Investing for beginners can feel overwhelming, and there’s a lot to learn along the way. You already recognize that challenge, and it’s exactly what makes the idea seem so intimidating at first.
Plunging money into investment funds, creating a portfolio, accounting for tax and interest, dealing with volatility and speculation – it’s a full time job.
And when you’re a beginner, just looking for an idea of what to do with spare cash that you’d like to grow, the chances of making a poor investment are incredibly high.
But you can ease yourself in. There are ways to make investing more approachable (and a lot more safe), than just throwing money at the stock market and hoping to see those arrows turn green.
Here’s what we recommend doing to get ready for the kind of long term, controlled risk investing that actually pays a return.
Top 5 Tips on Investing for Beginners
1. Get Rid of Any Debt First
Getting rid of debt is always the smartest move in the financial world. If you owe money, pay it back – especially before sinking funds into investments that could dip in value or lock your cash away for years on end.
It’s a real risk to dive into investing for beginners if you’re carrying outstanding debt, whether that’s on a credit card or your mortgage, without a clear sense of your overall budget. Make sure you can comfortably cover debt payments—and even aim to pay them down sooner—before you consider turning to investing.
2. Set a Specific Goal
All investment plans need to have a goal behind them. When you don’t know what you want from investing, you’re more likely to speculate at a wild pace and never make any real return.
You’re just going to follow the trends, sink money into things that could collapse overnight, and then find it difficult to work your way back.
And it’s really quite simple to understand what you want, so there’s no reason not to work this out beforehand!
Really, you only have to think about a few different things here:
- What are your long term life plans?
- What do you want your portfolio to look like?
- How much money do you have spare for saving and/or investing?
The first point covers your life goals, such as what you want your retirement fund to look like. The second covers your interest in investing, as you can consider and research the different investment ideas you’ve got in the back of your head.
And the third tip helps prevent investing for beginners from becoming too much too soon. Remember, you can’t put all of your spare cash into investments. You’ll still need to stick to your monthly budget, keep some savings on hand just in case, and then carefully consider your investment chances.
3. Try to Diversify Early on
A diverse portfolio is the best kind of portfolio.
In the same way that a grocery bag will break if you put too many items in it, diversification stops you from overloading one side of your portfolio. If that side collapses, all of your money goes with it.
But if you have multiple types of investments (or multiple grocery bags), you’ve got more space to pack, and less chance of the bags breaking and letting your eggs and milk smash all over the ground.
If the stock market hits a low, you’ve still got your tangible assets. If the price of gold starts dipping, you’ve still got your shares. And back and forth it goes, keeping your portfolio at a more consistent valuation over time.
4. Interested in Property? Try a Real Estate Investment Trust
If you’d ideally like to focus on tangible investments from here on out, investing for beginners often points toward the property market. And that’s fine—it remains one of the best ways to make a return on your money.
However, property markets can be quite unfriendly toward new investors. You’re not going into it looking for a starter home or your dream home. You’re simply trying to build wealth with a method that has the most longevity.
That can confuse things. You’re likely to need a special mortgage type, and you can’t just get pre approved for a standard loan you pay back steadily. And within the market itself, if you’ve got an eye to buy to let or for property development, you’re going to need to buy as low cost as possible from the get go.
These factors are quite the challenge for a newbie, so you may want to invest in a real estate trust as a warm up. With a real estate investment trust (REIT), you don’t buy any property yourself. You simply buy shares in property owned by someone else, and then make money off of those.
Find out all the latest REITs news before you make a choice here though; investment trusts have been up and down over the years, and you need to know the pros outweigh the cons in your specific situation.
5. Plan for the Long Term
And once again, we touch on the long-term aspect of investing for beginners. You need to know what you want the future to look like—and how you can invest strategically to get there.
Because a lot of investment choices out there can be short term, volatile, and keep you pinging around to find the ‘next big thing’.
But if you plan across a longer period of time, you have a chance to invest slowly and steadily, let your money dip and rise quite naturally, and then come back to your gains in a few years’ time.
Investment Tips for Beginners: A Quick Recap
If you’re exploring investing for beginners, it can feel like quite the crash course to wrap your head around. But in truth, there are only a few crucial things to keep in mind:
- Pay down your debt first
- Know your investment goals
- Be diverse in your investments
- Think about alternative ways to invest
- Don’t forget your long term goals!
And there we have it: 5 simple rules for those new to investing.
