Guest Post By: Andrew, a Content Associate from LendEDU – a consumer education website
When people think of the term “investor,” many tend to think of bankers or financial advisers sitting in offices managing other people’s money. However, each and every person can — and should — be their own investor.
Getting started on your investment portfolio can be a confusing thing. Many consumers don’t know where to start or if they’re ready to start at all. Don’t investors make million-dollar buys?
That’s not true at all; no one needs to have a lot of money to start investing. Anyone can learn the ropes of investing. It just takes time, effort, and patience. Here are three basic tips to get you started:
Learn More About Your Options
The term “investing” doesn’t just mean one single thing. Buying stocks, bonds, and ETFs is investing for sure, but so is putting money into an RRSP or another type of retirement fund. Learning about what options are available to you is a great first step. Each individual’s situation is unique. For example, someone who is 65 years old may not be as good a candidate for high-risk investment as a 21-year-old.
In brief, stocks come in various risk categories with the general mantra, “high risk, high reward.” This means that investing in high-risk stocks could make your money grow or vanish quickly. This isn’t as true with bonds which grow more slowly and are less fickle. ETFs, or exchange-traded funds, track stock indices and are not individual stocks, so they tend to be more stable.
When you’re considering which investment options are right for you, take a look at online resources relevant to the options you’re considering, talk to friends to see what investments they’ve tried, and talk to a professional who can guide you through the nitty-gritty. Whatever route you choose, make sure to learn more about your options and educate yourself before committing your money.
Don’t Be Afraid to Seek Advice
There is absolutely no shame in admitting that you don’t know everything about investing and need some guidance. In general, you have two options for getting help: traditional financial advisors and online robo-advisor apps.
Online sites tend to be convenient. You can check things out and educate yourself from the comfort of your own home, and the app or site may be more accessible and understandable to newcomers. On the other hand, some (but not all) online resource may only offer static & basic information that doesn’t adapt to the constantly changing financial environment.
If you speak with a traditional financial advisor, you’re talking with a real person who is active in the world of investing. He or she is likely able to make relevant suggestions based on your portfolio upfront, and they can be valuable to those who value face-to-face interaction. In short, you may get a level of care that exceeds a computer’s abilities.
At the same time, financial advisors should be chosen carefully. They come with their own set of problems and are capable of human error. You don’t want to work with someone who is rash by nature or may not have your best interests in mind.
Don’t Forget About Other Liabilities
Many people may find that investing is addicting. After all, you can put $100 into a stock and watch it double over time. But before you go all-in on investments, don’t forget about your debt and liabilities. Investors need to draw a fine line between investing their money, managing their expenses, and staying accountable to their debt.
Consider, for example, what happens if you fund your stocks and only pay the minimum on your student loans. If your student loan has a 7% interest rate on a high balance and your stocks only returned 5% last year, then you may be losing money. Before investing, you may want to consider either paying more towards your loans to reduce the balance or refinancing student loans to reduce the interest rate.
Here’s another example. If you have over $1,000 in credit card debt, then you may want to focus on paying that down first before dumping a few hundred dollars into the market. Credit cards come with high rates, and this can cost you in the long run when left unpaid. Either make larger payments towards debt reduction first or consider debt consolidation to better manage your liability.
It’s typically a good idea to focus first on debt repayment. On the plus side, you will be able to invest greater amounts later with less debt to your name. Wise investing involves non-investment finances too!
If you’re ready to get into investing, remember that you’ll never have all the answers. Don’t be afraid to learn as you go and refine your knowledge and methods. In other words, be patient. Study the data your investments are showing.
Above all, be ready and even excited to learn from your mistakes. They’re one of the best teachers, and if you can improve what you’re doing, you’ll find more success than you started with – all while responsibly handling your personal finances as well.