Investors today have more investment options than were available to the average investor just a few decades ago. While having multiple options is usually a good thing, too many options can cause system overload and lead many people to avoid making decisions.
Beginner Investing Strategies is a broad topic that often seems intimidating to people who are new to investing. And that is understandable – there are dozens of investment vehicles, hundreds of investing strategies, and thousands of investment options. Before we let analysis paralysis get the best of us, let’s take a look at investment options for the first time investor
But Before developing a growth investment strategy, set some ground rules. Growth investing involves risk to principal. A $10,000 contribution to a large-cap mutual fund, for instance, might be worth $9,000 or less next year. Investing your last $10,000 in the hopes of realizing returns beyond Federal Deposit Insurance Corporation (FDIC) deposits is unwise. All financial planners recommend establishing an emergency fund in an insured, easily accessible account with three to six months’ worth of household income before investing. In the case of job loss or a medical emergency, that money will be readily available to help remedy what could be an otherwise crippling financial event. With an emergency fund in place, seeking growth-oriented investments to increase personal wealth bears less risk.
Simple Investing Strategies Guidlines
When investing for growth, keep in mind the old adage: don’t put all your eggs in one basket. Consider a U.S. large-cap growth mutual fund. This vehicle is already diversified to an extent. It pools your money with that of other investors worldwide to purchase shares of stock in multiple companies. A seasoned investment manager, with the assistance of a team of knowledgeable financial analysts, makes informed decisions on purchasing attractive stocks for the fund. A typical growth mutual fund may hold the stocks of more than 100 companies, many of which are household names. Some of those companies may perform well, while others may not. By spreading the risk across a multitude of common stocks, diversification lessens the risk of investing in the stock of the one company that may have a bad year, or in a worst-case scenario, having to declare bankruptcy. Mutual fund managers generally have the foresight to sell shares of a poor performer and replace them with those of a company whose prospects are brighter.
Spread the Risk Wider
A large-cap mutual fund that holds domestic stocks is a good start for a growth strategy. There are global economies that do not move in lockstep with the United States. In domestic recessionary periods, investing in countries around the world can reduce your risk of exposing all your assets to one market. An international mutual fund paired with a U.S. portfolio spreads your risk even more broadly, allowing you to capture gains globally and tempering potential downturns in the domestic market. Additionally, small- and mid-cap stocks may do well even when the U.S. economy is not firing on all cylinders. Money will always follow the companies that have innovative products and services despite the general state of the economy. Thus, choosing a fund that invests in small-, medium- and large-company stocks, along with international issues, reduces your level of risk and buffers your potential losses amid a turbulent U.S. economic climate.
Do Your Homework
Self-education is an ideal means of investigating individual companies poised for growth through innovation and sound management. Looking at the wealth of products that billions of people consume and the services they utilize every day, it’s not difficult to hone in on a stable of companies that are large, established industry stalwarts. If long-term growth is your investment objective, purchasing shares of industry leaders is a sound strategy to boost your returns and collect dividends along the way. While there is inherently more risk in stocks than in mutual funds, individual stock investing can yield far greater rewards. Consumer giants and utility companies are a good place to start searching. With the myriad of resources available, there is no shortage of information on companies that may have a new product or service coming to market. With a solid base of safe and liquid assets, layered on top with growth-oriented mutual funds, you set the foundation to grow wealth while minimizing your risk through diversification.
Easy Ways for Beginners to Start Investing Today
If you want to start investing today, without putting your investments in high risk positions, these investment accounts will make it easy for you to get going while you get your investing legs underneath you.
Betterment is one of the top robo-advisers in the United States and makes investing easy by doing all the picking of investments for you. I detail more about robo advisors below, but it basically works that you answer easy questions and those questions determine how much risk you can tolerate.
I like Betterment because they really make the process simple and have a great record of investing.
Peer to peer lending has become a great alternative investment for people looking to get a solid rate of return, but want to avoid the stock market. Instead of investing directly in a company you can lend small business owners and individual money through platforms like Lending Club.
The average rate of return runs between 5% and 7% depending on how much risk you take. The good news is you get ratings on every loan and you can invest in any loan for as little as $25. This means with a $250 investment you can diversify into ten different loans.
Exchange Traded Funds
ETFs are a great way for a beginner to get into the stock market, have a little more control than with Betterment, and still not have to pick stocks for themselves.
What an ETF does is allow you to buy into mutual funds at much smaller amounts than a mutual fund company will allow you to purchase.
For example, when I started investing in mutual funds from Vanguard the smallest amount you could invest in one of the mainstream funds was $3,000. With an ETF you can buy a small share of the mutual fund just like you buy a small share of a company when you purchase a stock.
For ETF investing I really like TD Ameritrade because they allow you to invest in more than 100 ETFs without being charged any commission. This is a great way to get started into the ETF market without paying any extra fees.
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