Best Investment Strategies for Beginners

By: Andrew McShane

It's never too late to start investing, but learning the best investment strategies for beginners is the best place to start

You are about to learn...

  • 5 Great Investment Strategies for Beginners
  • Why Its Important to Start Slow
  • What You Should Avoid if You are Just Starting Out

No matter how old you are, it’s never too late to start investing. We all had to start somewhere. But what to invest in for beginners? How do you tell a good investment for beginners from one that could be dangerous. If you are just starting out, taking the time to learn the best investment strategies for beginners can save you a lot of headaches and set you up for greater returns in the future.

But before you talk about investment ideas for beginners you need to develop some basic investment strategies that will serve you well over time. Do not just go out and invest in bonds or individual stocks via the stock market based on what you heard on CNBC last night.

The Best Investment Strategies for Beginners

Investment Strategy #1 – Before You Begin Investing

Before you start looking for what to invest in for beginners, you need to make sure you have the appropriate finances to be able to invest.

Are all your credit cards paid off? Credit cards generally carry an interest rate around 20% per year for any unpaid balances from month to month. As you are unlikely to earn 20% a year on most investments you make, you should pay off those credit card balances before you determine what money you have left to invest.

Before you invest, make sure you set aside at least six months of living expenses. Sometimes stocks and bonds dip in value and you do not want to have to sell on a downturn to fund living expenses. Set aside the living expenses first and only invest money more than six months living expenses. You will sleep better at night because of it.

Investment Strategy #2 – Start Slow

Many people have a low risk tolerance. After all, the pain of a loss is twice as great as that of a gain. As a result you want to start slowly to make sure investing for your retirement accounts or non-retirement accounts is right for you

Let’s say you have paid off all your credit cards and set aside six months of living expenses as discussed above. And you still have $10,000 to invest.

You do not need to invest it all at once. Maybe start investing $1,000 a month for the next ten months.

Some people have “FOMO”, or the “fear of missing out” on investment prices going higher and rush to get into an investment at any price. More times than not, this type of approach leads to a lousy ending.

Be disciplined, set a plan to slowly invest your available money and stick to that plan regardless of what the overall market is doing.

Also, before you even start learning to invest, you need to understand why you are investing in the first place. Mapping out your short and long term financial and investment goals is a great place to start. When you understand why you are investing (whether its buying a car or saving for retirement) you’ll be able to make decisions along the way that benefit your future.

Investment Strategy #3 – Get Instant Diversification with a High Quality, Balanced Mutual Fund

If you are a beginning investor you may want to start with a high quality mutual fund to give you instant diversification with your investment dollars.

A mutual fund is a professionally managed amount of money pooled by investors so that there are diversified holdings.

Different types of mutual funds invest in different things. Some invest in all stocks and some invest in all bonds. Some mutual funds invest in specialty items like foreign stocks or gold or bitcoin.

But there are two important things to understand about mutual funds:

  1. Mutual funds give you instant diversification. Rather that you investing $2,000 in a specific stock or bond, by investing $2,000 in a mutual fund you get a tiny fraction ownership in hundreds of stocks and bonds. As such with mutual funds you are not reliant on the performance of one stock or bond for your investment returns.
  2. Mutual funds are professionally managed. By selecting a mutual fund that is professionally managed by a large brokerage firm like Fidelity or Vanguard you are getting their expertise on which stocks and bonds to invest in.

For beginners we recommend a balanced mutual fund, which is one that invests in stocks and bonds so that you are fully diversified across asset types.

The balanced mutual fund we like the most continues to be Vanguard Wellington (ticker VWELX) – Talk about longevity, the Vanguard Wellington mutual fund goes all the way back to 1929, so it has seen some crazy economic cycles. And through it all, it has averaged an annual 9% return for its investors. Recent performance has been just as steady with its last five years performance averaging 11%.

Vanguard Wellington is a large fund with $112 billion in assets, and is 67% in stocks, 30% in bonds and 3% in cash. It pays a dividend of approximately 2% and its portfolio consists of some of the best growth stocks with iconic brands in the market today, such as Microsoft, Apple, Facebook, and McDonalds.

If we had one balanced mutual fund to recommend for the next five years, it would be Vanguard Wellington.

Investing Strategy #4 – Don’t Use Leverage in Your Brokerage Account

When you open a brokerage account to start investing in stocks, bonds and mutual funds you will be asked if you want to use leverage. Investing leverage is essentially using the value of your brokerage account to borrow money to buy additional growth stocks or whatever you want to invest in.

Especially for beginning investors you do not want to use leverage regardless of how low the interest rate.

Leverage causes your brokerage account balance to be more volatile. This is great when prices are rising, but horrible when prices are falling.

None of this is right for beginning investors, so stay away.

Investing Strategy #5 – Do Not Be Afraid to Use a Financial Advisor

With so much information being available online, many investors have decided to forego using a financial advisor and feel comfortable making their investment decisions themselves. Some do this very successfully and others struggle.

But particularly for beginning investors, if you are not comfortable with the subject of investing, don’t hesitate to call on an expert financial advisor.

Regardless of how much information is available, some of us simply are not comfortable making these investment decisions on our own. You should not consider this a failure, but instead an acceptance that you need help in an area where you cannot fail.

Good Investment Strategies for Beginners Recap

There you have the top five investment strategies for beginners.

  1. Pay off credit cards and put six months living expenses aside before you start to invest.
  2. Start slow.
  3. Consider a balanced mutual fund when just starting out.
  4. Never, never, never use leverage.
  5. Do not be afraid to use a financial advisor.

If you follow these five good investment strategies for beginners, you should be off to a great start.

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