Investing is for anyone who wants to take control of their personal finances and plan for the future. But for the sake of financial freedom and empowerment, it’s important to invest using a careful and reasonable approach. Market investment is not something you should simply jump into unprepared. As a beginner, you should develop a sound grasp of how markets operate, how common trading strategies work, and how to assess assets before you get started. Beyond this in-depth education though, there are also some more basic things you must do before you start investing for the first time.
1. Determine Your Investment Budget
In the beginning, it might be relatively easy to work out a light investment budget. As you’re just getting started, that is, you may be inclined to try trading a small amount for a little while to see how it goes. For a more involved investment effort though, it’s necessary to assess your personal finances, figure out what you can afford to spend, and plan ahead for what you’ll be able to add to your portfolio over time.
This can be more complex than you might expect. You’ll need to figure out your priorities between saving, spending, paying off any debts you might have, and contributing to investments. But it’s important to go through all of this as carefully as you can, so that you have the most realistic possible outlook for what you can put into investments.
2. Work Out Your Long-Term Strategy
“Investing” is commonly treated as if it’s synonymous with “trading,” and the two terms can be somewhat interchangeable in the right context. But trading is typically meant to refer to more short-term arrangements, within which people might buy and sell a given stock over the course of a few hours or days. By contrast, investing implies more of a long-term commitment.
Indeed, some of the most important stock investing advice for beginners is to think of investment as a long-term game, and plan accordingly. This means figuring out what you can contribute on a regular basis (as we just discussed with regard to budgeting). It also means assessing individual asset purchases with long-term potential in mind. And above all else, it means determining goals for your portfolio — for the next few months, the next year, or even the next several years of your life. All of this will help you to put together the most realistic possible perspective from which to approach investing.
3. Learn About Different Trading Options
When you think about stock market investment, you likely imagine — as is only natural — buying and selling stocks! This is the most straightforward way to invest, and in some ways the easiest one to explain. If you bought five shares of Apple at $100, and you sell them when Apple reaches $150 (more or less where it is at the time of this writing), you stand to withdraw $750. You’ll have made $250 on the investment, minus whatever fees are associated with your transactions.
But dealing in stock shares directly is not the only way to invest in the market. There are in fact numerous other possibilities that you would do well to research before getting started. You can trade options and bonds, buy into ETFs and other funds, or even explore investing in resources (like some commodities) that aren’t necessarily listed in ordinary stock exchanges. All of these can be parts of your broader investment portfolio, and it’s worth taking the time to see which methods most appeal to you.
4. Learn About Brokerage Accounts
When it comes to more traditional stock investment, you’ll also need to research what brokerage accounts are and how you can go about using them to your advantage. The simple answer, as to what they are, is that these are financial accounts that hold assets (stocks, ETFs, etc.) on your behalf, as the investor. You can think about it almost like a bank account, but instead of holding you wealth, it holds your investments until you decide to sell them.
This is easy enough to understand. But you’ll also need to do some research about the differences between brokerage accounts available to you. Some are associated with more reputable investment firms or brokerages than others; some have higher fees for transactions; and some offer more hands-on assistance with your decision makers (for a cost). Your choice should depend on your personal needs and financial circumstances, and you should rest assured that there will be a suitable option for you. But some research is still required before you start building your portfolio.
5. Determine Your Risk Tolerance
Determining risk tolerance goes back to the idea of budgeting, in a way. When you’re preparing to start investing, and working out how much you’re able to contribute to the effort, you should also do an honest assessment of what you’re prepared to lose. Of course the hope is that your investments will make money, and if you go about them strategically, they may well do just that! But there are no guarantees in the stock market. It’s only sensible to consider the possible risk of a loss, and letting that inform your decisions.
Beyond affecting how much money you put into building your portfolio, risk assessment should also play a role in shaping your specific investments. You’ll learn fairly quickly that some assets offer more risk/reward variance, while others are valued for the likelihood that they produce more modest but dependable gains over time. Neither is necessarily better than the other, but determining your risk tolerance will help you to make your initial choices between them. In a sense, this is the beginning of developing an investment personality.
6. Read, Listen to & Learn From All You Can
The final step we’ll mention here calls back to the idea of educating yourself extensively: Start reading and listening to all you can! There are countless excellent books about investment, written by qualified experts. For that matter, many of those same experts now share their knowledge and advice online. Nowadays, there are even some excellent investment podcasts you can listen to in order to further your education. There’s certainly no shortage of options.
This doesn’t mean you should listen to every piece of advice you come across. It’s still important to check on the people behind books, podcasts, or online articles, and make sure they’re people you want to take advice from.
Even when you’ve thought about everything above, there are still things to consider before making individual investments as well. But even before you’re at the point of assessing possibilities and piecing together your portfolio, going over the steps and considerations above helps you to establish a strong foundation for personal investment.
