- A financial planner says the first step for beginners to start investing is simple: education.
- Taking the time to learn about investing before spending any money or assuming any risk helps beginners understand the market, adjust their expectations, and calm any anxiety.
- Learning could mean speaking with a financial advisor — or it could mean checking some books out of the library or taking advantage of free resources online.
- Need help with your money? SmartAsset’s free tool can help find a financial planner near you »
When it comes to growing our money, most people know that investing is the best way to make the ultimate returns, but pulling the trigger can be daunting.
Just hearing the word investing can conjure up images of charts and graphs with jagged red lines pointing down, signaling a loss of our hard-earned cash.
“The key to calming nerves is setting appropriate expectations,” Molly Stanifer, CFP®, financial advisor with Old Peak Finance, told Business Insider. Luckily, understanding what to expect begins with a simple step: education.
Before investing, Stanifer suggests talking with a professional financial advisor about what to expect from an investment so you can know what you’re getting into, as well as doing your own research from reputable sources.
“Read some books on the basics of investing,” Stanifer said, or, if you’re saving your dollars to invest, check out resources available online, like this summary, which Stanifer recommends.
Only after taking the time to understand how the market works, why fluctuations happen, and what your different investment options are will you be more ready to withstand the ups and downs that often come with investing in the stock market.
When researching, “focus on the market you are considering investing in, not a particular product,” Stanifer added. For example, look at an overall index — a measurement of a section of the stock market computed from prices of selected stocks, generally used to track performance of those stocks — of historical returns, and make sure you are reviewing the right index, as well.
“If you are thinking about investing in bonds for the first time, review a bond market index,” said Stanifer. “If you are investing in the entire global stock market, make sure the index you are researching includes US and international stocks of all company sizes.”
Once you’re comfortable with your understanding of what to expect from your investment and you have considered the likelihood of a particular investment being able to get you to your overall financial goal, it will be easier to make the move to actually put money into the market.
As far as how much to start investing with, “it depends on your overall goal, but make sure your current essential expenses are covered before limiting your cash flow too much toward future goals,” said Stanifer.
After making the decision to invest, you’ll need two more things — patience and a little self-control.
In general when it comes to money, “as much as we’d like to believe we are rational when it comes to behavior associated with money, humans just are not,” Stanifer added. “After you’ve set an investment plan, stick with it and try as hard as you can to keep your emotions separate. Working and talking with a financial planner can help subside the irrational behaviors.”