Investing Tips That All Beginners Should Master On Day One

Investing Tips

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To grow your wealth and secure a comfortable financial future, you’ll want to adhere to some essential investing tips.

Many people are quick to jump in with investing and excited to put their money to work. But quickly, they can find themselves losing money or at unnecessary financial risk.

This is not to scare you away from investing but as a warning to ensure you are prepared before blindly throwing money towards assets.

Below, I put together some of the best investing tips I think all beginners should master on day one and beyond. Most of this applies to the stock market but applies to any investment options you may be considering, including mutual funds, corporate bonds, or even portfolios managed by Robo-advisors.

Will you be a complete expert as you get started? Of course not, but these are the essentials to ensure you are off to a solid start.

Table of Contents

Before You Start Investing Any Money

Investing Tips to Master on Day One

Investing Tips Final Word

Before You Start Investing Any Money

Now, before I jump into some of the investing tips below, there are a few items you should check off first before investing your money.

These are in no particular order but are items I would highly consider getting started with first.

Sign-up for Your Company 401k

You might not know about it, the funds, or how much to put in your 401k, but if your company offers retirement accounts, get yourself set up.

You can start with a tiny percentage from your paychecks first to get the ball rolling. Later, you can update your selections and contribution level. The goal here is to ensure you are getting started.

If your company does not have one, you can open an IRA or Roth IRA with a financial institution like Vanguard.

Pay off debts

If your company offers a 401k and company match, you should take advantage of that regardless of whether you have some debts.

I say this because you could lose years of compound interest, and the earlier you get started, the better.

But before you get aggressive with investing, knock down any of your debts as best you can first — especially high-interest debt like credit cards.

Have an emergency fund built

You should have an emergency cash reserve to cover 3–9 months of short-term expenses before you begin getting deep into investing.

It will help stop you from being a “forced seller” on your long-term investments when circumstances change unexpectedly.

Figure out your monthly expenses

You should have a strong understanding of your expenses and monthly spending. This will help you determine how much you can start to invest.

Plus, it can also help you see where you can cut back, which that extra money can then go towards future investments. I use Personal Capital to help keep track of this and my net worth; it’s free to use.

Investing Tips to Master on Day One

After the last couple of years, I’ve learned a few lessons when it comes to investing. I’m by no means the next Warren Buffett, but these investing tips below have served me well.

I hope these will be helpful in your current or future investments.

1. Know why you’re investing.

If you don’t understand why you are investing your money or your goals, you’ll make mistakes and lose sight of the big financial picture.

And no, getting rich should not be your goal; that will lead you down some sketchy paths or can cause you to make poor choices.

You certainly can get incredibly wealthy with investing, but you need to have more attainable and long-term goals.

2. Read books about investing (and continue to)

While you should sign-up for your company 401k or open an IRA, the biggest mistake you can make is rushing into investing your money.

While investing in stocks is not overly complicated, there is a lot of information to digest.

I recommend diving into some of these personal finance books and continuing learning, even if you are a seasoned investor. I’ve read a few books over a couple of times and still learn something new.

This also applies if you invest in alternative investments like real estate, art, websites, etc.

3. Never invest in something you don’t personally understand

Although this might sound like common sense, you’d be surprised how easy it is to fall into a trap when dollar signs are flashing before your eyes.

I’m guilty of investing in an individual stock because so many were talking about it. And yes, I lost some money. Lesson learned!

One of the best investing tips I can give to any beginner, always invest in the things you understand first. Please read about it, know the history of your investment, research, etc.

Blindly following the herd may strike you gold, but odds are you’ll lose money before winning.

4. Avoid jumping into investing fads

That last investing tip leads into this one nicely. Avoid jumping into investing fads or when everyone is talking about something.

Remember that period of time when cryptocurrency was all anyone talked about. At the hype of Bitcoin, everyone’s mom, dad, grandma, and the mailman was talking about investing in digital currency.

Hell, most people didn’t understand much about it other than hearing stories of people becoming millionaires off it and the price skyrocketing.

Typically, that’s when it is time to stay on the sidelines.

5. Get protective when people are greedy

And another great segue here, be more cautious and protective of your investments when others are greedy.

As I mentioned above, when everyone is optimistic about the economy, investing, and talking about it, it might be time to hang on the sidelines a bit.

It doesn’t mean you should stop investing altogether, as dollar-cost averaging is a great proactive strategy with your 401k or IRA long-term.

But be aware and monitor the overall sentiment around the stock market or economy.

6. Get greedy when people are fearful

Additionally, when people are fearful of the markets, it’s probably a good time for you to get more aggressive.

While a bear market or stock market crash could happen, the stock market always has recovered. We have historical data to prove that.

This is when you can invest much cheaper and reap the massive benefits as the bull market returns.

While you don’t want to wait on the sidelines the whole time and try to time the market, it’s good to be more aggressive when the market is down and when others are being fearful. You’re much more likely to find a winner this way.

You can check out the Fear & Greed Index here.

7. Avoid trying to time the market

I mentioned above about not trying to time the market. Why?

Everyone (and experts) make assertions and predictions, but no one can accurately know what will happen with the market.

You’ve probably seen the headlines in media with two down days in the market, “Crash is coming!”

Or other experts predicting this will be the year for a bear market.

But no one knows for sure, and no one knows the bottom or top of where the markets will go either.

Trying to do this will cost you gains and cause you to lose money. Ignore the noise and predictions and stick to your investing strategy.

8. Master the art of diversification

Depending on your age and investing horizon, what you invest in will be different from others. However, one sure thing is that you should diversify your investment portfolio.

What does this mean? That you should be allocating some funds to stock, bonds, maybe some real estate, or commodities. The idea behind it is that you don’t want to have all your eggs in one basket and instead want to take advantage of different asset classes.

And with stocks and bonds, you can have some in different sectors like a total stock market, maybe some in emerging markets, etc.

The goal is to help you weather against any storms and volatility to balance your portfolio.

9. Learn how to read a prospectus

A prospectus is an overview of the company you are investing in. This document is required by the SEC to be provided to the public.

Prospectuses help you, as the investor, make important decisions about any stocks, bonds, index funds, fund managers, and companies you might be considering. Usually, you’ll find the earnings of a company, the projected future stock price, and more in prospectuses.

This is crucial out of all the investing tips. It helps you understand what to look for, fees, about the company or fund, historical returns, who the CEO is, and much more.

These can get quite long, but they will get much more manageable once you learn what to look for. Learn how to read a prospectus here.

10. Remove emotions as best you can

Investing in the stock market can be a roller coaster due to market volatility, and if your emotions are not prepared, you can make some rash decisions.

This goes for both in bull and bear markets.

Letting emotions drive your decisions can lead to losing money, selling, and buying too often and can impact your long-term results.

There is a lot that could be said about emotional investing, but I recommend reading this Investopedia article if you are interested in the topic further.

11. Panic selling is a sure way to lose money

Many times, when the market is down, or you start to see your investments losing money, you want to sell.

But that’s actually a sure way to lose even more money. It’s easy to panic sell when everyone is fearful, and all the media headlines make it sound the world is ending.

But you must resist!

The markets will and do always recover, and by panic selling, you are removing your compound interest and costing yourself thousands of dollars in the future.

There may be times where you do want to sell or move money around, but this should only be limited. Stick with your investments and reap the long-term rewards.

12. Reinvest dividends and capital gains

In the beginning stages of investing, I highly recommend reinvesting any dividends and capital gains automatically.

This helps build your portfolio and keeps compound interest growing for you (so you can get some high returns in the future).

Additionally, reinvesting allows you to buy shares as price swings both high and low, which continues a dollar-cost averaging approach.

Eventually, you may want to take the cash if you are FIRE or living off these distributions. Just remember the tax implications from doing so.

13. Index funds and ETFs Are Great Places to Start

Individual stock picking is complicated and puts you at risk. Instead, consider investing in index funds like the S&P 500. These are typically low-cost and give you great exposure to every sector regardless of what amount of money you’re working with. As you build your portfolio and money, it might be okay to dabble a small percentage. I use about 2% of my own money to buy some individual stocks.

But as a beginner, you should consider sticking with index funds or ETFs. Both help keep your fees low and help you diversify your investments.

14. Investing should be boring

If you are looking for excitement, then gambling at the casino might be a better option for you. Some of the most successful investors in the world are also the most bored investors. The more boring your investing strategy and investments, the better it is for your money in the long run.

These quotes sum it up nicely:

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson

If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” – George Soros

15. Always pay attention to investing fees

Out of all the stock tips for beginners, this is an important one. Investing fees can kill your long-term returns and cost you six figures or more when you near retirement.

Although a 1-2% expense ratio might not sound that high, that compounds over 10, 20, or 30 years and can cost you plenty.

Additionally, some investment accounts may have other management fees as well. Ideally, you want fees to be well under 1%. For example, some of Vanguard’s index funds are just 0.14%-0.3%.

Always research and understand the fees. If you have a 401k, you can use Blooom’s Free 401k Analyzer to catch hidden fees and get recommendations.

16. Rebalancing your portfolio matters

As you continue to invest money consistently, you’ll also want to rebalance your portfolio after regular intervals. Typically, you’ll have an asset allocation you want to stick to, such as 80% stocks and 20% bonds.

However, your percentages can be off after buying shares, after price fluctuations, and after dividend and capital gain reinvestments.

There is no exact science as to how often you should rebalance, but yearly is usually good to do.

You also want to be careful not to tinker too much as it can potentially cost you your returns.

17. Don’t complicate your investing

One of the best ways to invest is by keeping your portfolio simple. In the case of delivering results and being diversified, less is more.

For example, one stock investing strategy is the 3 Fund Portfolio made famous by The Bogleheads (loyal Vanguard followers).

This portfolio includes just three low-cost index funds in these sectors:

US Equity Fund

International Equity Fund

Bond Fund

You don’t need to follow this strictly, but the idea is to maximize your ROI without complicating your portfolio.

Currently, I have a four fund portfolio with 85% Stocks (two different funds), 10% bonds, 5% real estate.

Investing Tips Final Word

There you have it, my 17 investing tips that all beginners should know before putting their money to work.

Even if you are not new to the investing world, I hope some tips here serve as a great reminder.

What do you think of these investing tips for beginners? Are there ones you didn’t know about before? Or are there any others you’d add? Let me know in the comments below!

By Master James

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