5 Investment Tips for Newbies

Investing Tips for Newbies

Thinking about investing time in that new relationship, with investing of course? Well, I’ve got some great tips for you on how to do it even better. Let’s try to have a committed, successful relationship, shall we?. Yes, we shall.

1-Know What You’re Investing In & Why

When investing you might be tempted to hand your money over to someone else and say, just put it where you think is best. This is like saying, okay mom, find me the best guy you can and I’m ready to commit.

Well, depending on who is investing your money they could do a great job because they know you really well, they understand your goals and your behaviors or they could do a really bad job because they don’t have your best interest at heart or maybe they don’t really understand what you need.

Even if they do know you pretty well and understand your goals, you still may not want to let them blindly lead you to what they think is best.

I know who my mom would try to pick as my future husband and wo, um, no thanks mom. Sure he’s nice, but oh man, really… really, he cried when I told him I wasn’t interested in a second date. I get it, I’m a great gal, who wouldn’t want to be with me (but for real, after one date, I’m not that great)? But that’s great a man is willing to show his emotions. Some girl is going to love that (just not this girl). I’d walk all over him, not a healthy relationship.

Stay focused (that’s a reminder for me), understand what you’re getting into. Even if the person knows you, you still want to understand what you’re getting into.

Sure, you can get out, but it could be messy (and expensive) and why not make an effort to understand what you’re getting into the first time around so you can stick with it and be happy? We like happy around here. 🙂

You should be able to have a basic understanding of your investments. If it’s too complicated it’s usually not worth it. It’s like that last relationship you had. It was way too complicated and not worth all that effort (text, call, misunderstanding, text, frustrated, Facebook message, angry, thumbs up, confused, exhausted, done and done, relief).

Ask questions, do your homework, invest in what makes sense for you.

Knowing what you’re investing in is just as important as knowing why you’re investing.

Make sure you have a purpose for your investments. What are your goals for the money you’re investing? Financial freedom? Kid’s college fund? Down payment on a house? Wedding fund?

Knowing your purpose will make a difference on the type of investments you choose. Long-term and short-term goals would have different investment options.

Just like if you want a summer boyfriend or a marriage partner. Could be very different.

If you’re investing just to invest you could be in for some trouble. Girls that get married to just get married usually end up with trouble. (No offense, just giving some tips, maybe some unsolicited tips).

So know what you’re investing and why you’re investing.

2-Keep Your Fees Low

A lot of investors don’t fully understand the large, negative impact fees can have on their investments (on their wealth building potential).

They think, oh, a 1% fee doesn’t sound that high. It’s not that much money.

It may not sound like that much in the beginning, but as your investment grows over time so does the fee.

Let’s take a look at an example!

The chart* below shows what happens to our investment with a 1% increase in fees.

Let’s say we invest $6,000 every year and we are getting a 7% return.

Investment Account Fees Graph

At the end of 40 years we’ll have $1.2 million without any fees. I like that.

If we take that same amount and add a 2% annual fee, we’ll only get $750,000.

That’s a difference of $450,000. We’ve lost $450,000 just by having a ‘small’ fee.

I don’t know about you, but I can think of a lot of things I could do with $450,000 (round the world trip, a really nice house, shopping spree in Italy, etc).

Watch for the fees (expense ratios, commission fees, load fees, etc) when choosing investments, working with a financial advisor or a robo advisor or even what company to invest with.

3-Don’t Put All Your Eggs In One Basket

Having all your eggs in one basket is considered very high risk.

For example, buying shares of just one company instead of shares in 10 different companies is very high risk. Anything could happen to that company at any time and you would lose your entire investment.

If you have your money invested in at least 3 different stocks, if one company goes under you’d still have the other two.

Now don’t misunderstand, we don’t need a lot of different ‘funds.’ Funds will have multiple stocks inside of them, so one fund is considered a diverse investment.

If the fund just had Apple stock inside it (which they won’t), for example, then that would still be putting all of our eggs in one basket.

When we are dating we should do different activities with who we are dating to see how they are in different situations. If all we ever did on dates was watch movies, I’d have no idea if he was a good communicator and wouldn’t know if we could work through problems that arise.

Or how he would react if he lost a golf game to me (don’t really see that happening, but you never know…). If he doesn’t know how to dance, figuring out if he’s someone that’s willing to learn and how he handles it.

By doing different activities with each other, I’m making sure to not put my bet on one thing he does well, I need to make sure we can work through other things together.

By diversifying our investments, if one investment doesn’t turn out great, we can at least fall back on the other 75% (or whatever % it might be).

We want to diversify our investments, keep our investments in different baskets, to reduce our risk.

4-Realize There Is No Perfect Investment

We sometimes get caught up in being a perfectionist. We want everything to be perfect. Have the perfect hair, the perfect car, the perfect boyfriend, job, family, etc. Well, we all know that isn’t possible.

Investing is the same way. We may get stuck, thinking, I don’t know if I should invest in this or that or maybe something else. We sometimes search for the perfect option.

Well, unfortunately, I’m here to tell you, the perfect option doesn’t exist. But the ‘good enough’ option does.

It’s like holding out for Mr. Perfect.

It reminds me of the movie, 500 Days of Summer when Paul says:

“I think technically ‘The Girl Of My Dreams’ would probably have like a really bodacious rack, you know, maybe different hair, she’d probably be a little more into sports, but truthfully, Robyn is better than the girl of my dreams. She’s real.”

So go with what’s real. There’s great investment options (and great guys) out there. Choose one that looks the best to you, matches your investment goals and is good enough.

5-Start Investing Now

I’ve talked about this one before, but it’s so important, I’m bringing it up again.

The longer you hold off investing, the less money YOUR money will be able to make for you, so start investing now.

The earlier you start, the more money you’ll make (without doing extra work) because of compound interest.

Compound interest is earning interest on your interest.

Don’t worry, I have an example for you.

Say you invest $1,000 that gets a 5% return. After one year, you’ve earned $50 in interest. For the 2nd year, you’ll earn 5% not just on your original $1,000 investment, but on the $50 too, for a total of $1,102.50! You’re earning interest on interest!

Compound interest is such a magical tool and works best when you start right away.

You can get a full rundown on compound interest in my earlier blog post, here.

Recap

Make sure you know what you’re investing in and why. Set some goals.

Keep your fees as low as possible. We saw how a ‘small’ fee can eat away at your investment.

Don’t put all your eggs in one basket. Diversify your investments to reduce risk.

Don’t hold out for Mr. Perfect (he doesn’t exist). Go with good enough (because that’s what’s real).

Start investing today to take advantage of making your money work for you (aka compound interest).

If you need help in getting started, don’t you worry, I’ve got the perfect course for you. Stock Market Investing Made Simple, check it out here (just like you did with that gorgeous guy that just walked by).

What other investing tips you got? Share them in the comments below!

(*Image Source: http://betzelwealthadvisors.com/large-investment-firm-allegedly-forces-its-employees-into-high-cost-mutual-funds)

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