Investing Tips for Beginner Investors

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.

Investing Tips for Beginner Investors

Sweating the Big Stuff

8 thoughts on “Investing Tips for Beginner Investors

  1. Asset allocation and asset location were two important factors that I dismissed in my earlier investing days.

    Asset allocation is basically how assets are diversified among varies market sectors in accordance with age, risk tolerance, and financial goals (among many other factors). Typically, one would be be more heavy on stocks at a younger age and drift towards bonds and income investments near retirement.

    Asset location is where you put your investments to minimize tax exposure. Experts suggest putting bonds and other income-producing assets in tax-advantaged accounts whenever possible. Meanwhile, appreciating assets such as stock funds go into taxable accounts with tax-advantaged space is maxed out. Combining low cost funds and minimizing tax exposure means there is more upside potential.

  2. Great tips for the beginner invester.

    I agree with Simon- asset allocation is crucial. Look at all of the people who lost their money a few years ago because they had everything in just one basket.

    For stability, definitely have your money spread out!

  3. Broad index funds are great for beginners and others as a basis for investors. If you look at John Bogle’s portfolio (Vanguard founder), it is all index funds.

  4. Also, remember what you are investing for and how you will start taking money from your investments. So many people lost 40% during the last drop, when they were about the retire, yet had no money in bonds or cash. The common wisdom is do not invest in stocks for anything you want in the next 5-10 years yet, those many saving for retirement do not follow that.

  5. I think that the fees are crucial here – they can easily eat away your gains. One more important thing is not not get too conservative (for your age) as inflation could eat away your gains and leave you with the same amount of purchasing power (or less) than what you started with.

  6. All of you made some great points! My husband and I are somewhat diversified, but heavy in equities since we are 27 and 28 years old. We have a lot tied up in low-fee target date mutual funds and invest separately in high-dividend yield stocks as well. By the time we near retirement at age 52, we’ll have much less in stocks and way more in low-risk investments like bonds. :-)

  7. These are some great tips for making sound investments. The part that stands out most to me, is the need to have investment tip #4 this high up on the “things to be aware of” for beginning investors. I can not imagine the amount that some people put into for investments without doing an adequate amount of research or reading the fine print. In my eyes, this is one of the worst mistakes a serious investor can make and it happens more times than you would think!

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