A sensible person saves. An intelligent person invests. Investing is one of the best ways to achieve financial freedom. Thanks to the abundant amounts of information available today, starting your investment journey is easier than ever.
However, investing doesn’t come without inherent risks. You don’t want to lose all your money by making bad trades, so we rounded up the top 15 investment tips for beginners.
15 Top Investing Tips From Experts
Investing is a skill. And just like any skill, you can improve it with practice and experience. It is an age-old practice that many people have used to gain financial success.
There are some fundamental and well-established practices you need to stick with (and some you should avoid) to become successful. Here are the top 15 tips that will set you up for success in the world of investments.
1. Set a Goal
Set a goal first. It will keep you focused, which is very important for a beginner. Ask yourself whether you want to be in this for the long run or not.
You might just be looking to test the waters, or your goal could be something completely different, like getting ready for retirement. The specific goal is not the main thing here – having a goal is.
Your goal will give you a framework to make trading decisions. For example, if you want to retire comfortably, you won’t be looking to get quick returns. If that’s your goal, you should invest in Roth IRAs, bonds, real estate, or mutual funds.
2. Seek a Mentor or Investing Advisor
When you’re a beginner, it’s important to seek a mentor. Some decisions will be beyond your current level of expertise. The word to take into account here is “current.” You will become a more acute investor eventually with experience.
However, having a mentor during the early stages of your investment journey will be very helpful. You do not have to learn things the hard way, especially if you invest your own hard-earned money.
You can leverage the knowledge and experience of expert investors like Chuck Hughes Trader to hit the ground running. This site also offers news and important market updates.
3. Start Small
Learn to walk before you can run. This is an important life lesson. It’s also true for investing. You will make investing mistakes even years down the road.
Start small and slow. Learn the fundamentals and explore different trade options, stocks, and investment strategies. Seeing investors rack up millions of dollars in returns can be a temptation to go all in.
You might want to invest as much money as possible into as many stocks as possible to get all the returns you can get. This is a bad idea, especially when you’re a beginner.
Besides, comparing yourself to an experienced investor never bodes well. It will make you want to rush through your journey, but it also ignores all their past lessons, countless hours spent learning, and experience.
4. Diversify, Diversify, and Diversify
We can’t emphasize enough how crucial it is to diversify your portfolio. It reduces risks and increases the chances of getting massive returns. Different markets can have all kinds of ups and downs.
If one of your investments isn’t doing well, the other assets can salvage things. As a result, your investments will be stable and safe from unexpected events.
So, whether you’re a beginner or a veteran, you should always aim to diversify your portfolio.
5. Don’t Invest Based on Emotions
So far, we have told you things that you should do. Here’s something you shouldn’t do. Making investment decisions based on sheer emotion is a shortcut to losing money.
Just because you like a particular asset or stock and want its value to increase doesn’t mean it will. Read the market and understand the signals. You will keep yourself from making biased decisions – which can ruin your career!
There is an argument to be made for investments based on gut feelings. But that will come much later when you have more experience. And even then, you shouldn’t solely rely on your gut to make investment decisions. It clouds your objective judgment.
6. Follow a Strategy
A good way to keep your emotions in check and ensure you’re as objective as possible is to have a trading strategy. A trading strategy also helps you stay focused.
You can use tried and tested methods to increase your returns. Don’t forget that there is a wealth of information and experts (some with their own YouTube channels) you can learn from. Will there be some losses? Probably. But with the right strategy, you will see more returns.
Aim to be an investor, not a speculator. That’s what Warren Buffet says. A strategy makes you a better investor – you know how you will manage your assets, what you’ll do in a crisis, more importantly, how you will get the highest returns.
7. Don’t Invest Short Term
Short-term traders generally lose more money. This can happen for many reasons. They might be investing solely based on trends or jumping at the first chance to grab trendy stocks.
Not all popular stocks are guaranteed to do well. You can use available metrics to gauge a company’s financial health. For example, P/E ratio and liquidity.
Some stocks are just empty hype. That is also why you need to first establish your goals. Your goals will tell you whether you should stick to your long-term strategy and plans.
So, plan your strategies for the long term. Don’t try to fight the market – you’ll rarely win. Besides, constantly trying to make a quick buck through investing can cost you more money, and you won’t have enough left to invest when you need it.
8. Sell Off Bad Assets
Speaking of emotions, if you made a bad investment and have the option to sell it, then do so. Don’t get sentimental about loser assets – losers, as in they are costing you money.
The sunk cost fallacy is an expensive one. You need to be realistic. If an asset has been on the decline for a long time, it’s unlikely to bounce back.
Here’s a bonus tip – don’t equate a bad investment with failure. Don’t think that making a bad investment or trade means you’re a bad investor. Even master investor Warren Buffet has investments he regrets – it’s part of the process.
9. Practice Using an Investing Simulator
It’s 2023. Technology is at its peak and now is the best time to start investing. One reason is that you don’t have to actually “invest” to get started. We’ll explain.
Many investing simulators let you test the real investing world without risking real money. There are no catches. It’s risk-free. Plus, you can also learn from these simulators.
You won’t learn everything you need to know about investing from these tools, but it’s good practice. The most enticing thing about it is that you won’t lose real money. Therefore, you can experiment and try out different strategies.
10. Invest In Retirement Accounts
Investing in retirement accounts like Roth IRAs is always a smart idea. You’ll get some financial security when retirement comes. Plus, they come with tax benefits and little risk!
A 401(K) plan is another good investment if your employer provides it. The one downside of retirement accounts is that they won’t give you immediate returns. So, use these as long-term means of investment.
11. Understand Where You Stand Financially
Be financially honest with yourself. Understand your financial position and trade accordingly. Additionally, don’t overestimate your expertise (and how much money you can invest) initially.
This will protect your finances. Just make sure you have the basics sorted. This means to have some form of emergency savings before you start investing. And it goes without saying, don’t put savings funds into trades.
If you’re in it for the long run (which you should be!), you can start small. So, invest within your means and let compounding increase your returns and assets.
12. Take Advantage of Compounding
What is compounding? Compounding is investing your earnings alongside the initial money you started investing with. You’re essentially reinvesting. It’s an essential strategy to grow your money faster.
The idea is to earn returns on both your original investments and the returns of those investments. It’s a powerful investing technique that can increase your earnings by multiples.
13. Use Leverage (But Tread Carefully)
Like compounding, leverages are also a powerful way to increase your returns. You can use leverage to amplify your returns. It allows you to control a large portion of assets with a relatively low proportion of investing on your own.
Thanks to leverage, you will earn more returns than the amount you initially invested. Beginners need to be careful when using leverages, though.
Just as it can multiply your returns, it can also increase your losses significantly! When you stand to earn more, you also stand to lose more. So, use leverages carefully.
14. Don’t Invest In Individual Stocks (as a beginner)
Individual stocks have their advantages. However, there are significant disadvantages as well. They require a certain level of expertise to be managed properly.
Only 16% of investors buy individual stocks; they’re volatile. Moreover, you’ll need to put in a lot of time in research to pick the best ones. And it might still not work out.
Interestingly, almost half of all individual stocks are owned by expert (and super-wealthy) investors. This should tell you something about them. Individual stocks are great, but for experts with experience and knowledge; however, as a beginner, it’s wise to veer off from individual stocks.
15. Don’t Emphasize a Single Metric
Putting too much weight on any one performance analysis metric can make you tunnel-visioned. The P/E ratio is one of those metrics. It’s important, but it’s just one metric.
There are other important performance metrics out there. Take a holistic approach when evaluating a stock. Just because one specific metric tells you that it’s a bad investment doesn’t automatically mean it is one. The opposite is also true.
Bonus Tip: Taxes Are Important, But Don’t Worry Too Much
Don’t let taxes play a huge role in your investing decisions. They are important, but letting tax laws and how much you might need to pay in taxes direct your investments can lead you to make bad decisions.
Your decision framework should be based on how to get the most return. You can figure out how to minimize taxes along the way.
Best Ways To Learn Investing
The best way to learn how to invest as a beginner is to invest. Experience is the best teacher. But there are other ways you can accelerate the process:
- Get an advisor/mentor
- Learn from experts in the field
- Read books
- Listen to investing podcasts
- Watch YouTube videos on how to invest
- Practice on simulators
- Learn from your past mistakes
- Read the news
- Subscribe to newsletters
- Join an investment group
- Learn from other beginners
You need to be in the right headspace if you want to be a successful investor. It can lead to a lucrative career, or you could also become a solo investor. There are a lot of opportunities.
More importantly, you need to keep constantly learning and growing. Experience will do much of that for you, but the tips above will be useful throughout your career, especially as a beginner.