Finance

4 Tips for New Investors

The recent volatility in the stock market due to the coronavirus pandemic has scared many new investors from entering the market. But the need for you to invest your money is as strong and as present as ever.

This article provides valuable tips for those who may be wary of entering the market right now, and can help make investing seem less daunting and frightful.

1. Use investing apps

Two of the biggest concerns many people have when it comes to using an investing app are its cost and its complexity. But you can get around both of these issues by using Robinhood. This app has revolutionized stock investing by completely eliminating trading fees. It also requires no minimum investment and could not be simpler to use. The app lets you buy and sell stocks and other financial instruments with just a few clicks of your phone.

The app further provides impressive cash management features. This includes an interest-earning account and a debit card that allows you to withdraw funds at 75,000 ATMs with no cost.

2. Invest Long-Term

One of the most important things that new investors should understand is that investing is far more like a marathon than a sprint. Many new investors make the mistake of buying a stock when it is ascending in price and then selling it a short time later when it starts losing money. This is no way to succeed.

Instead, you should make investments long-term, understanding that the value of your investments will periodically go down. Have confidence in the knowledge that, historically, the stock market has generated returns of around 10% per year, and that it will likely continue doing so.

3. Invest Passively

Another mistake new investors often make is trying to outperform the market, which is difficult even for experienced investment professionals. This is known as active investing. A better approach for new investors is to passively invest, which means trying to match the performance of the market.

One of the best ways to passively invest is through an exchange-traded fund (ETF). ETFs are much like mutual funds, but they are traded on exchanges like stocks. They generally have lower management fees than mutual funds and are often more tax advantageous. Many ETFs follow common stock indices, such as the S&P 500, making them the perfect means for matching the market.

4. Diversify Your Investments

One of the traits that typically distinguishes seasoned investors from new ones is the way that they diversify their investments. Instead of putting all their money in stocks, a seasoned investor often invests in a wide range of asset classes, including fixed-income securities, commodities and real estate. By doing this, if the stock market should dramatically fall, their whole investment portfolio will not necessarily fall with it.

So, in addition to stocks and ETFs, consider buying a small amount of bonds, real estate investment trusts (REITs) and precious metal funds.

Summary

You cannot let your fears about investing your money stop you from reaping the important benefits that come with it. By following the tips that have been outlined in this article, you can be well on your way toward reaching your financial goals.