So many choices, so much to understand. For the beginning investor, determining how to get started and what to do may seem overwhelming. But relax, take a deep breath, and start at the beginning.
Here are five ideas that should help:
1. Identify your goals: Create a list of what you want to accomplish, such as the down payment on a house, buying a car, getting married, saving for your children’s education, erasing your debt, or setting up a retirement account. Then rank them in order of importance to you and your significant other. Be realistic, think your plans through. Don’t expect to achieve everything you want overnight.
2. Define your tolerance for risk: You should realize that there is a direct relationship between a possible risk and a possible reward in every situation. If you want to realize a greater reward, you will likely need to accept a greater risk. The reverse is also true: if you risk little, your reward will be miniscule. Most people have some degree of risk tolerance. Find yours and apply it to your investing decisions.
3. Determine your time horizon: You can't just "set and forget" your investments. Life happens, markets shift, and big life changes, such as marriage, children, illness, and retirement will determine when it's smart to make financial adjustments. You may need to readjust your time horizon — the period that you set to accomplish your goals – and, redefine the amount of risk you choose to take in your portfolio. As your money grows, or shrinks, and as you get closer to the end of your time horizon, the original portfolio you created may no longer suit your needs. Re-examine it every year and adjust it to fit your current situation, when necessary.
4. Become a student of investing: You have to learn the tools of the trade. Whether you plan to become a do-it-yourself (DIY) investor, or turn to financial advisors for advice, you must know the basics of investing and how to create an overall investment plan. Morningstar.com offers an array of investment advice on a variety of investment vehicles. You may need to pay a subscriber fee for more in-depth information. But a one year membership could be very helpful. And, the Wall Street Journal is essential to your learning process. You can get a digital subscription at a reasonable price. Also, don’t overlook the market information flowing from the New York Stock Exchange, NASDAQ, and the S&P 500, where you’ll find market research, company news, and market indices. If you’re seeking information, and you should be, there are many places to find it.
5. Get rid of expensive debt before investing: Get your debt under control by getting rid of high interest debt on credit cards or personal loans. You’ll need to free up money in order to make money. Every dollar you put towards investing should work for you. High interest debt is not working for you.
Remember, everyone’s situation is different. What you learn about investing, and your investing experiences will be unique to you. There is, however, one piece of advice that may fit everyone: Today is a good day to start.