The following is a post from staff writer Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting in the fun stuff along the way.
I would consider myself a beginner investor since just the idea of finding a good stock makes me cringe. This is why my husband handles that part of our finances, but we should all at least know some basics, right? Here are a few helpful tips that may help out beginner investors like me:
Investing Tip #1 – Fees
Nothing destroys an investment return like fees. Keep an eye out for low fee options when buying stocks, bonds, or mutual funds. Funds with high expense ratios and commissions often do not live up to their hype and should be avoided. You can quickly increase your investment return by buying no load mutual funds and other investments with very low fees.
I was personally surprised that both of the target date mutual funds that I invest in with our 401(k) and Roth IRA have some of the lowest expense ratios around. In fact, all of Fidelity’s and Vanguard’s target date mutual funds are pretty friendly when it comes to expenses. Yay for good luck!
Investing Tip #2 – Index Funds
One of the easiest ways for any new investor to invest is by buying an index fund. Index funds, like target date mutual funds, relieve you of the work of having to diversify your own portfolio. They are cost efficient and allow you to buy an entire market index in one simple mutual fund. Index funds have outperformed the majority of mutual funds in the marketplace over the past few decades as well. They are the definition of an easy out.
Investing Tip #3 – Invest Long-Term
Lots of people say they are investing for the long haul but very few people actually do. At the first sign of trouble or during a market drop, they sell all of their shares and cost themselves a lot of money. I am personally thankful for that since my husband and I can then buy shares at a huge discount. The old cliche – buy low, sell high is a cliche for a reason. Seriously, don’t dump your shares of a stock during temporary dips. If you have lost all faith in the company and its ability to bounce back, run. Otherwise, tough it out and see if you want to cash out when the market rebounds.
Investing Tip #4 – Research Your Investments
Don’t just leave it up to your broker or financial advisor to know about your investments – you should research them for yourself as well. Look up the composition of your funds and make sure that it fits with your investing goals. You may not know everything about them, but you should at least know what you are buying. Make sure that you are comfortable with the places that your funds are invested. If you are a low risk person with high risk investments or the other way around, that is probably not a good balance for your investment portfolio.
What other tips can you think of for beginner investors like me? I know my husband is a fan of high dividend yielding stocks.