The first time you try to invest your own money can be a little bit terrifying. There’s always a basic fear about messing up and losing money on the investment, but the process itself can also be kind of overwhelming. With adequate preparation, however, you can avoid a lot of the anxiety that comes with starting an investment portfolio and focus on a sound strategic approach. These four tips should help.
1. Determine Your Risk Tolerance
Sometimes the best first step for a beginner investor is to do some careful assessment of your own risk tolerance. This means deciding how bold or conservative you want to be when investing your money. It will depend on your financial situation, any debt you may need to pay off, or what your short- or long-term goals are for the investment. To make money on any investment it will be necessary to take on some degree of risk, but deciding how much you’re willing to risk will help with the decisions that follow.
2. Decide How You Want To Invest
That sounds like a broad suggestion, but here I’m referring quite literally to which method, program, or service you want to use to put your money to work. And in that regard, there are more options than ever before. The most traditional method of investment is to simply go through a professional broker, who will execute the trades you wish to make. Another popular option for beginners is to invest in a mutual fund. This is a collective investment where several investors put money in, and a professional fund manager makes the actual decisions. Aside from those options, there are more modern methods that have become available in recent years online and in mobile apps. Services like Stash Invest, Acorns and Robinhood, for instance, allow for simple and low-fee personal investing.
3. Set Stops & Limits
Regardless how you decide to invest, be sure not to take the approach of simply putting in money and watching what it does with the idea of making decisions later on. You’ll always want to set stops and limits in accordance with your risk tolerance—meaning setting upper and lower limits of where you’re willing to let prices go before you get out. And once you set stops and limits, don’t touch them. This is a sound strategy for establishing a disciplined investing method, and it allows you to withdraw your money when necessary, rather than taking reckless risks.
4. Practice With A Simulator
No matter how you decide to invest your money, you’d do well to get in some practice before you actually commit real funds. There are actually numerous websites that allow you to practice investing with virtual money, using real stock market information to simulate a real trading environment. They’re essentially games, but they provide the very best form of training without any risk of financial loss.
With those tips firmly in mind, you should be able to set yourself up for a good investing experience. Mistakes can (and will) always be made, but developing an intelligent strategy and remaining disciplined makes for a vital foundation.