Don’t Do This If You’re A New Investor

There is actually a right way to start building wealth.

Photo by Brooke Lark on Unsplash

Investing is intimidating for most, especially at the beginning. You feel like you have a lot to lose. Your confidence isn’t there yet and you overthink things.

What I’m seeing most new investors do are in fact the riskiest things possible. The things that will deter you from investing ever again.

1. They are investing in only single stocks and crypto.
2. They have no plan or understanding of what they are doing
3. They are funding a 401k or IRA without investing the money

People will gravitate to what is easy and accessible. In this crazy, busy life, I get it. What is more accessible than our phones these days? When you can download an app and begin investing and trading it sounds fun. That’s the first thing to know about investing, it is not fun. If it is fun then you are gambling. When you are trading, you are trying to time the market. That never works. Even Financial Advisors cannot pick stocks and guarantee that they will do well.

Do not start investing in single stocks as a beginner. What if you lose money right away and you decide to quit investing all together because you think that’s the norm?

The best way to start investing is to do it via your job’s 401k up to the match and if that is not available then you want to open up an IRA at a brokerage account to start. Remember to pick funds. If you just contribute to the account then it will be like a savings account, which today, is a losing fund because of inflation.

In order to pick your funds you want to understand what funds are available and what they mean. Index funds are great. Target funds (AKA life cycle funds) are also fantastic. Both of these funds have low fees and have great long term returns. If you choose the index fund route, research the different types available. Both of these funds hold many stocks instead of just one making them less risky. They also provide tax advantages.

If you want to make money by investing, you need to buy and hold. That gives your money time to compound. Investing in individual stocks is fine, but you want that to be done with fun money. Since you are investing in a single entity, you can make a lot of money or lose it all in one shot. You can be turned away from investing if that happens. Plus, by diversifying and having other investing funds available you will have something to fall back on.

Once you start investing you want to stay consistent. Create an investing plan. How much of your income will go towards investing. The recommended amount is 10–20%. Automate these funds into their separate accounts in order to help keep you accountable and reduce hesitation to invest for whatever reason.

Investing is a great pathway to building wealth. That is why it is so important to start off on your best foot. Be patient, as all good things, take time. Your patience will pay off.