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Tuesday, August 16, 2022

How to Start Investing: Important Tips for Beginner Investors

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According to a report from the Bureau of Labor Statistics (BLS), the annual inflation rate in May 2022 was 8.6%. This is the highest it has been since 1981! And this isn’t just the case in America, but all over the world. 

If you are relying upon your savings account to fund your retirement, then you are in big trouble. The piddly amounts of interest that you get on your savings account will not be able to keep up with the high inflation rate. That’s why you need to learn how to start investing. 

Keep reading for some investing tips for beginner investors like you. 

Invest, Don’t Speculate

The first thing you need to learn when you start investing is speculation is not the same as investing. When you are speculating, you are running after ‘tips’ that you receive from random YouTubers and folks you met in a coffee shop somewhere. 

When you invest, you choose blue chip companies that have been around forever and invest in them because you believe in their business and trust in their future growth potential.

Yes, it might be more exciting to chase after companies that are promising cancer cures and new prospective oil fields. But you will make more money in the long run (and keep more money in your pocket) if you stick to investing, rather than speculating.

Diversify

This is the golden rule all beginner investors need to follow. Do not get enamored with one company, sector, or industry. Diversify as much as possible by choosing companies from different sectors, industries, and fields. 

Also, don’t forget to invest in something other than blue chip companies. For example, you could invest in precious metals like gold or silver, or energy resources like natural gas.

Commodity prices have seen huge spikes recently because of the dip in the stock market and the high inflation rates, so don’t forget to take advantage of them.

Use the Power of Compound Interest

Once you invest money into stocks or commodities, leave it there. Pretend like it doesn’t exist. Forget about it and let it grow unhindered.

The more you can stop messing about with your investments and let them grow, the more you can take advantage of the power of compound interest.

There’s a reason why compound interest has been dubbed the eighth wonder of the world. Many people throughout history have grown immensely rich because of this eighth wonder and you can as well.

Understand Your Risk Tolerance Levels

If you know that you are the anxious kind, then you will want to put your money into lower-risk investments. On the other hand, if you sleep like a baby at night, no matter what the market is doing, then you can choose higher-risk investments without any issues.

Also, your risk tolerance levels will depend upon how old you are and how much time you have before you retire. The closer you are to retirement, the less risk you must take in your investments. And vice versa.

Thus, if you are going to retire in 5 years, stay away from volatile investments like cryptocurrency, or choose to invest only 5% of your total portfolio in such volatile investments. This way you won’t have to worry too much about your impending retirement. 

Create a Plan and Stick to It

Once you choose the best investments for your risk tolerance level and you create an investment portfolio that works for you, then you have an investment plan. Now it’s time for you to follow this plan without getting distracted by all the shiny objects that come your way.

There will be many folks who will come knocking at your metaphorical door offering you investment opportunities that will 100x or 1000x themselves in 5 years or 10 years. Don’t listen to any of them. 

Stick to your plan and tell them to find some other sucker. Or if you are intent on investing in these opportunities, then don’t put more than 2-5% of your portfolio in them. Mentally prepare yourself to lose all your investment so you are not surprised when or if you do. 

Pay Yourself First

If you wait until you have extra disposable income to put into investments, you are going to wait forever. That’s why you need to follow the investing tips of all the money gurus out there and pay yourself first.

That is, automatically move money into your investment account each month, as soon as you get paid. Whatever is left over after you invest is what you have to spend that month. 

This will also make you highly creative in finding ways to pay for extra luxurious items that you can’t live without. Make sure you have more than enough income to cover all your necessities though, like rent/mortgage, food, and utilities. 

Over time, you will notice that you don’t even miss that cash that goes directly into your investments. Out of sight, out of mind. And while you don’t miss that money, it’s quietly creating retirement wealth for you, so you don’t ever have to panic about your financial future. 

How to Start Investing for Beginner Investors

The great thing about the investing tips shared above is that they are so easy to apply even for a newbie investor like you. You don’t need to have any special knowledge or any connections in the business to start investing.

All you need to do is create a plan that works for your particular situation and start applying it without delay. Before you know it, you will have a nice little nest egg that you can use to retire at the opportune time. 

If you found this article useful and actionable, then keep browsing through other articles on our website for more on how to start investing as a beginner investor.

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