32 Tips for beginner Iinvestors
Welcome to the Financially Free Journey podcast where I aim to dispel the seemingly complex topic of personal finances, money management, debt, savings, investing and even retirement. This podcast is designed to help you feel empowered by increasing your knowledge so you can flex your money muscles!
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Today’s episode is all about tips for beginner investors and things you need to know entering into the market for the first time or even at the beginning of your investing journey.
Before I get into the actual tips I wanted to share this quote with you from Warren Buffett, “When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.”
I love that quote and think it is perfect for todays topic because experience trumps money when it comes to investing success. If you have money but have no idea how to invest it, you are betting on good luck when it comes to getting any returns. Warren Buffett actually gave that advice on his 87th birthday when he was asked what his best investment advice was for beginners.
Warren expressed over and over that experience is the key to success as an investor.
Now, if you don’t have any experience…what are you supposed to do?
In this world of information, luckily, we are able to access information and learn quickly on almost any subject we are passionate about.
The tips I am going to share with you today is not rocket science and you can go look this all up online. I have simply taken the information that is out there and compiled it into a helpful list of tips for you to easily access!
Ok lets get into the top tips for beginner investors!
Tip #1: Invest in things you understand
Warren Buffett has a great tip on this. He says that if he needs to research a company to understand how it makes money and how that industry is impacted economically, the research should take no more than 10 minutes. If he can’t understand the business after 10 minutes, he moves on to the next investment opportunity.
Now, not everyone is as experienced as Warren and it may take a little longer for most to get a grasp on the business. However, the principle here is critical. People tend to either jump in and invest blindly or they overthink the investment way too much. Do some research but don’t drowned yourself in it.
Tip #2: Diversification is always a good idea
I have spoken about diversification so many times that you guys are probably sick of it but I want to make sure you all take this one to heart! It is essential that you diversify your money and don’t have all of your eggs in one basket.
Depending on how old you are and how long you have to invest the funds, what you invest in will be different than your family and friends. This is where it is important to mail down your personal time horizon and risk comfort level so you know what is best for you personally.
Tip #3: Set investment goals
It can be very tempting to just in head first when it comes to investing. Yes, I want you to invest and to do it as soon as you can but you need to have outlined your investment objectives and have a clear plan laid out prior to starting your investment journey. This ties in directly to the last tip with diversification. If you have an objective to make a certain return over the next 5 years with your funds, that is going to drastically vary the type of investments you are going to make with that money versus if your time horizion is 10 years. You need to nail down your investment plan and then diversify your investment vechiles accordingly.
Tip #4: Invest early
TIME IS MONEY GUYS! The earlier you invest your money, the more time you are allowing your money to grow and compound over time. I am looking at a chart that shows an example of investing early vs later in life and ill describe it to you but first I understand that a lot of people have this idea that investing is something you do when your making a 6 figure salary and your more established. Don’t think your too young or you don’t make enough money to invest.
Tip #5: Make your investments automatic
Just like when paying off debt and automatically transferring money into a saving account, this concept rings true to investing as well. Take the time to automatically have money deducted from your paycheck and deposited into your brokerage account. From there, you can setup automatic, reoccurring buys into index funds or whatever investment you have chosen. This is so critical because it is the concept of out of sight, out of mind. If you have the money deposit into your checking account, you are much less likely to get that money transferred over into your brokerage account. New bills and “emergencies” pop up every week and it is way too easy to fall into the trap of “ill transfer the money over next check”. Pretty soon you haven’t transferred money into your brokerage account at all and your now behind on your investment and retirement plans.
[OK, WE ARE GOING TO TAKE A QUICK BREAK AND WE WILL BE BACK WITH MORE INVESTMENT TIPS FOR BEGINNERS….PAUSE]
Tip #6: Understand your budget for investing
This is pretty obvious but I just want to quickly touch on this one. It is super important for you to look at your budget, make sure you have of course paid off high interest debts and you have an emergency fund in place prior to starting to invest. Once you have those steps checked off, set a budget for yourself and then automatically have that amount deducted from your paychecks or your bank account if you cant have it taken from your paychecks automatically.
Tip #7: Grow your knowledge around investing
Ok so this one is key. It is important to continue to learn and grow, especially in subjects that directly impact our ability to retire and live the lifestyle we want to life. Many people have told me that they are intimidated by investing and they just don’t want to mess up with their money.
I understand that completely and that’s why continuing to build your knowledge and comfort level around it is critical. We are so lucky to live in a time where information is readily accessible literally right in the palm of our hands all day long.
Think about the amount of time you spend on your phone or computer each day. Now, take 20 minutes of that time and redistribute it to learning about investing. You can do things like of course listen to podcasts, read blog, books, the news…whatever works for you is best. The point is that you need to be intentional with your learning and taking the time each day to increase that knowledge.
Tip #8: Make sure you maximize your retirement accounts first
If you have a retirement account like a 401k available to you through your employer, make sure your maximizing that first and foremost. There are so many benefits that come along with your contributions to your retirement account like tax benefits, employer match and of course the gains you make on your funds.
If you haven’t already, make sure you setup a retirement account, understand how much your employer matches and have your contributions automatically deducted from your paychecks.
There are also several options for self employed individuals like an IRA where you can contribute to them each year and still receive some tax deductions depending on your income level.
Tip #9: Avoid jumping into investing “fads”
The time to jump into an investment is NOT when all your friends and family are talking about it. Usually this is the sign of an investment fad and the investment itself could be bloated. A good example of this is bitcoin. Everyones mom, dad, uncle and best friend were talking about investing in crypto currency.
The scary thing about this is if yu asked any of those people to explain how cryptocurrency even works, they couldn’t even explain the basic fundementals of it to you. This is a tall taile sign of an investment fad and is something to most likely steer clear of. Again, do your own research and never invest in something you couldn’t explain to your friends or family in less than 5 minutes.
Tip #10: Don’t try to time the market
Last tip for this episode is to never try and time the market. This is usually what people try to do when first entering into the market and buying individual stocks. They try to time the price of a stock, buy when its low and then sell when its high. You may be wondering, well whats wrong with that?
The problem with this is that expert economists, financial advisors and the most seasoned pro’s try to make assertions as to what is going to happen in the market but the problem is that no one can accurately predict what is going to happen and how the prices are going to land. That is why it is critical to have an investment plan in place that includes your investment objects and time frame. You stick to your investment plan and you will most likely land right around where you planned for your returns. Trying to time the market in the short usually ends in taking a loss.
Ok, that is it for todays episode and I want to thank all of you for listening into the episode. Again, take 30 seconds to go to give the show a 5 star review and if your not already, make sure your following us on Instagram @financiallyfreejourney for daily tips and motivation to help you on your financially free journey!
Until next time!