The world of investing is often seen as complicated, and the feeling of being overwhelmed is all too common for those who are just getting started with investing their money. On the other hand, there are some easy guidelines that can be followed to help you invest your money in a smarter way than others without having to feel like it’s difficult or overwhelming. Working towards your goals with investing is a great opportunity to build passive income, and here are a few steps that can help get you on the right track.
1. Think Ahead
The first step that you want to think about before going any further is what your goals are with investing. Whether it’s a dream of a year-long vacation, a new house or car, or putting money aside for your child’s college fund, knowing what you’re working towards can help make sure that the investments you make are right for those goals. When thinking about how to invest, it’s always a good idea to wonder what you would invest in if your options were limitless – like if you had a million dollars. Considering those possibilities can really help you figure out what your long-term goals are, and once you do that, it’s just a matter of putting things into motion. Just like with anything else, try breaking it all down into small, manageable steps so that you can get where you want to be.
2. Start Small With A Practice Account
It might feel overwhelming to even think about investing, but getting started is really not as difficult as it seems. One of the easiest ways to start is with a practice account, which is an investment account that puts real money into play, so you can learn and practice investing on a small basis and not lose too much if you don’t get things right. With a practice account, you can try out different strategies that seem logical but might end up being risky or impractical without risking too much of your own money, getting used to how it all works, and finding the investment strategy that’s right for your goals. When you first start trading, it can be easy to get discouraged if the market happens to fall at one point, or you don’t see results right away, which is why patience is so key when investing.
3. Have A Solid Starting Capital
While a practice account is a good idea when starting to invest, it also doesn’t hurt to have at least an initial budget set aside in your checking or savings account. When thinking about how much money you might need in order to start investing for the first time, make sure that you take into consideration not only any brokerage fees but also any taxes that will come from your investment growth over time. Besides enabling you to make more meaningful investments, having a starting capital means that you don’t have to risk the money you actually live off of. It’s a way to ensure that you’ll never invest more than you can afford to lose, which is why it’s so important to have set aside some money for investing even before you get started.
4. Watch Your Fees And Understand What You’re Investing In
One of the biggest mistakes people make when they first start investing is not paying attention to their fees, which can end up being a costly mistake on your part because brokerages have varying degrees of fees and there’s no such thing as a one-size-fits-all when it comes to fees. Fees can come in the form of commissions for buying and selling, account maintenance fees, fund expenses on top of trading costs like exchange fees and redemption fees. When investing your money in anything from mutual funds to ETFs or individual stocks, knowing not just what you’re investing in, but also how much it’s going to cost is really important. Make sure that you’re actually getting the returns that are stated, or otherwise, you’ll be losing money right from the start.
5. Choose The Right Investment Vehicles
One of the first things that many people think about is doing their own research and going with individual stocks or bonds, but unless you have a good deal of experience in that area, you might want to start small. The tried and true ways of investing are either through mutual funds or exchange-traded funds (ETFs) because they’re easy to get started with, don’t require a large initial investment, and give investors the ability to choose from a variety of securities like stocks, commodities, or other types of funds. Mutual funds and ETFs offer the ability to invest in a diversified array of securities while still being able to manage how much risk is involved, which can be something that isn’t always doable with an individual stock or bond investment.
The best way to invest is to start small, don’t risk the money you need for living expenses, and take your time in understanding how it all works. Make sure that you’re familiar with fees and the different investment vehicles that will give you an edge in starting out and growing your money. Most importantly – always have your end goal in mind and use investing as a tool to help you get there.