Investing 101 – How to Get Started

Ask anyone who knows about financial planning and they'll probably tell you investing is a major part of the blueprint for success. If you want to buy a house, retire early, or just retire in comfort, careful investing can get you there.

Here's Why People Have Trouble Getting Started

It's hard to get started when you don't know where to begin. The internet can be awash with misinformation and people who want to take your money or sell you something. There's conflicting advice, even from friends and family who mean well.

All this can make investing wisely seem hopeless. The good news is: it's much easier than most people realize, and you don't have to be a math wiz or a financial genius to get the basics of investing under your belt.

To demonstrate how simple Investing 101 really is, here's a simple guide to getting started in the world of investing.

How to Get Started With Investing

1. Remember that investing comes with risks.

The first rule of thumb when you have some money to invest is never to invest any money you can't stand to lose. That is, always remember that investing is a risk.

There are no guarantees and nobody can ever predict exactly what's going to happen with the stock market, no matter how many academic degrees they have or how many years on Wall Street they have under their belt.

2. Gauge whether you'll need that money in the near future.

If there's any chance you might need the money you've earmarked for investing any time soon, then now's not the time to invest. A good financial planner can help you determine whether there's money in your budget for investing.

He or she can tell you, for example, if you find yourself with a spare $1,000 whether it's better to invest it or sock it away in your emergency fund (or your retirement fund, etc). 

3. Learn the different investment vehicles available to you.

  1. Certificates of Deposit (CDs). You may not think of a CD as a way to invest, but they are among the safest things you can do with your money. Of course a general rule of thumb in investing is: the safer the investment, the lower the return. Indeed, CDs return less than 1% as of this writing. That wasn't always the case: in the mid 1980's, rates were above 10%!¹ CDs are insured by the FDIC so there's no way you'll lose your money.
  2. Exchange-Traded Funds (ETFs). These have been around for just 20 years or so, and they are bought and sold like stocks, only they are groups of bundled stocks. They're known as a budget-friendly way to invest, since cost is lower than mutual funds. 
  3. Mutual Funds. These are groups of bundled stocks and, like the ETFs, offer exposure to a wide variety of stocks. Unlike ETFs, however, they do not trade all day long on the market but only once per day.
  4. Stocks. Owning stocks is a way of owning a piece of a company. Companies issue stock as a way of raising capital, and when the company does well you make money. Of course if the company fails the stock goes down and you lose money. 

4. Know what your investing personality is.

Your tolerance for volatility comes into play with how you should plan your investing strategy. Investments fluctuate daily, and if that's going to give you a nervous condition then you might want to choose investments on the safer side.

If, on the other hand, you don't suffer the anxiety of others when you investments take a temporary dip, then you can perhaps tolerate more risk in your portfolio.

5. State your goals.

Each investor has his or her own reasons for investing. Maybe you inherited a windfall and you don't need it to pay off debt. Or maybe you have tangible goals in mind like raising cash for buying a home. Or maybe you want to secure a comfortable retirement (or even an early one).

Whether your goals are to grow your money or preserve it, it's important to state your goals, especially if you're working with a financial planner. The more he or she learns about your life, your goals, and your personality, the easier it will be for him or her to make the right choices for your money. 

6. Consider enlisting the help of a financial planner.

Some people can't stand the thought of paying fees to have someone manage their money, but financial planners are highly educated professionals who can help you make more money… well beyond the fees they may charge, of course.

If you're a novice at investing, it may be worth your while to learn from the best. Hire a financial planner and lay out a blueprint for your investments. They'll help you map out a plan, taking in to consideration everything we've mentioned here in this article, plus your other financial goals like starting an emergency fund, saving for college for your kids, or buying a home.

They'll also help you navigate the mystifying and huge array of choices you have when it comes to investing, too.

Financial advisors generally charge in one of two ways: 

  1. A percentage of the amount of money being managed, payable annually. It's usually a low percentage, like 1%, for an ongoing relationship concerning your money. 
  2. Fee. They may charge a flat fee for a one-time service, such as drawing up a financial plan.

However you end up investing, it's important to ease yourself in carefully and slowly. As you learn about expense ratios, index funds, valuations and more, keep in mind that you should always try and keep a diverse mix of investments. That way, when one goes sour, the others are there to keep you from losing it all.

Above all, do your homework. Whether it's on individual stocks you might be considering choosing, or whom to hire as a financial planner… research everything thoroughly and start conservatively.


Trace Tisler

Trace Tisler is the founder of Epic Financial, a fee – only financial planning firm located in Hudson, Ohio.

Trace and I became friends after meeting at XY Planning Network (a group of like – minded, fee – only planners who work with Generation X a nd Y clients) , and I asked him to write some thoughts on investing as a guest topic for this site.

Trace Tisler | Epic Financial

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