Getting started investing early in your adult years is an excellent idea. When you begin saving and investing earlier, your money has more time to grow through the power of compounding interest and dividend reinvestments. In addition, you have more time to fund your accounts with additional contributions. Investing is not a fool-proof way to increase your assets. The reality is that you could lose money rather than make money through your investments if you do not properly manage your portfolio. These beginner investment tips can help you to make savvy money management decisions.
1- Fund a Savings Account First
Before you invest any money in stocks, bonds and other investment vehicles, open a savings account. Spend time funding this account so that it has a balance that is equivalent to at least six months of your expenses. Each person has a different comfort level in this area, so you may even prefer to have a balance equal to nine or 12 months of your expenses. This is money that you can use to cover your expenses if you lose your job or run into other financial challenges. When you have a funded savings account, you will not feel inclined to cash in on your investments when it is not ideal to do so.
2- Educate Yourself
You may be eager to jump right in and start investing, but this is not a wise idea. A smart idea is to read a few investment books. Spend ample time reading online articles and investment tips from leading experts. Through your education, you can identify savvy investments that may have reduced risk and a great return in comparison to some of the other investments that you could purchase. Avoid taking all advice from one source. Instead, gather as much information as possible so that you feel confident making your own investment decisions.
3- Focus on Retirement Accounts
Investing in retirement accounts is a smart idea for many people. These are tax-advantaged accounts, which means that you can stretch your investment dollar substantially. Through employer-sponsored accounts, you may also benefit from an employer-matching contribution. For example, if you contribute three percent of your paycheck to your retirement account, your employer may match your contribution. This can bolster your account balances very quickly. Avoid investing so much of your funds into these account that you feel strapped for cash in other areas. Dipping into a retirement account may come with an expensive tax penalty, so it is best to have ample funds available outside of a retirement account as well.
4- Have a Goal
Investing is not something that should be done without significant financial planning. You must first think about the short-term. Create and live by a reasonable budget. Your budget should allocate funds for investment purchases as well as regular living expenses. Ideally, you will also have a long-term goal, such as for retirement or to buy a house in a few years. Your goal should include growth based on the contributions that you can afford to make and an expected return. Periodically, you need to analyze your accounts to ensure that you are on target. If your return is not as expected, you may need to make a few smart changes in order to meet your future goals.
5- Diversify Your Portfolio
Another excellent step to take is to diversify your portfolio. You should not have all of your investment funds in stocks or bonds, for example. Likewise, all of your stock investments should not be focused heavily in one sector. The more diversified your portfolio is, the lower your exposure to risk. However, your risk is also based on how effectively you are able to select investments that produce a solid return. Determine your risk tolerance before buying investments.
These are some basic investment tips that can help you to get started. Remember that investing is not something that most people get right from the starting gate. Regularly read more books and articles about investing. Market conditions change periodically, and some of these changes can happen rapidly. Get into the habit of staying informed, such as by subscribing to news feeds. This can help you to respond quickly when it is beneficial to do so.