20 Investment Strategies for Beginners

When I first started earning money it was 2000, I was in India. I straightaway jumped for stocks and within a year my invested amount lost half of its value. Poor stock picking coupled with the burst of the dot-com bubble taught me what not to do with money when you are a beginner. Since then I committed many mistakes, at the same time, I did things that worked very well for me.

A few of the mutual funds I bought between 2003 and 2005 got almost tripled its value before I sold them off. I had mentored people towards their first investing since then, A little disclaimer, I am not a financial expert and don’t take my advice for granted, consult with someone you trust before taking any of the steps I mentioned below. The following ideas are lessons I learned with my life and lives of the people (at work and within the family) who came to me for advice.

I, along with the readers of my blog, grow One Cent at a Time. We do not learn to be rich over night, we succeed slowly and steadily. If you have come here for getting an instant investing success formula, you will be disappointed. You may also refer to my prior post on a similar subject, where to invest my money. There I described the process of investing $10,00o across various instruments to get high return along with sufficient diversity.

Note: Often we do better things when we have a good tool at disposal. Finding investment problems and their solution becomes easier when we use a personal finance tool. There are many free personal finance tools in the market, Yodlee, mint, quicken, etc. Lately, I have been using Personal Capital, a free tool to manage your income, spending, budget, and investments. You can read my full review of Personal Capital. Especially I was impressed by the fee analyzer tool it has, the fees analysis helped me shuffle few of my mutual funds to lower the fund fees. Per record, I saved over $100,000 in my retirement fund alone.

There are many investment options today than there were a few years ago. These many options have made a lot of difference for investors in the 21^st century but with them, many investors have become afraid of making investment decisions, especially when they are new to investing. This is an attempt to help you if you are looking.

I’d like to start with a brag about my decision to invest in P2P loan instrument. P2P loans are an investment you make by lending money to individual borrowers. The same way you loan out to relatives and friends. The difference is, you give small amounts to various borrowers, which is managed by loan brokers (Prosper, Lending Club, etc). Brokers take a commission on every sale and also a percentage of the lender’s earning.

My Investment with Prosper grew by 6.72% in last one year. Compare that with savings account rate of less than 1% or a three-year CD rate of 1.6%. P2P lending is little riskier than those options but it’s not as much as in stocks. Below is the snapshot of my Prosper investment gain.

Prosper does also lend money as well, like banks do, at a very affordable rate. Which can be used to repay your very high interest credit card debt. If you are interested, apply for a Prosper loan here.

A high return investment without a risk of losing your money is a must have in every investment portfolio. You can start with a little money, I started with only $500 and let it be there for 3 months before raising to $1000. It took almost 6 months to invest $5000. We just got our first home, that’s why I can’t invest more money right away.

Here are 20 investment strategies for beginners

1. Start now; there has never been a better time to start. Don’t think of getting a better paying job first, you can save from whatever you are earning. If you are used to procrastinating that day never comes. Start now, with the little paycheck that you have. The sooner you start, the better your investment will be when it matures

2. Get expert advice; they can take you through all the investment options that are available for you. You will be able to learn which ones are the best for determining how to reach your goals and so forth.  Having made a choice, you will then be made to understand how and where your money is being invested. One free way to get an investment planner is through Personal Capital. Open an account with them and link your investment accounts. If your total investment is above $100,000 you’ll receive regular free consultation and portfolio checkup by their certified financial planners. I get free consultations every year along with my personal capital account. Here’s my complete review of the tool.

3. Start simple; having been told of the options you have, it is a good idea to start with the simplest ones as you learn rest of it in due course. You can make mistakes at the beginning, so start with a small investment, a $100 maybe. Buy a stock or an ETF. Just start and cross the hardest barrier.

4. Know your goals; What are your investment goals? This will go a long way in deciding who to invest with and how your money will be invested. You will know when you will be getting your returns and the estimate of what percentage it will be. Investment is different from savings; investment is long-term while saving is short-term. People invest for college, retirement etc.

5. Know the investment vehicles; What will you invest in? You can invest in 401k, brokerage accounts, college saving funds and so forth. Some of these have tax breaks that will make them of an advantage to you. You can invest in stocks, bonds, mutual funds and real estate

6. Open an investment account; once you have decided on the investment, opening an account will be as easy as signing a form and getting funds into the account. Have a reliable platform to buy/sell your investments. I use TradeStation, which offers sophisticated analysis capabilities for every level of trader and the ability to back-test and paper-trade ideas before risking even a cent.

7. Consider target date fund; this is a great option for someone who doesn’t know what to invest in yet. One of the reasons this could be the case is because of the many options that you are bombarded with when you want to invest. Target date funds are a mix of many investments that include stocks and bonds. When you invest in this, your money will be invested in less volatile investments as you age and get to your retirement age. They aren’t exactly flexible but in case you are not sure where to start, this would be it.

8. Start auto investing; this should start immediately, through regular contributions from your paycheck and so forth. be sure to contribute something you can do without every month-not everything in your paycheck. Most brokerage accounts support automatic monthly investment option.

9. Develop a hands-on approach. It’s common that many people think that all you have to do with investments is invest and leave it alone. It is important however to track your investments and check to see that your investments are growing. It doesn’t mean that you check every week, but once in a year or six months would be good enough.

10. How much do you want to invest in the start? This will go a long way in deciding how you are going to handle your budgets and any increments you will make your investment when the time comes.

11. Make it a habit; it’s an investment you have…you have to increase it accordingly as time goes. You cannot just sit back and relax or forget about it.

12. Take baby steps. Since it is an investment, don’t expect that anything much will happen soon. Take your time to learn about the other investment options and invest your money in them.

13. Know packaged mutual funds; this is an option for beginners to think about. They can be less risky if you want them to, or volatile depending on your choice. The transaction costs are very low and every fund is managed by portfolio managers who rebalance your portfolio to make sure the proportion is consistent with your investment

14. Pick stocks wisely; You can’t time stock market accurately. Stocks are a great option and do not require a lot of capital. If you are going to choose wisely, you will have a stable and predictable income. You can hire someone to help you with choosing stocks and pay them in the long run but you can choose it as you learn in the process. Don’t ever buy stocks on impulses, like after reading a related article on alphas and the fools.

15. Take time to learn, buy some books and strategize if your investing knowledge is limited. Do some online research and check out the companies you are interested. Make sure you are aware of what their earnings, their customers etc

16. Play safe; place a margin of safety, don’t do it too much as you will not do anything.

17. Avoid impulse investing; Take your time, consult with experts before buying a fund or stocks.

18. If you are in debt, do not go overboard with investment. Although I personally do not prefer investing any money till high rate loans are paid off, I see people investing in learning while paying off their debt. If you are just out of college and a large student loan to pay off. You can certainly set aside a small sum for investing, while a majority of your income goes for loan repayment.

19. Beat inflation; Whatever you invest in, try to beat the inflation rate or your wealth actually loses money over time. Putting your money in a savings account is not an investment.

20. Create emergency fund first, before you start building your investment empire, create your emergency fund and don’t forget to create insurance cushion to protect your money.

Readers, can you share your stories when you first started with investment? What mistakes you did and what worked well for you? What are your investment strategies for beginners