What Are The Best Investment Strategies for Beginners?
With investing, the best strategy is to take small, smart steps that eventually lead to big gains. This is especially important for beginning investors who start with small amounts. Patience and a smart strategy are the keys to success.
Wise investment strategies are part of what students learn in Point Park University’s online Bachelor of Science in Business Management . Whether they choose an entrepreneurship or management concentration, graduates learn best practices for putting their money to work for them.
Where to Start
It’s tempting to jump into investing. That’s because it’s never been easier to invest. More sites than ever allow people to directly invest in the stock market. That’s both convenient and dangerous, because putting money on the stock market is not where you want to start.
Instead, take the time to think about these issues before investing.
Have a reason. People invest for different reasons. It helps to have concrete goals. Most people invest to have retirement money down the road. Others want passive income that can get generated from market gains or dividends.
Limit what you invest. Try to use money that you are reasonably sure you will not need to spend for five years.
Limit your trades. If you plan to actively trade, don’t use more than 10% of your total portfolio.
Use dollar cost averaging. Rather than try to time the market – a fool’s errand in most cases – use dollar cost average, which means buying and accumulating stocks over time at regular intervals.
A Safe Approach to Investing for Beginners
Nothing is easier than finding a way to take chances investing. The wiser and more lucrative approach is to have a disciplined approach and stick to it over time. Consider these 11 ideas.
Put Money in Your 401K
If your company offers a 401K, it’s a great investment vehicle. It’s even better if your company matches your contributions, which is essentially free money. In most cases, you select a percentage of your income to get taken out of every paycheck, offering the bonus of making your contributions automatic. Also, if money is taken out pre-tax, you lower your tax liability for the year the contributions were made.
Funds contributed to a Roth IRA come from your taxable income, but you only pay taxes on income once. That means the money that grows in a Roth IRA account can be withdrawn tax-free, which is a very good thing, indeed. A traditional IRA works in the opposite fashion, giving you a tax deduction for your initial contribution. These rank among the best ways to save for retirement.
Spread Your Investments
Whether you use your 401K, a Roth IRA or traditional IRA, make sure to spread out where you invest the money. It’s important to have a mix of stocks, bonds and cash to help your portfolio ride market volatility. This “many baskets” approach calls for putting no more than 10% of your money into high-risk stocks.
Typically, you can invest in mutual funds through your 401(k)s program. You also can seek them out independently without attachment to an employer. Mutual funds spread out your investment across many different stocks, helping you better ride the ups and downs of the market.
Exchange-Traded Fund (ETF)
These relatively new funds trade like stocks, although they are more like mutual funds. You can buy an ETF that mimics the Dow Jones Industrial average, for example, or one that follows the S & P 500. Again, the key here is a safe investment that won’t give you the highest highs the market reaches, but also will help you avoid the lows.
You could do no more than these relatively simple, straightforward and safe steps and, over time, accumulate the kind of wealth that changes your life, especially over a three or four decade time span.
Another safe investment outside the markets is real estate, which historically has been a safe investment strategy. The key again is picking a safe investment and holding it over time. One downside to real estate is that, unlike the stock market, it’s sometimes difficult to come up with the higher amount of cash you need to enter real estate.