Investing for Beginners

Simply putting money away in a savings account or relying on a military pension won’t net you enough money in the long run to retire comfortably or make large financial purchases. Investing is a crucial financial strategy that can help you grow your wealth over time. Want to get into investing but don’t know where to start? Take a look at these tips before you begin.

Before you begin investing:

• Ensure you have an emergency fund with at least three to six months’ worth of living expenses. This fund acts as a financial safety net preventing you from needing to sell investments in case of unexpected expenses.

• Pay off high interest debt like credit card debt, which takes away from future spending and investing. The return on investments is usually lower than the interest rates on credit cards.

• Know what you want to accomplish by investing. Short-term goals like buying a car will dictate conservative strategies and long-term goals like retirement planning may be more aggressive. Knowing your goals will help determine your investment strategy.

• Educate Yourself: Read books, articles, or other investing material and consider taking courses on investing. The more you know, the better equipped you’ll be to make informed decisions.
  •Always remember, investing in the stock and bond markets is a long-term commitment.

Choose an Investment Account: Select the right type of investment account for your goals. Common options include brokerage accounts, IRA’s, 401(k)’s 403(b)’s and TSP. Each account type has its tax advantages and limitations, so do your research.
Determine Your Risk Tolerance: Risk tolerance is how comfortable you are with the possibility of losing money in the short term. Risk tolerance varies from person to person and things like age, financial situation, and goals determine how aggressive or conservative one’s investments should be.
Diversify Your Portfolio: Diversification is a key principle of investing—don’t put all your money into a single investment and try to spread your investments across asset classes such as stocks and bonds. Would you put your life’s savings away on one stock? For those new to investing, I highly recommend the use of mutual funds or Exchange Traded Funds (ETF’s) because they provide instant diversification, automatic rebalancing, and management at a very low cost.
Invest Regularly and Avoid Impulsive Decisions: An investment strategy such as dollar-cost averaging, can help reduce the impact of market volatility and build wealth steadily over time. Investing a fixed dollar amount in regular periodicities takes advantage of the market’s ups and downs and removes market timing, which is nearly impossible to execute perfectly.
Consider Professional Advice: If you’re uncertain or have a complex financial situation, consider consulting a financial advisor. They can provide personalized guidance tailored to your goals and risk tolerance.
Remember that investing is a long-term journey and patience is key, slowly but surely your investments will increase in value and you will be very financially successful. Don’t get caught up in news media politics which sometimes portray bleak outcomes and keep your emotions out of it. Create a plan, stick to the plan, and continuously educate yourself.