Creating a sound investment portfolio is one of the best ways you can save enough money to earn that early retirement you’ve always wanted. But, the first steps in investing your hard-earned money are often the most challenging, and not knowing what you’re doing is a surefire way to get eaten alive.
We understand that it can be daunting to start investing, so we have compiled a list of 6 easy hacks to help beginners like you navigate their path.
1. Start Saving Money
You can’t build a stable structure on weak foundations. Before you set forth on your investment journey, you must get your house in order. Start with mapping out your expenses; remove as much unnecessary spending as possible and form a monthly budget plan.
It makes sense to eliminate luxury and unnecessary expenses, such as eating out and excessive shopping. Get rid of that Spotify subscription you barely use and fix your own faucets rather than hiring a plumber. Just by living within your means and being more self-conscious, you’ll soon save enough money to invest.
2. Eliminate Your Debt
Is it wise to fill a leaky bucket? Of course not! Similarly, you can’t expect to see significant growth in your net worth unless you break free from the shackles of debt. Your investments can go up or down, but the interest on your debt is sure to rise.
An increasing debt will likely offset any gains you make off your investments, so paying off student or car loans, mortgages, and other debts have to be among your priorities. You could do this by first saving money and paying off your loans before focusing on building a portfolio. Alternatively, you could invest in low-risk stocks or bonds and use the gains to repay the loans.
3. Know What You’re Getting Into
Fun fact: the stock market isn’t just random numbers and charts that trend upwards or downwards. There are real-world companies behind those trends, and for the most part, their financial performance determines their stock prices.
Many beginners start by investing in the hot new thing without knowing why it’s trending upwards, only to run with their tail between their legs when the price eventually encounters a dip. And there are others who foolishly drain thousands of dollars into a depreciating stock thinking “how low can the sucker go? It has to start rising at some point, right?” Answer: zero and no, not all stocks rebound.
Many wannabe investors also approach investments nonchalantly, inevitably fail, get disillusioned with the process, and resign themselves to the idea that only the likes of Warren Buffet and Peter Lynch can make any money with stocks.
The good news is that by knowing some basics, you could steer clear of some common mistakes day traders make, saving yourself from the aforementioned path. So, before you start investing in stocks, invest some time into learning how the stock market works. Watch investment tutorials on sites like YouTube and Udemy and research the products of the company you’re considering for your investment.
4. Start With Small Amounts
As beginners, it is natural for all of us to make mistakes. It’s perfectly ok to make a bad investment and lose some money on it – unless, of course, you just flushed half your life savings down the drain. You could quadruple your money by shoving all-in without checking your hand on a high stake’s poker table without so much as knowing the rules.
But there’s a reason the pros don’t do that – that play will always lose you money in the long term. Similarly, you could place big bets on one stock, but you are more likely to lose your money that way.
It’s better to start small to first learn the game, and then start upping the stakes. You should also avoid putting all your eggs in one basket. Instead, diversify your portfolio so that your entire net worth isn’t wiped off the face of the planet if your only investment crashes overnight.
5. Can’t Afford Blue Chips? Try Partial Shares and Penny Stocks
Not everyone can afford to buy hundreds of shares of blue-chip stocks like Apple or Amazon. If that is you, consider starting with micro-investment in partial shares where you and investors like you have co-ownership of a share. As time progresses, you could start owning full shares and then multiples of them.
Penny stocks are another great option. These are sub-5-dollar shares from small companies that don’t trade on big stock markets. Since their prices are so low, these are some of the highest potential stocks. But be wary and do your due diligence before investing in these companies, as many of them end up failing as well.
6. Try a Micro-Investment App
Micro-investment apps link to your bank account and invest the change you receive from purchases you make using your debit card. For example, if your groceries cost you 9.65, the app will round up to 10 and transfer the extra 35 cents to your investment portfolio. What difference do 35 cents make, you ask? Over a year, trust me, that sum adds up, and before you know it, you’ll have a respectable portfolio.
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