Simple Advice for the New Investor

Simple Advice for the New Investor

A financial advisor and friend once told me, "It doesn't matter how good a job someone has, if they want to acquire wealth in this life, at some point they are going to have to invest in something." There are many ways to invest. You can invest in real estate, life insurance, stocks, bonds, mutual funds or a simple 401K with a broker or online stock trading service.

Good investing can bring peace of mind, security and the lifestyle you and your family want to live. On the other hand, poor investing or not investing can cause a lot of personal and family stress. Here are a few basic ideas and tips for someone who wants to start investing. If you want to learn more, check out our other articles on investing and the stock market.

Start Young
Albert Einstein supposedly called compound interest "the eighth wonder of the world." The younger you start, the less you will have to invest to enjoy the same yield. For example, suppose you have a retirement goal of $500,000 and you want to retire at age 65. (For this example, we'll use an average return of 6 percent.)

If you start investing at age 35, you will have to invest $498 each month for 30 years for a total of $179,191 to reach your goal. However, if you begin investing at age 55, you will have to invest $3,051 each month, or a total of $366,123 to reach your retirement goal. Money invested while you are young yields a much higher return.

Buy Safe Investments to Start
Entering the world of investments can be an overwhelming and intimidating experience. There is so much information, investment strategies and investment types that it would take a lifetime to learn all of them, and by then, it's too late. Start with some simple, safe investments while you continue to learn. Not only will you be able to start investing earlier in life, but you will gain confidence as you watch your portfolio grow.

However, the time to branch into more risky investments is while you are young and can handle the ups and downs of the market. So as you learn, stretch your wings. As you get closer to retirement, you may want to return to more conservative investments to protect your retirement nest egg.

Use a Broker
With the internet and online stock broking services, it's easy to buy and sell securities without ever talking to real person. However, when you're just getting started, it's a good idea to meet with a broker. Ask friends or family to refer a good, honest broker.

Brokers can explain things clearly, introduce you to investing and guide you in the right direction. They can help you set up accounts like an IRA or education savings plan. They can even set up an automatic investment plan so contributions automatically withdraw from your bank account each month. This helps if you have a hard time dedicating money to investing, plus steady investing generally leads to greater dividends in the long run.

Become Educated
There's such a wealth of information about investing that you have no excuse to not get educated. Several credible websites, from broker-sponsored sites to independent sites like Investopedia, offer articles, glossaries and even classes. You can find books at your local library, join an online investment group or sign up for free investing seminars. Lack of knowledge should never be a reason not to invest.

Practice Online Investing
Interested in playing the stock market? Before you jump headfirst into broker-managed or online stock trading, spend some time testing the water. There a couple of ways you can do this. You can start by investing and trading penny stocks. Penny stocks give you experience, let you use investment tools and make decisions based on news without a large initial investment. Penny stocks are riskier, but they are a good way to get your feet wet.

You can also use an online trading simulator. This allows you to invest virtual money in a virtual stock market that is based on the real stock market. You can learn the tools, become familiar with the different types of investments and weigh your risk with no real danger of losing your money. Many online stock trading companies offer a virtual trading version of their platform, or you can find other independent versions that are just as good.

Invest for Retirement
Retirement is the number one reason people invest. With a depleting social security system, people are relying more and more on personal investments to insure the lifestyle they want in the later years. Individual retirement accounts (IRAs) and Roth IRAs are account options for retirement that do not involve your employer. You can see a local investment agent or research the topic on your own to decide which is best for you.

Invest for Higher Education
We not only invest for our own benefit but also for that of our family. An education fund started at a child's birth has a lot of potential. Even a small amount contributed each month can grow into enough to pay part, if not all, of the child's tuition, plus this money can be used for other college expenses. This is also a great way to introduce children to investing.

Whether you can afford $10 a month or $10,000, investing is a good way to help your money grow and work for you. A small financial sacrifice now can result in a large benefit later.

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