One of the biggest challenges to being new to investing is that you simply don’t know where to start. Sure you may start by reading a few magazine articles. But it can be overwhelming when they start talking about things like asset allocation, Index funds, P/E ratios, Large cap, Growth sectors, Valuations, etc. What does all this stuff even mean?
The truth is that you don’t need to know everything about everything to get rich. In fact, I would venture to say that most people don’t. In reality, you really only need two things to get started on your investment journey: Curiosity and Common Sense.
We All Start Somewhere:
No one comes into this world being a financial genius. It is something we learn along the way. And if you feel left behind, don’t worry. You will learn how to be a good investor too. But it is going to take time.
Consider how curiosity led me through my own personal journey:
• Around age 16, I started my first part-time job and opened a savings account earning a pretty low percentage of interest. One day while in line at the bank, I noticed a promotional sign for a CD (certificate of deposit). The interest rate was a lot better than what I was getting with my savings account, so I decided I should look further into it.
• After moving my money to CD’s, I realized I needed more flexibility and a better rate of return. That’s when I noticed online savings accounts and decided I should learn more about them.
• A few years after moving my money to online accounts, I began noticing that mutual funds were always promoted in magazines. Seeking a better rate of return, I started reading books about them and decide to open an account.
• After building up my mutual funds, I learned that there were significant tax advantages to other accounts like 401k’s and IRA’s. I decided to learn about the rules of these accounts and what benefits I would receive by moving my money into them.
• Getting pretty stable but relatively low returns on my mutual funds, I began to hear about people making some great returns with their individual stock purchases. I again turned to many resources for advice, and stepped lightly into the field by buying only a few shares at a time.
And what role did common sense play?
• CD: I knew I’d need the money soon for college, so I didn’t lock up all of it. I also only used short-term ones rather than locking up my money for the long-term.
• Online Savings Account: Would you wire your money to just anyone? Not a chance! I made sure the company was legitimate and just as reputable as a regular brick-and-mortar type of bank.
• Mutual Funds: There was a lot of opportunity to get into trouble here. I made sure to choose a low cost provider like Vanguard and I picked relatively low-risk funds like hybrid funds (a combination of stocks and bonds).
• Retirement: Putting all your money into tax-sheltered accounts sounds great until you find out there is a 10% penalty for early withdrawals. I made sure I understood the rules carefully, invested enough to get my employer match, and keep enough outside my accounts for emergencies.
• Stocks: Common sense said that no matter what you think, anything can happen. I made sure to start small and never bet the farm. Even if I am fortunate with one company, I need to remember that what goes up must come down.
Do What Works For You:
In each of these situations, I was curious about a topic and decided to research it further – one topic at a time. There were no deadlines or time constraints. I took each at my own rate and at my own level of comfort.
But at the same time, you have to be the judge of what is right for you. This is where common sense comes into play. If an investment feels wrong, then don’t do it. No one is forcing you. As I always say, no one will be looking out for your money the way you will.
And most importantly, remember that you are never really done. To this day, I still have a great deal to learn about many subjects like stocks, bonds, real estate, precious metals, annuities, business ventures, and so on! The process is never complete and is always ongoing.
If you’re interesting in getting started with investing, check out my Top Money Book Recommendations. Each of these (in addition to many other resources) was a big help to me on a wide variety of topics. Remember, we all have to start somewhere. And I hope you can use my blog as one of those resources that helps you to move along your own personal path.
Readers: To what do you attribute getting you into investing? What keeps you out of trouble? Do you consider yourself to be a beginner or advanced? What resources do you rely upon for safe and reliable information? Please feel free to share!
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