investing for dummies

Investing for Dummies: A Beginner’s Guide

As the stock market hits record highs, the number of people invested in the market is at a record low of 54%. The biggest reason for this is that not everyone knows how to begin investing. There aren’t enough simple “investing for dummies” guides out there.

Making small investments when you’re young and starting your career can pay off later when you need to make major purchases like a home or a car.

They can also lay the foundation for your retirement at a later age. A few stocks in a tech company could end up putting your kids through college 30 years later.

If you’re looking for a guide to investing for dummies, we’ve put together a comprehensive list of steps for beginners. Follow these 8 steps to make smart investments, no matter what your income is.

1. Set Your Budget

If you jump into investing without having an understanding of your own limitations, you’re sure to get exhausted and make some mistakes. You shouldn’t invest more than 5% of your spare income at first. If you don’t know how much that number is, it’s time to write that down.

You shouldn’t be investing while you have major outstanding debt. You should be accounting for a comfortable cost of living, paying off any loans, and then measure out a separate amount of money for investing.

If your investments start to cut into your savings or your living expenses, you need to pump the brakes. There’s no way you can make intelligent decisions about your investments if you’re depending on them for your basic living costs.

Investment funds should be solely based on spare money you’re hoping to grow into something else. Investing with your living expenses is like going to Las Vegas with $10 hoping to pay off your mortgage with it. Be smart and protect yourself when you’re getting started.

2. Get To Know The Basics

When we’re talking about a guide to investing for dummies, there’s no expectation that you know all the terminology. You should understand a few basics to inform your decisions.

Get to know the difference between mutual funds, bonds, stocks, and CDs. You’ll get an understanding of how these things have the potential to grow and what you can expect from them.

Basic online tutorials are a good way to get a hang of how other people get started. Knowing the terms can help you to communicate clearly with brokers and other stockholders. A basic understanding of the language of investment will help you to get your feet wet and start making some smart moves.

You’ll learn the most by getting your feet wet and getting involved in the market. Theories can inform your decisions but they won’t be able to tell you how it really feels to be engaged in a portfolio.

3. Set Your Goals

You should have an idea of what you hope to get out of your portfolio. If you’re looking for an aggressive investment opportunity that leads to a huge sum of money to retire with, you’ll have one set of goals. If you’re looking to put some money away and check in on it in a few years, you’ll find it’s much easier.

Making money with investments requires a focus on market trends, where to divest from, where to invest in, and what emerging technology could influence all of that.

Investing for dummies doesn’t require you to make dumb decisions. Don’t put too much pressure on yourself right away. Having a grandiose goal of trying to buy a small island will keep you from seeing the conditions that could be keeping you from making your first ten dollars.

Set monthly goals, annual goals, and start to think about a 10-year plan.

4. Know How Much Risk You Can Handle

If a loss of $1,000 would wipe out a big chunk of your current investment fund, you’ll need to be very careful. The lower your tolerance for risk, the more research you’ll have to do in advance. No investing for dummies guide would be honest without telling you that you might lose money.

However, if you watch overall trends, most stocks go up over the course of 10-20 years. They can grow faster than regular wage inflation, which is why people invest in the first place.

Risk can be an emotional rollercoaster, so be honest with yourself about how much you can handle losing. If you’re the type of person to storm out of a casino after spending $20, you might want to have a nice and easy portfolio. An aggressive portfolio could cause you more stress than is worthwhile.

5. Find Your Style

Now that you have an idea of what your tolerance is relative to your goals, you have to figure out your style. There is one school of thought, beyond investing for dummies, that requires you to be watching the market all day. If you hope to make all of your money from the market, you’ll slowly transition to doing this full time.

If you’ve got the privilege of being patient with your investment, take your time and allow the market to lift you up at its own pace. If you’re only investing as a hobby or out of interest, you’ll have fun making many small investments rather than playing a high-stakes game.

Some people like the pace of reading the Wall Street Journal every day, watching their energy stocks and knowing what influences the price of oil. You might find it distracting, so when you’re first investing for dummies, see how much you really care about the nitty-gritty of the industries you invest in.

6. Get To Know The Fees

It’s not free to invest or to trade stocks. There are often costs associated with moving your money from one place to another. A discount broker can help you buy and trade on your smaller investments.

There are management fees for anyone who gets involved with mutual funds. The costs associated with operating the fund cover the work of people who make sure that it grows.

The fees that go along with the kind of investments that you make will dictate where you invest. They could end up costing you more than you intended and make you wary of getting involved in higher stakes mutual funds.

7. Find A Broker

It’s important that you find an advisor who has your interests in mind when you’re at the “investing for dummies” level. There are advisors who have a strong reputation and are well known but could be out of your budget. There are brokers who know a particular market or industry better than others.

Finding a lesser known broker who happens to be an expert in the field you’re investing in can be more valuable than a big name who knows less. Your broker needs to be able to read trends and predict what’s going to happen.

Your broker should become a confidant and a friend in the world of investment. If you feel like you have trouble building a rapport or if you feel they’re not listening to what you want, don’t be afraid to find someone new. Your broker needs to know how much risk you can handle, where you want your investments to go, and which industries you prefer.

If they go rogue and start investing in industries you don’t want to be involved in, you could end up frustrated even if they show returns.

8. Keep Your Emotions Under Control

It can be hard to not get overexcited about an investment that does well and start getting more liberal with your spending. You should remain careful when you get a good return or else you’re going to be stuck at the level of investing for dummies.

You should also be aware that you will want to take losses personally. Avoid that at all costs. Everyone involved with the market takes a hit now and then and it doesn’t mean you’re doing anything wrong.

Trends move up and down, spiking and falling. You need to remain steady so that you can make a smart decision when you feel the pressure of a new opportunity or a sudden drop in your portfolio.

Investing For Dummies Is A Misnomer

While there are people who have a lot of experience and know how to mitigate risk, no one is a true expert at investing. There is no such thing as a “sure thing” and no one has a perfect record. Remember that everyone else is taking the same risk you are.

If you want to know some smart investment solutions, check out our guide to investments no one will tell you about.