Investing is a real commitment. The good news is, the rules for investing wisely haven’t really changed. So if you’re new to the stocks, take a cue from those who came and conquered on what to do and what not to do. With building your fortune in mind, we’ve collected tried and true tips from financial experts, advisors, and the wealthiest investors on earth.
And I wouldn’t take their hard-earned advice lightly.
Don’t Let Debt Be a Deterrent
It’s not necessary to wait until you’re completely debt-free to start investing. With that said, you should prioritize paying your debts first. Start by paying off debt with the highest interest rates. The general rule of thumb is that if any debt is costing more than 6% to 8% annually, you need to focus on bringing it down before you can seriously consider investing.
If you have a Roth IRA, you may want to try maxing out. In other words, contribute as much you possibly can to your retirement savings plan, but only once you’ve diminished some of your most costly debt. Once you’re more financially stabilized, go ahead and start investing where and how you see fit.
Look Into Low-Cost Index Funds First
For those who are new to investing, it’s always wise to start with the S&P 500 index funds. Per The Penny Hoarder, some of the richest investors in existence say it’s their top choice for investors, including Warren Buffett. This will offer you the chance to become an investor in 500 of the most successful companies in America, including Apple and Amazon. Not to mention, just one purchase will create your diversified portfolio.
When it comes to investing, diversification is important. By consistently spreading your investments around, you’ll limit your exposure to any one type of asset and broaden your options. The idea is to help gradually reduce the liability of your portfolio. And there’s no time like the present to look into diversifying your assets.
Minimize All Investment Fees
Financial experts and the wealthiest of wealthy investors agree that anyone who wants to start investing should be looking for funds with an expense ratio below 0.1%. In other words, less than $1 of every $1,000 is put toward fees.
Check out this handy article from Investopedia on optimizing your portfolio and reducing fees to get started.
Dont Worry About What The Stock Market Is Doing
Typically, the most successful investors practice dollar-cost averaging. And don’t knock this practice until you’ve tried it long-term. Basically, you invest on a routine basis regardless of whether the stock market is up or down. As tempting as it might be to focus on certain sectors or soaring numbers only, don’t get tunnel vision. Being fixated on market trends will not serve you in the end. And rather than investing in one stock, keep up with the total-market index fund for exposure to multiple stocks. It’ll pay off down the road.
While your money will buy less during times when the market is up, you’ll be able to reduce your investment costs gradually because of your consistent efforts to go after low prices as well. Again, you should be looking into diversified, low-cost funds when planning to invest.
Frankly, predicting the market is no picnic. It can be extremely challenging for even the most seasoned stock market experts. Doing so with just a basic understanding of stocks is significantly riskier. So don’t overextend yourself in an effort to make bank. Be consistent and practical with your investments and don’t base your decisions on moment-to-moment changes. After all, there’s a big difference between speculating and investing. If you’re making decisions based on the daily whims of the stock market, you’re not really investing. You’re merely gambling.
Steer Clear of Cheap Stocks
Also, be very wary of cheap stocks. Just because a stock costs a few bucks or less, it doesn’t automatically mean it’s a steal of a deal. Typically, stocks of this nature are insanely cheap because they’re on the way to being worth zilch.
Do some research going in. You’ll quickly find that the average company boasting penny stocks does not boast a history of profitability. And sometimes, they’re not-so-sneaky scams. Even if you do find a company that was once profitable, don’t buy in. Dirt cheap stocks from a long-standing company imply that they’re no longer profitable and likely won’t be again.
Don’t Invest Your Emergency Fund
We all know how important it is to have an emergency fund, especially after all that happened in 2020. No matter your investment ideals, having something to keep you afloat in troubled times will always be important. So keep it separate from your investments at all costs.
Investing is a wonderful step towards a brighter financial future, but your emergency fund is meant to be the money that’s there for you no matter what. The reality is, if you can’t afford to invest without dipping into that safety net, then you might not be ready to invest just yet.
Ultimately, you should only invest money that you’d be okay with losing if you had to. Your emergency fund is quite the opposite.
Don’t Miss Out on Free Money
Many employers match 401(k) and 403(b) accounts with employee contributions. Employers will typically match a percentage of your contribution up to an allotted portion of your total salary. It can really add up over time. Yet somehow, many employees every year just let that free money go. Don’t let this happen to you.
Brush up on your employer-sponsored retirement plan and know the contribution cap. Perhaps your employer is willing to match 100% of your 401(k) contributions on up to 4% of your salary. That’s thousands upon thousands of dollars per year. No matter the exact details, forfeiting this benefit is essentially throwing free money away, and it’s money that is rightfully yours.
Have a Plan
Above all else, make a plan. If you’re not sure how to go about it, there’s no shame in hiring a financial planner. No matter your age or financial status, having a little guidance and an expert to hold you accountable is never a bad idea. But if you can pull it off on your own, more power to you.
Oftentimes, choosing which investments are right for you can be a complex and confusing task. A little financial planning in advance can help you feel less overwhelmed. Of course, hiring a financial planner usually isn’t cheap, so be sure to shop around for the right fit, at the right price.
Whether you seek help or not, your plan is the financial foundation you’re going to build upon. Outline your financial goals to see what’s realistic, what isn’t, and what will take the most time to accomplish. Knowing your timelines, limitations, and possibilities will be incredibly helpful and encouraging when you go to invest.
Take Risks (But Take Them Wisely)
You have to play big to win big, as they say. But that doesn’t mean you should throw caution, and your money, into the wind without thought. When it comes to investing, risk is unavoidable and necessary. You have to be willing to take risks. Plain and simple. However, you should also evaluate how big of a risk you should take before you do, and start small.
For beginning investors, it’s critical to primarily invest in stocks that come with short-term risks. Those who’ve been in the stock market game the longest tend to agree.
Investing is no time to lead with your emotions, sudden cravings, or fears of missing out. To invest wisely and get the most out of what you put in, be patient and consistent with the process. Don’t let constant market updates from social media and scary stock news forecasts compel you to make hasty moves. Pace yourself to cultivate true growth.
Investing is often said to be a marathon, not a sprint. By investing long-term, you will have the comfort of knowing that any losses will have time to recover and rebuild. No dip has to be permanently damaging if you’re in it for the long haul. So prepare to weather the inevitable storms by trusting the bigger picture over the immediate information.
Investment pros say that any amount of money you’re going to require back in less than five years should never be invested in the stock market. Again, investing is not a short-term goal. But if you do have short-term financial goals, that’s okay. Instead of stocks, you might be better off with an online high-yield savings account. Here are the best online savings accounts, compliments of Best Money.
The Sooner You Start, The Better
While planning is critical, investing is also a process of learning as you go. But this is one of many reasons it’s best to start early. Obviously, investments can increase in value over time. Watching your money grow can be very rewarding, and the sooner you start, the sooner you can give yourself something to look forward to. Plus, the bigger that sum can become.
Also worth noting, any returns earned will be added to your full balance. So any future returns will correlate with the increased balance. Per NerdWallet, “if you invested $10,000 and earned a 6% average annual return on your investment, you’d have over $18,000 after 10 years. Give that money 30 years to grow instead and you’d have over $60,000.” Not too shabby, right?
Investing sooner rather than later means giving your money more time to accumulate. And giving it time is key. So if building your wealth is your long-term financial goal, the time to get started is now.