Investing is one of the best ways to build wealth.
When it comes to the stock market, it can seem tempting to throw all of your money into a brokerage account and start buying stocks. However, you’ll have to be careful because you can lose all of your money just as quickly as you deposited it.
By following several tips on investments, you can go into investing without feeling lost. Fortunately, the most important tips for investing don’t require much work as they’re easy to do.
Keep on reading to learn more about 5 beginner tips for investing!
1. Save Money Before Investing
One of the first things you’ll want to do when it comes to investing as a beginner is to save money. Many beginners make the mistake of investing without much money in their accounts. This can cause them to quickly lose money because they may not know what they’re doing.
When you build up a savings account, you’ll have many more options available to you because you’ll have more money to invest. This will let you invest in larger companies that typically raise in value, such as Tesla, Apple, Google, etc.
If you’re interested in day trading, you’ll need to save up at least $25,000. This is because the PDT rule (pattern day trader) prevents traders from making more than four or more day trades within a week. While you can make a few day trades, doing less than 4 in a week isn’t worthwhile because you won’t make much money.
When you have $25,000 in your brokerage account, you can make unlimited day trades providing that your balance stays above that amount. So if you fall to $24,000, you will no longer be able to day trade as often.
2. Open a Roth IRA Account
A Roth IRA account is something that many people are unaware of because most people don’t learn about it until they dive into investing. These accounts are highly beneficial to new traders, especially those that are younger.
With a Roth IRA, you can deposit up to $6,500 into it each year as of 2020. These accounts guarantee an annual return of anywhere between 7-10%, and the best part about them is that the deposited money is tax-free.
This is essentially a savings account because you’re not supposed to withdraw the money until you’re at least 59 ½ years old. If you choose to do so beforehand, you may have to pay a fee and taxes on the withdrawn money.
3. Look Into Mutual and Index Funds
As a beginner, it can be daunting to invest because you’re most likely unaware of which companies are worth investing in. Mutual funds and index funds are perfect for beginners because they contain groups of stocks that you’ll invest in.
For example, the S&P 500 is a common index fund that people invest in as it contains the largest 500 companies. When you invest in the S&P 500, you gain shares from each company within the fund. These funds are carefully put together as they generally see an increase in overall value.
On the other hand, mutual funds are operated by companies that manually invest for you. Investing in a mutual fund is beneficial to anyone that doesn’t want to pay any attention to stocks. However, you’ll get less control over where your money is going because the mutual fund will try to make the best investments for you.
In most cases, it’d be best to start with an index fund so that way you’re somewhat involved in where you’re money is going. If you come to find that you don’t like them, you should then start looking into mutual funds.
4. Do Your Due Diligence
Due diligence is necessary if you’d like to be successful in the stock market as it revolves around researching companies and staying updated with what’s going on. For example, if you invest in a company like Tesla, you need to be following Elon on Twitter as a single tweet of his can drastically change the value of the stocks.
Doing your due diligence isn’t as hard as many people make it out to be. With sites like Reddit, you can follow subreddits of the companies you’re interested in. From them, you can find news related to those companies and converse with other shareholders.
You should also do your due diligence with things outside of trading, such as the best final expense leads. Studying up on things before you invest in them will make you a better trader and you’ll have better control over your finances.
5. Don’t Start Day Trading Right Away
Do NOT start day trading as soon as you put money into your brokerage account. Although investing is gambling in itself, it’s a lot easier to lose money day trading because you’re relying on trades that last seconds.
If you put money into a company and expect to make a quick buck in a few seconds, you may end up with a lot less money if the company has a red day. Because of this, you’ll want to gain experience with trading in general so that you can prepare yourself mentally for day trading.
Now You Know How to Invest as a Beginner
With these investing tips, you can start investing and grow your portfolio as quickly as possible. When you start, keep in mind that you may have days where you lose money. This is normal as you can’t be 100% certain about the stock market.
We recommend you start by investing in a Roth IRA before putting any of your money into a brokerage account. From there, look into index funds and figure out which kinds of companies you’d be interested in investing in.
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