Money Matters

Quick Tips on How to Start Investing for the First Time

By: Avery Phillips

Investing your hard-earned cash into the stock market can be a daunting prospect. There is no guarantee that you’ll see any significant returns, and with the spectre of another economic crash constantly looming, it can be hard to part with the money that you have. Additionally, investing only seemingly works when large sums of money are involved, and when you’re attempting to save up for a down payment on a car or a home, it might not even seem worth it to invest.

The general rule of thumb with investing is that high risk can yield high reward. Conversely, there are low-risk investments that can provide consistent returns over time. Additionally, investing has now become easier than ever. Banks offer inexpensive portfolio management, and app developers are creating investment apps that are straightforward and easy to use.

The Basics

Many books on investing will claim to have the answers you need. However, the investment strategies contained in most books on the subject often offer up contradictory advice, leaving readers with more questions than answers. If you’re just getting started with investing, you’ll want a clear, concise explanation of where you should put your money and why.

No one truly has all the answers of where you should invest your money. There are smart, safe decisions, like investing in mutual funds and avoiding high-risk situations where you will likely lose money. The fact remains that the stock market is unpredictable. Any investment involves some level of risk. The most important skill you can possess as an investor is the emotional intelligence to not get caught up in the highs and lows of the stock market and sticking with your investments through volatile periods.

The promise of easy money can be alluring, but it is important to keep in mind your budget and exactly what kind of returns you’d like to see from your investments. Spending money that you don’t have is never a good idea. While you can technically purchase stocks with a credit card by getting a cash advance, it adds even more risk to your investment.

An example of a risky investment that has been trending for the past few years is cryptocurrency. Buying into a cryptocurrency — particularly a lesser-known one — is highly unlikely to result in profit. While flagship currencies like Bitcoin and Ethereum have created massive returns on investment for early adopters, they are the exception rather than the rule. Further, taxation laws are likely going to change regarding cryptocurrency, making the financial future for investors even more unsure.

 

Your best bet when first starting off as an investor is to take it slow and invest in low-risk mutual funds like IRAs, brokerage accounts, and Roth IRAs.

Using Your 401(k)

When new at investing, millennials tend to make a lot of the same mistakes. They get caught up in what they imagine investing should be like and tend to gravitate toward high-risk investments in the hope of huge returns. Younger investors also tend to get scared off when their investment doesn’t give them a return as quickly as they’d like, and they cash out before they actually see what the investment can actually do for them. Rather than considering long-term potential, they prefer investment options that will net them quick returns.

One of the smartest decisions you can make early in your investment career is to take advantage of your company’s 401(k) program. While it might seem scary to let them manage your money for you, most companies will match at least a portion of whatever you invest. Choosing the right investment options for your 401(k) is relatively easy, as long as you know what you want out of it, since 401(k)s are self-regulating. Mutual funds, brokerage windows, index funds, and rollover IRAs are all great options for relatively safe long-term investments.

If leaving your investments in the hands of strangers doesn’t sound like the right option for you, there are ways that you can have a more direct influence over how the money in your 401(k) is distributed. Converting your 401(k) into a self-directed IRA allows you to dictate where you invest your money, and even allows for investment into the foreign exchange market. This offers up far more control over your investments but requires a significant time commitment.

Investing Apps

Tech investments remain popular, but why not allow technology to invest for you? Instead of investing into stocks that may or may not succeed, a new wave of investment apps exist to make the hard decisions for you. These apps are designed to let you choose whether or not you’d like to invest aggressively or play it safe. They are a great option for those just getting started investing with less capital at their disposal.

Many investing apps are a good alternative to traditional brokers as they allow trading for little to no fees from investors. Apps like Robinhood, Acorns, and Fundrise have seen a boost in popularity due to their low fees and options that work with investors regardless of budget. Additionally, some of these apps allow for investment into cryptocurrencies, offering up even more options for diversification.

These apps are also attempting to change the way investing works overall. One investment app, Stash, recently came out with a banking program that offers up a “stock-back” rewards system that purchases stocks in companies that you are either already invested in or wish to support. It is a good option for those who want to do their banking and investing all in one place.

Whether you plan on investing thousands of dollars or simply want to invest a small amount at a time, knowing what exactly you want from your investments is key. While high-risk investments sometimes yield high returns, it is often wiser to take it slow at the beginning. Eventually, you’ll begin to see your returns accumulate, making your money work for you.

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