Did you miss out on last year’s generational opportunity when the coronavirus pandemic crashed the financial market? Indeed, this was potentially a once-in-a-generation event that saw some of the most popular stocks tumble to discounted prices. But now that these same stocks have hit record highs, many first-time investors might think this is a barrier to entry.
Suffice it to say, the market is not going anywhere. With the right investment strategy, novice investors can still find opportunities, buy stocks they might have been interested in for a long time, and earn a profit. Remember, investing is about two things: patience and the long game!
The fun of meme stocks might signal that there can be times you can make a killing in a short period, but trust us when we say that this is rare – and should be avoided unless you strongly believe in an investment’s fundamentals.
So, how do you begin investing if you are a novice getting started? We have compiled a simple guide on how to start investing for first-timers:
The technology of automation has arrived in the finance sector. From automatic savings programs to automatic bill payments, there are many ways to automate your money. But what about investing? Yup, there are now even solutions to automate your investing objectives.
For example, if you own mutual funds, you can set it to purchase units at a specific time and a particular dollar amount. Or, as another instance, you can enroll in a program at your trading platform to acquire a set number of shares in a stock or exchange-traded fund (ETF).
If you want to go one step further, you can automate your investing using an all-in-one checking and investing account.
Whatever the case, this allows you to set-it-and-forget-it without having to stare at your tickers.
Every financial expert recommends investors diversify their portfolios. Instead of depending on a specific industry or relying on a particular category of products to grow your money, you can employ a diverse portfolio to limit your risk and help your money grow.
Unsure what to do? Here is an example of one of the most popular kinds of diversified portfolios:
You can maintain this portfolio through your mobile trading application, or a conventional investment hub.
Individual stock picking is challenging. If it were easy, everyone would be a millionaire. So, rather than throwing darts at the thousands of different stocks, why not index your way to prosperity?
Index funds are one of the most popular investing strategies. Index funds, either through ETFs or mutual funds, mirror the composition and performance of the leading indexes, like the Dow Jones Industrial Average or the FTSE 100. History suggests that index funds have a great track record, and they come with lower fees than competing products. Win-win!
Whatever strategy you employ, remember this: Invest for the long-term. Day-trading, especially for novice investors, is a dangerous tactic. Buying and selling stocks every couple of months threatens your gains. Buying when stocks are high and selling when they are low is the antithesis to trading.
The only way to invest is the long-term. Legendary billionaire Warren Buffett agrees, arguing that you should buy and hold for 30 years. This way, you can avoid the volatility, take advantage of history, and enjoy, if applicable, a steady monthly or quarterly income.
Dollar-cost averaging, or DCA, is another mechanism in place that allows you to avoid volatility, lower your price share average, and reap the rewards. It is comparable to regularly saving, but instead, you are putting money into a stock. All you do is regularly allocate a specific dollar amount of an investment, regardless of the share's value.
Always be aware of fees, which can eat into your capital. Whether it is the cost to buy and sell shares or the fees that your financial institution takes out for owning mutual funds or ETFs, you will face annual penalties. You should factor this into your calculations for your potential earnings.
Also, you could face various taxes for owning different types of investments. For example, if you own shares of the United States Oil (USO) fund, you will be required to "report each partner's share of the partnership's earnings, losses, deductions, and credits."
Fractional share trading and investing is the latest innovation in the finance sector. It is exactly as the term suggests: You own a portion of a full share. There are generally two ways to use fractional share investing: a reverse stock split or using a service that allows you to buy 0.25 percent of one share of Tesla Motors, Amazon, or Berkshire Hathaway (or any other sought-after stock). This is a great strategy for investors who have limited funds or do not have the tolerance for too much risk.
The world of investing has become more accessible than ever before. The finance sector has adapted to changing market conditions and consumer trends, allowing the mom-and-pop investors and retail traders to partake in the Wall Street saga. Whether it is zero-commission mobile trading or buying fractional shares, there are many opportunities for young people and first-time investors to put together a nest egg. All it takes is some strategy, patience, consistency, and a little know-how to watch your small start transform into a valuable financial cushion!