Table of Contents:
- Investing Myths, Debunked
- Why Should You Learn How to Invest?
- Considerations for New Investors
- Best Investments for Beginners
- How to Invest With Little Money
- Where to Start Investing
- The Bottom Line
So, it’s time. You’ve decided to jump in and you’re ready to learn how to invest, but since you’re a beginner, it feels a bit overwhelming. We get it; we’ve all been there. The great thing is, although it can be intimidating when you first start out, you can and will learn, and this investment guide for beginners will get you started.
The only way to move forward with confidence is to understand the basics of investing, so we’ll start there. There is an endless amount of information about investing. Still, you don’t need to know it all to get started and be successful. Even the experts will tell you, there is always something new to learn, no matter how much you know about investing.
Investing Myths, Debunked
There are several myths you may have heard about how investing works, but remember that they have no basis in reality. They include:
- It takes a lot of money to start. Today, there are so many options available, from DIY websites to apps such as the Public app that give you access right from your phone, and you can get started for less than a dollar.
- You have to pick the right stock to make money. Success in investing isn’t about picking one winner. The way to succeed is to have a diversified portfolio.
- Investing is time-consuming. As an individual investor, you don’t have to take hours researching the perfect stock. There are various types of investments that offer diversification, along with tools to narrow your investment personality, so you can choose the perfect mix for you in no time at all.
- The stock market is too risky. Any type of investing holds some risk, but when you invest for the long term and diversify, the benefits can’t be ignored.
- Investing is vital in creating a financial plan that allows your money to work for you over time.
- Considerations beginning investors want to understand as they learn how to invest.
- The power of compound interest can affect investments over time even when investing with little money.
Why Should You Learn How to Invest?
When you begin investing in the stock market, several factors can significantly affect your success—and time is the biggest. Thinking of investing short-term can derail your goals, as fluctuations in the market that occur don’t offer enough time to recover your money. Having a long-term approach allows you to ride those highs and lows without the stress of losing it all.
As you learn investing basics, keep in mind some other benefits of investing:
- Investing long-term may provide good returns. The history of the stock market has shown that although fluctuations are a constant, over the long term, it can provide strong returns.
- Tapping into the power of compound interest may help grow your money. Compound interest is when the interest you earn on your balances is reinvested. After several years, as it compounds, it may help improve your returns.
- Investing helps you beat inflation. Inflation is when the cost of living rises, decreasing the purchasing power of your money. Investing and the power of compound interest gives you higher potential to get ahead despite inflation.
Considerations for New Investors
If you’re new to investing, it’s easy to become overwhelmed with all the information available, so having a plan is essential in reducing the anxiety that can surround making investment decisions for the long term.
- Start early. The key to success when investing money for beginners comes down to time. The earlier you begin, the sooner you can reach your financial goals.
- Take a look at your financial situation and make a plan. Before starting, you’ll want to have a clear picture of your current financial situation and list your investment goals. They could include things such as saving for a home, setting up a college fund, preparing for retirement, starting a business or any other big goal. This can help you to draft a realistic plan with clear steps you’ll need to take to reach your financial goals.
- Learn your risk tolerance. All investing carries a certain amount of risk, but some investments can be riskier than others, so understanding how you handle risk can assist you in developing a plan that meets your individual needs.
- Diversify from the start. When you diversify your portfolio, you reduce risk by spreading out investments over industries, so you don’t need to worry as much about the daily ups and downs of individual stocks.
- Reduce management fees. Before you sign up with a brokerage account or an investing app, be sure to check the fees associated with investing. Some have fees that can eat up any returns, which of course, defeats the goal. The Public app offers commission-free trading and is easy to use.
- Be ready to do nothing. As a beginner, stock trading seems like an active role, and it can be tough to stop and do nothing. The one constant in investing in the stock market is there will be ups and downs on a regular basis. Trying to keep up with it can cause stress and burnout. If you’ve done your homework, have a diversified portfolio, think long-term, and do a bi-annual review, you shouldn’t worry about taking any action.
Best Investments for Beginners
Starting out can be intimidating with all the options available, but an investment strategy and the right mix of investments for beginners can make it easy to get started, even if you’re still trying to navigate how to learn investments.
Many employers offer 401K plans. These retirement plans are easy to enroll in and have a variety of benefits, making them a great investment for beginners. Many employers also have a matching program, which means that when you contribute a percentage of your earnings to your 401K, your employer will match that contribution, essentially giving you free money towards retirement.
Contributions come directly out of your paycheck each week, before taxes, making investing automatic and consistent with plenty of investment options available.
Mutual funds allow investors to buy a basket of investments at one time that would be difficult to purchase on their own, offering more buying power. You can even choose target-date mutual funds that focus on the year you will retire.
Exchange-Traded Funds (ETFs)
Exchange-traded funds act similar to mutual funds in regards to providing investors with a diversified portfolio. However, they are traded much like stocks are on a daily basis, and they offer plenty of choices.
Although the rewards can be greater with individual stocks, the risks are as well. However, they allow you to invest in companies you believe in and give you options in creating a diversified portfolio with an asset allocation that can help you reach your investment goals.
How to Invest With Little Money
Most new investors are under the impression that you need a lot of money to start investing, but the reality is that you can learn how to invest small amounts of money over time and have a well-balanced and diversified portfolio. In many cases, such as with the Public app, you can start with one dollar.
Another great option is to buy fractional shares which allow you to invest in some of the more expensive stocks with a dollar amount that works for you. So, if you’ve had your eye on a company, but can’t afford to spend your savings for a share, fractional shares allow you to own a piece of that company.
Where to Start Investing
When you’re new to investing, there is a lot to learn, especially if you’re figuring out how to invest with little money. You want to look for the best options that require little cash, especially when starting out. Minimizing fees and commissions can easily be done with the right brokerage account.
One way to get started is to invest in your employer’s 401K plan. You can choose your investments and the amount to contribute each month, and since it’s automatically deducted from your check, you won’t have to think about it. The bonus is that your employer may even match your contribution, making your money grow even faster.
If your employer doesn’t offer a 401K, you can open an Individual Retirement Account (IRA). You can set up a tax-free account at a financial institution or online with a variety of companies, so do your research before jumping in. Be sure to pay attention to any fees and look for a company that keeps it simple.
Most investment companies offer what’s called a Robo advisor, which is great for beginning investors who want to learn how to invest with some assistance. It’s as simple as answering a few questions to evaluate your risk tolerance. Then the Robo advisor invests your money in a low-cost and diversified portfolio of stocks and bonds that match your risk tolerance.
The Robo advisor’s algorithms continually monitor and rebalance your portfolio based on your goals, and you don’t need a lot of money to get started. However, check fees associated with the service so you understand the cost of using a Robo advisor, as they can vary.
Another popular option is to use investment apps such as the Public app. which offers a low trade minimum and no commissions with thousands of stocks and the ability to buy fractional shares, so you can buy a piece of even the highest-priced stocks.
There is an abundance of investment advice available. When evaluating investments for beginners, keep in mind that larger companies with a solid financial background are a good place to start. But you also need to consider:
- Establish an Investing Budget. As discussed, you don’t need a lot of money to start, but investing isn’t a one-time thing either. In order to grow your money over time, you want investing to be done on a regular schedule, and making it automatic is the best way to do that.
- Determine Your Investing Style. Are you interested in actively investing? This approach requires more work, so you’ll need the desire to learn quickly, the time to do it, and the knowledge to implement, monitor, and navigate the stock market. On the other hand, passive investing is a hands-free approach that you put on auto-pilot.
- Evaluate Your Risk Tolerance. All investing carries some risk, so the key is to find an investment strategy that is comfortable for you and works with your investment goals. Returns vary from stocks, bonds, and ETFs, so your allocation will depend on how much risk you’re willing to take.
The Bottom Line
It can take some time to learn how to invest in stocks, but it doesn’t have to be done in a day. Take your time and learn as you go. The most important thing to do now is to get started, and you can do that by downloading the Public app now. It only takes a minute to set up, and you’ll be on your way to planning for a bright future!