Investing for Beginners - Wise Ideas to Get Started
Investing is a risky endeavor that requires discipline, knowledge, and the right tools to remain profitable. This article outlines a few tips that will help any new investor stay afloat and thrive during their investing journey.
Start investing in stocks now with Degiro!6 Investment Ideas For Beginners
As a new investor looking for ideas to get started, here are a few;
Roth IRA Account
IRA stands for an individual retirement account, and it is a savings account that comes with tax benefits. The primary purpose of a Roth IRA is to encourage people to save for retirement. It involves paying taxes on the money that goes into your account so you can make tax-free withdrawals later.
To contribute to a Roth IRA, you shouldn't earn above an annual income of $140,000 if you're single, and the limit for married couples is $214,000. Also, the deductible amount that any one person can contribute to a Roth IRA varies. For 2023, it is set at $6,000 a year. However, this amount changes if you are 50 or older, then you can deposit $7,000 a year.
IRAs can be funded from various sources, including spousal IRA contributions, regular contributions, rollover contributions, transfers, or conversions.
With a Roth IRA, you have the option of investing in several financial products, including mutual funds, ETFs, bonds, and stocks.
You can open Roth IRAs through a bank, a personal broker, an online brokerage, or an investment company.
Regular Roth IRA contributions are usually made in cash, including checks or money orders.
6 Best IRA Accounts Comparison in 2024Copy Trading
Copy trading is a trading strategy that involves a trader copying an investor's positions. Copy-trading permits traders to execute the same trades as an investor without necessarily knowing the investor's strategy. Copy trading is a better alternative for traders who don't have time to trade themselves, and it focuses on short-term trading. Various trading strategies are used to generate revenue when copy trading, but the most used are swing trading and day trading.
Copy-trading focuses on cryptocurrencies, assets within the forex markets, and other volatile markets. Although copy trading can be a lucrative strategy, it comes with some risks because past results are not a true reflection of future returns.
There are various ways to copy trades. One way is to copy all transactions of another trader, including, take profit, trade entry, and stop-loss orders. Another way is to receive notifications on trades and manually copy the transactions. This is facilitated by a CFD trading account or spread betting, two derivative products that allow traders to speculate on the price movements of a financial asset without ownership of the asset.
Copy trading is helpful to traders who want to diversify their portfolios. Rather than investing all their funds into one position, strategy or asset, they can employ multiple trading strategies. To be on the safe side, you should find different traders to copy.
Index ETFs
An index ETF is an exchange-traded fund that tries to track the performance of an index. They are similar to index mutual funds, but the difference is that mutual fund shares can be redeemed at a specific price each day, called the net closing value (NAV). Index ETFs can be bought and sold all through the day as a stock. Index ETF gives investors exposure to various securities in a single transaction.
The advantages of index ETFs are that they offer instant diversification in a cost-effective and tax-efficient investment with less volatility. Other benefits include attractive fee structure and tighter bid-ask spreads, which makes filling orders efficient and easy.
A disadvantage of index ETFs is that it tracks the underlying asset may not be perfect at times, and the difference at any given time can be as much as a percentage point. To invest in an index ETF, it's important to consider liquidity, tracking error, asset fees, and other standard investing basics.
Indices, on average, grow in value over the years, and it is challenging for a beginner to beat them. In addition, leading funds offer extremely low fees and excellent liquidity.
Examples of index ETFs include IVV (S&P 500 Index), FXI (FTSE China 25 Index), ONEQ (Nasdaq Composite Index), EWG (German Index Fund)
Robo Advisors
Robo-advisors are platforms that gather information, like their client's financial situation and future goals using an online survey and then using the responses to provide personal advice and provide automated, algorithm-tailored financial planning and investment services with minimal human coordination.
An advantage of using Robo-advisors is that it is less expensive. Robo-advisors provide traditional investment services for a lot less than human advisors. Also, the minimum amount required to use this software is minimal compared to the equivalent amount required by financial planners.
Another advantage of Robo-advisors is their ease of use and security. Through Robo-advisors, investors can invest in a wide range of asset classes and from any device of their choice while giving access to portfolio management tools that make the investing process more flexible and secure. Also, Robo-Advisors are more accessible in terms of capital requirements. While human advisors may require an account balance of at least $100,000, RoboAdvisors accommodate as low as $5,000 or even $0, in the case of Betterment which requires no minimum balance.
The downside to Robo-Advisors is that no matter how much they try, they can never offer the level of fully-personalized services as their human counterparts.
Examples of Robo-Advisors are Wealthsimple, Betterment, Wealthfront, SoFi Automated Investing, Ellevest, and Acorns.
Other ETFs
Aside from index ETFs, many other kinds of ETFs are good investment ideas for a new investor, and some of them are;
First, we have Equity ETFs. These are ETFs that track an index of equities. You can decide to cover either stock, small businesses, or large businesses from a specific country. Also, with equity ETFs, you can target well-performing sectors like banking or tech stocks. Examples of equity ETFs include International ETFs, Dividend ETFs, Market-cap index ETFs and Sector ETFs.
There are ETFs for Gold too, and they are; Aberdeen Standard Physical Gold Shares ETF (SGOL), SPDR Gold MiniShares Trust (GLDM), GraniteShares Gold Trust (BAR).
Another type of ETF is Fixed-Income Funds, and this is highly recommended by most financial advisers. This is because bonds tend to decrease the volatility of a portfolio. They also provide an additional stream of income for the investor. Examples of bond market ETFs include; BlackRock, Vanguard Total Bond market Index, iShares US Aggregate Bond ETF, etc.
Examples of ETFs for real estate are iShares US Real Estate ETF, Schwab US REIT ETF, etc.
For high-tech stocks, examples of ETFs include; Invesco, Technology Select Sector SPDR Fund.
Other ETFs include currency funds, commodity funds, and specialty funds.
Mutual Funds
A mutual fund is an investment scheme that involves many investors pooling money together to invest in securities like bonds, money market instruments, stocks, and other assets. A typical mutual fund is managed by a professional money manager who apportions the fund's capital to make a profit for the investors.
A mutual fund offers individual or small investors the opportunity to leverage professionally managed portfolios of bonds, equities, and other securities. In mutual funds, each investor shares in the profit or loss of the funds in proportion to their contribution.
There are four main categories of mutual funds: stock funds, target-date funds, bond funds, and money market funds.
Stock funds invest in corporate stocks. This category is subdivided into Growth funds, Income funds, Index funds, and Sector funds.
Target date funds hold a combination of bonds, stocks, and other investments. This combination usually shifts over time depending on the fund's strategy. The target date fund is typically for individuals with a retirement date in mind.
Bond funds are at higher risk because they aim to generate higher returns. Also, the rewards and risks tend to vary with the types of bonds.
Money market funds are low-risk funds, and they are required to only invest in specific high-quality, short-term investments.
Investing For Beginners - Top 5 Tips
Set Your Objectives
Setting long-term goals is essential when starting your journey in investing. Whether you're saving for your child's education, your retirement, or another reason, a long-term objective will help you understand the importance of saving. Also, when you have set goals, the investing process will be a lot easier, and you will see purpose in setting money aside.
Level of Risk
No matter what you choose to invest in, your investment option and the amount you commit should be adequately and carefully scrutinized to ensure you are making the right decision at any time. To identify the risks associated with different investment channels, you have to compare these channels comprehensively. Understanding the level of risk associated with every investment will help you limit your losses.
Control over Emotions
One of the most important tips for new investors is to learn to control emotions. Whether you're investing in the stock market or other schemes, it's vital to control your feelings because things will not always look good. And if you don't have control over your emotions, you will cut your losses whenever things don't go your way.
Study the Market
Before investing, every investor needs to study the market and the schemes. Whether you're being advised by humans or not, it's important to know first-hand what you're getting into, and the best way to do that is to do your research.
Diversification of Portfolio
Diversifying your investments is one of the most effective ways to manage risk. After all the research has been done, it is up to you to split your capital into the different investment schemes according to their corresponding risk factor and expected returns. Diversifying your portfolio will not be the easiest task for a new investor, but it gets better with experience.
How Much Money Do I Need To Start?
You can start your first investment with $500. You can buy ETF shares and subscribe to copy trading signals for this amount. The primary thing is that your investments are regular.
How to Start Investing - a Beginner’s Guide
Define your Long-Term Goals
The first step to investing is defining your long-term goal. For you, it could be that you're saving up for a rich pension, or you are planning for financial independence. Also, you could be investing so you can live off the interest on your investments. Whatever your reason for investing is, it should be strong enough to drive your commitment. And you can have different goals for different investment options.
A compelling goal will not only help you plan your investment direction, but you will also have a strong enough reason to stick to the plan when things don’t go your way.
Repay your debt
The next step to take when starting your investing career is to repay your debt. There are many advantages to paying off debt before starting your investing journey. One of them is avoiding reducing the amount of interest paid overtime. This is helpful if you have loans with high interests.
Also, you should pay off debt before investing because it helps improve your credit score. When you get rid of your debt, you can remove the emotional and mental burden, paving the way for you to focus on your financial goals.
Determine how much you are willing to invest
The third step is to determine how much to invest. The right amount to invest is important because you need to be comfortable forgoing that amount without affecting your livelihood. Although different investment schemes have their minimum investment amount, setting aside a percentage of your income every month is important. Setting aside a monthly percentage makes it easy to plan and keep your investment commitments.
As a general rule, most advisors suggest investing 10-15% of your yearly income if you're saving for retirement. However, the amount you decide to invest depends on how much you earn, your liabilities, and your goal.
Open an Investment Account
Typically, an investment account with a major US broker is sufficient for most purposes. The brokers offer various options (stocks, options, ETFs) and provide low commissions.
| Broker | Best For | Minimum Investment Amount | Investment Assets | IRA Account | Robo Advisory | |
|---|---|---|---|---|---|---|
Copy Trading, Free Stocks Investing |
$0 |
US Stocks, ETFs, Cryptocurrencies, Forex |
No |
No |
||
Free ETF trading, IRA account |
$500 |
Stocks, Options |
Yes |
No |
Best Brokerage Accounts for Beginners
eToro
eToro is a safe and trusted broker launched in 2007. The company is regulated by the Federal Conduct Authority (FCA) and the Australian Securities and Investments Commission (ASIC). eToro has many advantages and opportunities, including its multi-asset offering, which offers investors as much as 2,000 assets to invest in. Also, eToro has a 0% commission fee, and there are no hidden charges. Another advantage is that eToro also has an insurance cover for its clients, covering up to 1 million Euro, GBP or AUD. However, eToro is well known for its copy trading feature.
eOption
Although eOption was launched in 2007, its parent company has been around since 1976. The broker's target market is cost-conscious, occasional traders with major inactive options and equities. eOption has many advantages like its low options contract fee, and automated trading. Also, there is a provision for international accounts, and the broker offers low margin rates. eOption offers $0 commission stocks, and all ETFs are commission-free. With eOption, you can maintain a minimum account balance of $0. eOption is ideal for investing in ETFs and IRA accounts.
Top 5 Investment Tips for Beginners
Have an Emergency Fund
As a new investor, you should have an emergency fund built out before making any investment commitments. This is because you will encounter urgent financial needs in the course of your life, and the last thing you want is to liquidate your investments, sometimes at a loss. Having an emergency fund ensures you have something to fall back on in times of urgency.
Figure out your monthly expenses
Fully understanding your monthly expenses will not only prevent overlap between your needs and your investments, but you will be able to meet your commitments regularly. The best way to do this is to have a budget that completely covers your monthly expenditures.
Read books about investing
No one starts out investing like a professional. Investing wisely and profitably is a skill, like any other. To master this skill, you need to develop yourself by reading books about investing. However, aside from books, you can take time to watch videos, listen to podcasts, read dailies and publications about investing.
Be consistent
Your investment commitments are another important tip for new investors. You don't have to worry about the best time to invest if you are consistent in making investments. Also, you would have invested more over time.
Master the Art of Diversification
Mastering how to apportion your capital to various investment schemes is another skill that you need to master. Apart from protecting your funds and limiting your risk, diversifying your portfolio will be helpful if you need an urgent withdrawal. When your investments are diversified, you can liquidate a particular investment without affecting your entire portfolio. Every successful investor has mastered the skill of diversification.
What to Read
As a new investor, you will need to study to get any better or become a master at investing. While there are many audio and video content for new investors, here are some books as recommended by professional investors
The Little Book of Common Sense Investing by John C. Bogle
The Intelligent Investor by Benjamin Graham
A Beginners Guide to the Stock Market by Matthew R. Krater
The Book on Rental Property Investing by Brandon Turner
The Only Investment Guide You'll Ever Need by Andrew Tobias
Summary
While investors can invest independently without the assistance of an investment expert, new investors must have the adequate knowledge and tools to profit from their investments. No matter how you decide to invest and where you invest, this article answers most of the basic questions you may have.
FAQs
Which broker is preferable for copy trading?
eToro is the preferred broker for copy trading.
What is the first step to take before investing?
First, you have to define your long-term goals.
What are mutual funds?
A mutual fund involves many investors pooling money together to invest in securities.
How much can I start my investment journey with?
With as much as $500, you start investing profitably.
Team that worked on the article
Oleg Tkachenko is an economic analyst and risk manager having more than 14 years of experience in working with systemically important banks, investment companies, and analytical platforms. He has been a Traders Union analyst since 2018. His primary specialties are analysis and prediction of price tendencies in the Forex, stock, commodity, and cryptocurrency markets, as well as the development of trading strategies and individual risk management systems. He also analyzes nonstandard investing markets and studies trading psychology.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.