Five Tips for Beginner Investors

Reviewed: February 04, 2014
By FinanceWeb

Investing in your future is one of the most prudent financial decisions that you can ever make. While investing is best done at an early age, it is also never too late to start. By choosing the optimal investment strategies that work best for you, you’ll be able to effortlessly earn money. Investing also allows you a great deal of financial flexibility, tax advantages, and a diverse portfolio that can pay off in the future. If you’re considering beginning planning for your future by investing, then below you’ll find a few excellent tips to help you along the way.

Diversify

Investment managers and financial advisers all agree, diversity is key to a promising investment. As a beginner investor, you probably do not have a great deal of money to invest. In this case, it is best to diversify your portfolio rather than put all your money on one or a select few of individual stocks. While these stocks may end up performing well, there is also a chance that they may perform sub-par, thus costing you your investment.

A second issue is diversifying an investment when you perhaps do not have a high amount of funds. Most beginner investors faulty believe that diversifying requires a large initial investment. On the contrary, you can diversify with a small investment by buying either a no-load mutual fund or exchange-traded fund (ETF).

However, it is necessary to be aware that in order for the diversification strategy to work, you must take the time to research companies, understand their financials, and estimate the value of their stock. A smart investor is one that does their research carefully in order to succeed.

Start Investing Early

The longer you invest, the more money you are likely to accumulate. There is a significant difference in starting investing when you are in your early twenties, compared to starting when you are in your thirties. The reason that those that invest early tend to rake up more funds is that their investment has a longer period of time to enjoy from compounding rates of return.

Speak to a Financial Advisor

As investing is such a big decision, it is necessary to be aware of all of the intricacies of investing. One individual that can truly help you understand investment accounts, types of investing, and the pros and cons of each approach, is a financial advisor at a bank or an investment firm. These individuals are a great asset for you, and if you have the ability to question one, then do so.

On Your Own

When investing in stock, you have a few options. You utilize an asset manager, brokerage firm, or you can do it yourself. Investing on your own means opening up an account with a discount broker and self-investing. However, should you choose this option, you will need to be abreast of the latest news regarding stocks. You will also need to do your own research regarding the best investment options. The benefit of investing on your own is that you will not need to pay a costly brokerage fee. However the downside, which has been made clear, is that you may have no one to consult about the viability of your investment.

Be Realistic

What many first-time investors fail to realize is that investing is not a “get-rich-quick scheme.” Investing does not promise you loads of quick cash in the short term, and perhaps not in the long term. Investing is simply an outlet for you to grow your money over time, and it is most effective when undertaken for the long-term. Therefore, when you invest, it is best to be realistic about the expectation of your investment. Investing also requires you to be patient and rational.

Overall, investing can be highly advantages for you and your financial future if it is done right. Therefore, invest early, diversify, speak to an adviser, be realistic, try investing on your own, and know your investment. No good will come of a lack of knowledge, so while you utilize these tips, remember to never invest blindly.