Becoming a beginner investor is an incredibly exciting time. You are just entering the powerful world of investing and setting yourself up for a much better future because of it. The stock market allows people in the middle class to become wealthy by the time they retire.
Becoming a beginner investor is also incredibly scary. We are shown on TV and in movies that stock market investors are all geniuses, that the market is prohibitively complicated, or that it’s only for the already rich. Your parents or someone you know may even use a financial advisor because they believe they couldn’t understand the market themselves. All of these lies are perpetuated to keep the rich rich and everyone else out.
Well, you came to the right place. The market doesn’t have to be as complicated as you may be led to believe it is. The focus of this website is to empower beginner investors or even people thinking about investing to go out and build the life they deserve. Plus, in today’s era of technology, it is unbelievably accessible to everyone.
This post will cover 9 tips to help beginner investors succeed in the market.
Tip #1: Don’t Invest More than You Can Afford
Many investors, including myself, heavily emphasize investing as much as you can. Advice like this is helpful when people want to invest but still spend their money on things they don’t need. Increasing the amount you invest inherently limits how much you have to spend how you want. I have personally benefited from this effect.
However, a downside of this advice comes when a beginner investor invests too much. When someone invests too much, they put a strain on themselves both financially and emotionally. Financially, of course, because now they may barely have enough uninvested income to cover expenses. No one should be putting themselves in that position to try and squeeze just a little more into investments.
Don’t Become an Emotional Investor
The effect this stress has on someone’s emotions can be just as dangerous. In addition to general mental health, worrying too much about the money that you have invested is terrible for your investments.
See, stock market investments should be seen as long-term investments. Investments that should be left alone for years and even decades without selling, only adding to positions. Of course, barring some negative company shift.
People who are too worried about their investments are not people who are going to feel comfortable leaving their assets alone for a decade. That decade will no doubt see significant ups and downs, and investors need to be able to hold firm and add to positions during downturns.
Imagine if you invested every dollar you didn’t need for expenses. That money that you invested in the market suddenly seems drastically more precious. Anyone would be scared to see those investments drop in value.
Set yourself up for future success as a beginner investor by only investing as much as you can handle. Don’t be in it to get rich quickly. Be in it for the long run.
Tip #2: Automate Your Investments
I preach this strategy constantly. So many investors fail because even though they want to invest and can afford to, they flat-out forget. We all have things we say we will get to tomorrow or next week. It can quickly become the same thing with investing.
Assuming you’ve signed up for a solid broker, setting up automatic investments is straightforward. Once you set it up, you can be completely hands-off. The beautiful thing is that you continually add to your position in your chosen fund(s) or company(s) without thinking about it.
Automatic investments can help beginner investors get started by taking away the frustrating task of manually depositing funds and buying companies. As silly as it may sound, requiring that act to be so manual might be the difference between a beginner investor continuing to build wealth and not.
Automated investments also automatically dollar-cost averages and take some of the emotions out of investing. Imagine you access your brokerage account only to find you’ve lost 5% of your funds in the last week due to a downturn. A beginner investor could easily think “Clearly, this isn’t the time to invest. Everything is down.” Not only would this be the opposite of the truth, but it would hold you back from getting stocks at a discount.
These market fluctuations would never affect beginner investors who had their investments automated. Regardless of what is happening in the market for that day, there are putting in their monthly $200.
Tip #3: Have an Expense Ratio Plan
How much you invest shouldn’t be done willy-nilly. A primary reason many investors fail in the market is “I’ll invest something at the end of the month” once I pay everything else. By the time the end of the month rolls around, they’ve already spent their seemingly excess money on unnecessary purchases. Now there is nothing left over to invest, so it continues next month.
Avoid this by generating a plan for your expenses. Simplistically, consider it split into needs, savings/investments, and wants. Standard practice is the 50-30-20 rule, with 50% of your income going towards necessities, 30% towards wants, and 20% towards savings/investments. In reality, these numbers should be tailored to your situation. Suppose you can save more than 20%, fantastic. If saving 20% will make you fail tip #1, do as much as possible.
The plan is the most important thing, regardless of your exact expense ratios. If you know that 10% of your income goes straight to a savings account and 7% to the stock market, you won’t feel like you have that 17% of your income to spend.
Tip #4: Don’t Listen to Hype
In the investing world, many people promote things like “This one investment made me rich” or “You MUST buy this stock now.” Claims like these are designed to trigger FOMO – Fear of Missing Out, especially in beginner investors. It’s easy to get scared that there is a sliver of a chance that they are right. If we don’t listen to them, we could miss out on a tremendous financial opportunity.
This is hype as these kinds of claims that have little to no evidence to back them up that call for a quick decision to cash in. Telling someone to invest in Coca-Cola to get a reliable dividend isn’t hype to me. Coca-Cola has been increasing its dividend for 60 years, so there is data to back it up. Plus, there is no quick move that needs to be made.
However, if someone tells you to invest in Shiba Inu crypto because it’s going to go to the moon tomorrow, that is hype. It may be tempting to want to believe it, but the hype is usually generated by people who want attention. They want people to listen to them, so they say something outrageous.
Stay steady, follow your plan, and ignore the hype. Sure, you may miss a one-in-a-million chance to 10x your money, but those other 999,999 failures will hurt.
Tip #5: Invest in What You Know
There are thousands of companies available on the stock market. Especially in the beginning, it is overwhelming to sort through all of them and find the best investment opportunities.
A great way around this is to start by investing in companies you know. Do you buy Starbucks every day? Do you shop at Target every couple of days? Do you get your groceries and supplies at Walmart?
Any of these situations would give you an insider’s point of view on the business. You would know if they struggle to keep items stocked, meaning the supply chain may be a concern. Or if you’ve noticed consistently more customers for the past year or so. Possibly indicating that they are seeing an increase in popularity and sales.
Also, take into account the public view of the company. If everyone you know is talking negatively about Target and deciding not to shop there, it may indicate a shift in public perception. A negative public perception can be detrimental to a company in the short term.
All these insights mean you better understand the business just by buying their products. You more you know about a business and see positive signs, the better the investment is.
Plus, how cool is it to know that you are sharing in the profits of that company? Every customer you see walk out of there, including yourself, is contributing to the company you now partially own.
Tip #6: Have a Safety Net
This tip goes along with the last one. As I said above, an investor with too much skin in the game won’t be successful. A safety net is there to give you peace of mind.
The general rule of thumb for a safety net or emergency fund is to have 3-6 months of living expenses saved up. If you aren’t investing in a super risky manner, this should be more than enough. Remember, this safety net is more there to make you feel better than ever to be used. The chances of your stock market investments tanking so far you need these savings are very low.
If you are someone more interested in 10x’ing your investments, then you may want to increase that safety net to 8-12 months of expenses. The likelihood of you needing or wanting to dip into your savings is more likely with this investing strategy. Plus, if you want to dive into an opportunity, you may even be one to pull from your savings to bolster investment.
This safety net can either be a simple bank account or a high-yield savings account. The important thing is that these funds are pretty liquid. You don’t want to be stuck waiting weeks for your money. You never know what may come up outside of investing, such as a medical emergency.
Tip #7: Understand the Basics
Without knowing what the heck is going on, the stock market is a terrifying place. So many options and fluctuations in price make the market seem impossible to tackle. Would-be beginner investors are scared off by this exact thing every day.
Though the market is undoubtedly unpredictable, understanding the underlying functions of the market can make it far less daunting. Even something as simple as a beginner’s guide or two can be enough to give you the knowledge you need. Understanding what stocks and shares are, why they are traded, and why the market fluctuates can help you, as a beginner investor, understand the market.
Understanding what is going on also helps mitigate investment risks. Every form of investment is risky to a degree, including the market. However, this risk is lowered if you understand the market and the company you are investing in. You are far less likely to make a risky investment if you know what it is you are investing in.
Investments tend to appear the riskiest to those who understand the investment the least. To someone who doesn’t understand the rules of the road and the technology in modern vehicles, driving would seem unbelievably risky.
Tip #8: Diversify Your Investments
As hard as you may try to make the best stock picks, you won’t get every one right. Some of these will inevitably lose money or at least not generate near the gains you expected. The best way to protect yourself from this is to ensure that no single investment makes up too much of your portfolio.
A good goal to aim for is to be invested in 12 different companies. At that point, even if an individual company went bankrupt, you would only lose ~8.3% of your portfolio. Proper diversification will help you feel the effect of market and sector drops less.
Another method of diversification is to invest in an index fund. An index fund essentially tracks the overall market, such as VOO, which tracks the S&P 500, the top 500 companies on the market. When you buy one share of VOO, you are investing in 500 individual companies all at once.
If you choose to diversify by buying individual companies, it will take time to reach proper diversification. An excellent method to get there is to invest in a different company every month for a year. This will get you equal investments in 12 different companies.
Tip #9: Think in Years
Many beginner investors start investing with the mindset of people they see on social media making $1,000/day by day trading. These people enter a trade with the idea of selling back out in minutes or even seconds. This type of trading is extremely risky and usually doesn’t turn out well.
Short-term fluctuations are difficult, if not impossible, to predict. Even investing on a timeline of days can be very dangerous. You can’t predict that tomorrow an article will be posted in Oregon showing Netflix in a negative light, and its stock will drop by 2%.
What you can better predict is that a reliable company will succeed, grow, and generate returns over the next five years. Over the long term, the market tends to increase, and good companies tend to follow.
As a beginner investor, expand your investing timeline to at least five years out. Don’t invest in a company you wouldn’t want to hold five years from now.
As an added benefit, taxes on capital gains from stocks that were held for longer are much lower. So when you finally decide to sell some shares seven years from now, you will be maximizing the money that ends up in your pocket.
Tip #10: Just Get Started
Get started now if you are on the fence about investing and planning for future investments.
Completing all of the basics to get an investment account going is extremely easy. I always say it’s no more complicated than signing up for a new Gmail account.
Many investors who never begin are stuck in analysis paralysis, unable to make the decision to begin. You are the only thing standing in the way of beginning your investing journey. There is no reason to wait. The earlier you start, the longer you give your portfolio time to grow and compound on itself. Compounding is where real wealth is built in the market.
You may also be fearful because of the current market downturn and likely recession, but don’t be. This is actually one of the best times to invest that there will be for a very long time.
Closing Thoughts
As a beginner investor starting your journey to building wealth on the market, I am excited for you. It is thrilling to see the wealth you can build just by investing consistently and letting your investments compound themselves.
I hope these tips shed some light on your path toward success in the market. I would also love to give other people an opportunity to spread their knowledge. If you have any of your own tips for a beginner investor, let me know below. I wish the best of luck to you.
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