If you want to start investing in the stock market, these investing tips for beginners are GOLD! (pun intended) Here are 5 smart beginner investing tips you need to know so you don’t lose money.
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What these investing tips for beginners are not
If you’re looking for the hottest stock investing picks for beginners you are out of luck. This is not that kind of post.
Kind of the opposite actually. And that’s exactly the point.
I have been boring investing for years now, and by that I mean mainly hands-off automated investing in index funds.
Diversified, low-cost, index investing typically produces better returns than actively managed portfolios. When it comes to money, and growing money, I think stable outweighs exciting every time.
Stocks go up over time. (You can read about the reasons why over time stocks go up explained by Warren Buffett in this Forbes article.)
But this doesn’t mean that every stock goes up over time. The market as a whole goes up over time. This is one of the reasons why I like investing in index funds. Over long-term passive index investing typically outperforms actively managed portfolios.
But I’m getting ahead of myself.
Let’s get right into my boring investing tips for beginners and why I think they are (in most cases) better than individual stock picking.
Here’s a big obvious disclaimer so you don’t miss it: I am not an investment advisor. Even if I was, you should do your own research when investing after reading online advice. Every person has their own unique situation and risk tolerance, and just because I do these things doesn’t mean you should too.
5 investing tips for beginners you need to know
1. Don’t hand pick individual stocks
As a beginner investor it is not a good time to invest if you are going to hand pick individual stocks. This isn’t just an investing tip for beginners – lots of people shouldn’t be hand picking single stocks. In our lifetimes we have never been in a pandemic. We don’t know the full repercussions of this financially as we’re still in the middle of it.
You don’t want to jump into investing in single buzz-worthy stocks such as biotech companies working on Covid-19 vaccines. That’s too risky. But it is a good time to get into the market if you are going to do it in a stable way. Invest in broadly diversified mutual funds or better yet index funds that track an index.
Start now if you have money that you can leave invested long-term. And long-term is years, not months.
Your own personal circumstances, and not the current conditions of the market, should dictate whether you start investing.
2. Investing should be boring
Resist the urge to make investing exciting. It shouldn’t be. It should be fairly passive, include natural ups and downs of the market, with overall growth over time.
When you learn something new such as investing, it’s easy to get caught up in the excitement of learning, but don’t try to time the market or become an active trader. Buy and hold. If you are bored by your investment strategy, that’s great! That probably means you’re doing something right.
3. Start investing now
People in their 20s have time on their side. With the power of compounding interest, you can invest significantly less each month in your 20s versus waiting to start until your 30s or 40s to project the same income. That being said, if you have a significant amount of high interest debt and you are in your 20s, you can put extra money toward paying down debt before starting to invest. Here are 10 practical and mindset tips to help you pay down debt.
But if you’re in your 30s or 40s or beyond, it’s not too late. It’s better to start now, with what you have, rather than wait for more money coming in before you begin investing.
If you want to play around with numbers, you can check out the compound interest calculator I linked to below. When you click on it, a separate little window will pop up with the calculator in it. This investing calculator will show you how much interest can increase over time through investing.Compound Interest Calculator
4. Don’t day trade.
This is a super important investment tip for beginners.
This has become increasingly pitched to people as a legitimate side hustle.
Day trading is sexier than investing in index funds, but don’t do it. Your chances of losing money are high.
If someone you don’t know writes to you on facebook about x large amount of money they made overnight and they can teach you how, please ignore them. If it sounds too good to be true, if it sounds like a scam, chances are very high that it is.
Listen to your gut and don’t be swayed by persuasive people and promises of making large amounts of money fast. Fast is not always better in terms of growing your wealth. I love both the title and the premise of the book Get Rich Slowly.
The best methods of investing are often the most hands-off. Invest young, regularly, in diversified stocks preferably through index funds, keep your investing interest low, and keep your money invested long term.
5. Keep investing costs low
Look for ways to reduce your investing costs.
If you are paying an investment advisor 1-2% (or more), this means less money for you over time compared to a lower investment cost of 0.25%-0.5%. A financial advisor still might be worth it for some people (see my comparison on robo advisors vs financial advisors) but I like to keep my investing costs low.
>>> For all the details about robo-advisors, check out a review of the best robo-advisors for investing.
For me this meant switching from traditional mutual funds with a higher management expense ratio (MER) to low cost index funds. This shaved almost 2% of my investing costs. Over time this is a big savings and will mean more money in my bank account.
I also don’t frequently buy and sell. Each time you do that you pay a fee and again over time that can add up.
How to track your investing costs for beginners
For an easy way to track your investments and the fees you are paying, sign up for Personal Capital. They have a paid version of this app but they also have a free version with lots of free tools.
The free version will help you track your net worth over time, there is a retirement planner, and you can see how your investments are doing. Later on if you want to switch to the paid version, it includes personalized advice and wealth management. The paid version has a much lower annual fee than most places. For accounts up to $1 million it’s 0.89% and it’s all-inclusive – there are no additional fees on top of that for trades or anything else.
But even the free version of Personal Capital can show you if you are overpaying in your investing costs.
For a beginner investor, having this information for free is incredibly helpful. It will save you money by flagging any outrageous investing fees so you can take action.
Final thoughts on investing tips for beginners
These investing tips for beginners are all about common sense. But sometimes simple money talk and investing tips can get drowned out by flashier promises (Bitcoin! Forex! Vaccine stocks!)
I’m currently hooked on Amazon’s The World’s Toughest Race: Eco-Challenge Fiji (no spoilers please, I’m not done yet!) I’m in awe with the risks those elite athletes will take.
Be wild in other areas of your life if you want, but not with your money.
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