8 Simple Investment Tips for Beginners

You won’t make any money by just leaving your hard-earned dollars in a checking account. Investing your money is the best way to make it grow. But do you know how to get started with basic investing strategies?

Read on to discover eight simple investment tips for beginners!

1. Get Rid of Existing Debt

When you’re trying to improve your financial health, start that process by paying off existing debt. Especially if you have debt with high interest rates, this action is critical. You could undo any new investments you make if you’re saddled with significant debts.

This doesn’t mean you have to pay off a mortgage before exploring the stock market. But credit card debt, personal loans, and even student loans can cut into your income. Check the interest rates on these debts.

Some credit cards charge interest rates of 15% or higher if you have outstanding payments. Make an effort to pay your balance in full each time you get a statement. And chip away at any debt.

Regulate spending on entertainment and activities, like eating out. If you can control these spending habits, you’ll be able to pay down debts more quickly. And you’ll have more money to make smart investments!

2. Allocate Money for Investments

You don’t want to invest all of your paycheck in stock options or CDs. Instead, you’ll need to determine how much you can reasonably set aside for investments. This means taking a careful look at your budget.

Ideally, you’ll want to invest at least 10% of your income in options like mutual funds, index funds, or IRAs. So, if you’re bringing home $3,000 per month, aim to siphon off at least $300 to put toward investments.

If you can go even higher with your investment percentage, that’s better for your long-term financial health. Try to reach 20% if you can. But if those percentages are too lofty, start with whatever you can comfortably invest!

3. Look at Retirement Plans

Does your workplace offer a retirement plan? Start your investment strategy there. If you’re not taking advantage of an existing employment-sponsored plan, like a 401(k), it’s time to do so.

Some companies will offer matching for investments up to a certain percentage, too. This means that if you invest 4% of your paycheck into the company’s retirement plan, the company will match that amount. That equates to free money!

Always invest up to the matching amount, if you can. And as you monitor your budget over the months and years, increase your contributions when possible.

If your company doesn’t have a retirement plan, consider other options, like traditional or Roth IRAs. With a Roth IRA, you’ll invest after-tax money.

The benefit of this approach to investing is you won’t be taxed for the earnings as your money grows. You can take money from a Roth IRA after age 59.5 without penalties.

4. Look at High-Yield Savings Accounts

Investing for beginners means looking at high-yield savings accounts. This is one of the safest ways to start growing your dollars. And these accounts are great choices if you’re a little anxious about making investments.

High-yield savings accounts will have a variable yield percentage, but sometimes it can be quite high. You can even find some that exceed 5% without requiring a minimum balance.

High-yield savings accounts ensure that you won’t risk losing money. The growth potential might not be as high as in index funds or stocks. But these accounts are a safe and effective place to park your money.

5. Check Out CDs

Certificates of deposit, or CDs, are another safe and effective way to grow your money. This variation on a savings account usually offers a better annual percentage yield.

Just be aware that your money will be tied up for a while. For instance, a five-year CD means you won’t be able to access the money until that timeframe ends.

You can find shorter CDs for lengths of six months. Those shorter-term options may not have as strong of an annual percentage yield. But they still can be effective ways to get started with investing for beginners.

6. Consider Mutual Funds

Mutual funds are a safer place to put your money when you’re getting started with investing. Mutual funds consist of multiple investments, and you purchase a share of the collection.

The benefit of a mutual fund is that you’re not putting all of your money into one stock. Instead, you’re distributing investments across different funds. This lowers the risk of big losses.

Mutual funds can skew more toward bonds or stocks, depending on your preference. Generally speaking, you’ll want to put more money toward stocks when you’re younger. And you’ll want to gradually put more money toward bonds as you age.

7. Investigate Stocks and ETFs

Other options include investing in stocks or exchange traded funds (ETFs). ETFs resemble index funds in that they draw from investments in market indexes. They tend to be cheaper for investors to purchase, however, and they often don’t come with commission fees.

It can pay to invest in individual stocks, too. This is particularly true with hot and growing companies. But investing in a single stock comes with significant risk if that stock plummets.

You also can look at investing in alternatives, like hedge funds or real estate. Just be sure that you’re not investing all of your savings in one option!

8. Aim for Balance

Finally, any strong investment strategy will value balance. That means not putting all of your money in a single stock.

Try to distribute your investments across different types of funds. A balanced portfolio will feature different stocks, bonds, mutual funds, and ETFs.

Working with a financial advisor can be useful as you’re getting started. They’ll learn your risk tolerance and timeline preferences to help guide you toward the right investments.

Follow These Investment Tips for Beginners

The best investment tips for beginners prioritize balance and consistency. Pay off larger debts first, and look at retirement investment options. Then work to create an investment portfolio that represents the right level of risk and growth potential.

Get more tips to improve your financial health. Check back soon for the latest articles!

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