3 Things To Do If You Are A Newbie Investor
The first and most important step to start investing is knowing why we want to invest.
Figuring out our goals whether it is buying a car or investing for retirement will help determine what investment strategies are best for us.
Different investment strategies will work better than others depending on our goals.
Knowing what our goals are in advance can give us a better sense of how much time we have to reach those goals.
We may ask ourselves some questions:
- Are we investing for retirement?
- Are we investing to buy a house?
- Are we investing for our kids college?
For example, investing for retirement may take 20-30 years, while investing to pay for a car may only take 5 years or less. We call this amount of time the investment horizon.
What is your investment horizon?
Here are the 3 things every newbie investor should do.
1. Learn about investments
Knowing what you are doing is important. Take your time to learn all the concepts to find the best investments.
As John Schmoll (from Frugal Rules) pointed in his article, 3 Things to Do Before Investing in the Stock Market, education is key to succeed in investing.
Education might be the most important factor in early investing success. This is especially the case if you haven't had much experience with investing prior to now. If you are like many beginning investors, you may not know where to look for quality, unbiased investing guidance.
It is never too early to invest. Learn about stocks, bonds, retirement accounts like 401k’s and IRA’s and make sure that if you are working, you are taking advantage of all the benefits your company offers.
In advance, I can say you to start learning about compound interest.
We started Pitly with a mission, Educate people on investing. You will find bite-sized lessons to start learning. It will guide you through the principles of investing in stocks and offers a virtual portfolio where you can practice what you’ve learned.
2. Put your personal finances in order
A good place to start on figuring out your goals is keeping track of your personal finances and understanding where you want to be.
Most people think that you can only invest in the stock market if you have large sums of money.
But this is not true, all you need is a goal and a thoughtful strategy to get there.
Here are some Do's from "James and the Giant Pile of Student Loans" post. This are meant for students, but you can apply them to yourself too.
- Do Track Your Spending: It can be an eye-opener to see where the money goes. Keep track of your debit/credit card statements and check out apps such as Mint and Personal Capital.
- Do Pay off Most Expensive Debt First: keep in mind that Most Expensive Debt is the one with the highest Interest Rate, NOT NECESSARILY the highest monthly payment.
- Do Defer Instant Gratification: Live like a student now so you don’t have to live like a student when you graduate. Save hundreds of dollars each semester by skipping expensive coffee drinks, fast food and the newest tech gadget. The sacrifice only lasts a few years, but the payoff lasts a lifetime.
There are some really good blogs to learn tips on how to spend less, maximize your budget, and how to put your personal finance in order.
3. Have an emergency fund
And the last one. Having a safety net is very important. Don't invest all your savings, please! Be sure to have an emergency fund just in case you have an unexpected problem.
This is one of the most common pitfalls for newbie investors.
That's it for today!