Ever since its inception in 1926, the famous S&P 500 index has offered annual returns of around 10%.
While it’s true that inflation cuts those returns down to 7%, it doesn’t make the results any less impressive—or any less tempting for investors. If you’re looking for a way to grow your money at a steady pace, the stock market can be a no-brainer. Of course, that doesn’t mean that each investment isn’t without major risks—including the risk of losing the money you’ve put in.
In the complex world of investments, trading, and stocks, how can newbies learn how to start investing? If you’re ready to grow your money online, here’s what you should know.
Start Early
One of the best money-making tips in the world is simple: start as soon as you can. The longer you put your money into investments, the more time it has to grow. This happens through the power of compounding, which allows your money to grow in increasing increments over time.
In addition, starting early means that you’ll be better equipped to weather the peaks and valleys of the stock market over the years. When you know you won’t be pulling money out of an investment for a decade, you may not feel an impulse to withdraw it if the stock market dips.
If you’re not yet convinced, or if you’ve been dragging your feet in terms of investing, it’s also worth noting that there’s no better time than now to start. Even if you’re far from your 20s, putting money into an investment now will net you more cash—even if it’s just a little—than letting that money sit in your bank account.
This is especially true in today’s market, which experts believe is in a new golden era for investment growth. For additional info about why now is a great time to invest, take some time to learn more.
Decide Why You’re Investing
Your purpose for investing plays a major role in all of the decisions that follow. Having a specific end goal in mind allows you to understand your risks, the amount of money you should invest, and the best strategies to take when moving forward.
Many people invest money for a few common purposes. These include major life changes, like planning for retirement, starting a business, or getting married. They also include investments for dependents, such as a fund to pay for your child’s future or education.
Once you have a goal in place, you’ll also be able to plan when you’ll need to get the money back, allowing you to decide whether you’re looking for a long-term or short-term investment.
Educate Yourself
It’s always a good idea for beginner investors to spend time researching expert tips and insights. At a minimum, you should have a solid understanding of the types of investments to consider.
Don’t hesitate to check out free online courses on investment strategies, which can act as a quick introduction to get you started. As you consider specific opportunities, you’ll also be able to reach out to your broker’s customer service line, which can answer basic questions about how certain investments function.
Consider Your Risk Tolerance
With a better understanding of your goals and the kinds of investment opportunities you’d like to pursue, it’s time to consider a crucial factor: your risk tolerance. This is different for every investor, so you’ll need to do some soul-searching to understand yours.
In general, younger investors are poised to tolerate much more risk, as their investments will spend more time growing and will have more time to rebound from stock market fluctuations. You’re also more likely to tolerate risk well if your short-term future goals won’t require a great deal of money.
However, the amount of time you can spend making money online isn’t the only factor to consider. Your risk tolerance also depends on your personal psychology.
Are you the type of person who will stress when your investments lose money, even if you know they’ll have years to continue growing? Are your finances stable enough that you can mentally tolerate the stock market’s peaks and valleys? Knowing how you’ll react to your investment’s growth can help you understand which options may be best for you.
Start With a Solid Investing Plan
It should come as no surprise that experts disagree about the best investment methods. However, there are a few places in which most parties are on the same page.
The first part of any investment plan is a simple strategy: dollar-cost averaging. Automating your contributions bit by bit over the year can reduce the impact of stock market fluctuations on your investment.
Next, it’s important to consider your overall strategy. While some people like to imagine themselves as a slick day trader making urgent transactions, this isn’t the right approach for everyone. Instead, most people can benefit from a simple prioritization system:
- Contribute to your 401k up to the limits for your employer’s match
- Max out your HSA
- Max out your Roth or Traditional IRA according to the limits set by the IRS
- Max out your 401k
- Invest in a standard brokerage account
This simple prioritization plan will vary depending on the types of accounts available to you. It will also vary depending on your own preferences and retirement goals! Use it as a jumping-off point to get you started with investing.
Make Time to Learn How to Start Investing
If you want to prepare for your future, it’s crucial that you understand how to start investing. Though the process can seem intimidating to anyone just dipping their toes in the water, a little research can help you land on the strategies that work best for your goals. Don’t hesitate to reach out to an expert for more specific insights!
Looking for more tips to help you make the most of your money? Our personal finance guides are packed with insights like these, so be sure to check them out!