school, check out The Intelligent Investor by Benjamin Graham, a favorite of both Warren Buffet and his very own VP of Finance, Sunny.
Apps To Get You Started
Stock Market Simulator (Android)/Stock Wars (iOS): Simulated versions of the stock market for you to get a feel for the real thing.
Bloomberg (iOS/Android): A wealth of financial news, market data, and a securities watchlist all in one.
Personal Capital (iOS/Android): Works like your favorite budgeting app but with the addition of your investment portfolio.