When you’re just getting started investing, the market can be a scary place. There are just so many different things to know.
Where do you even begin? Obviously, the first step is to establish a great trading account that will allow you some freedom to learn the markets, but you also might want to develop an investment strategy to push you in the right direction.
There are tons of different investment strategies out there. As a beginner, you should start with simple strategies. As you learn more and increase your knowledge, you can jump into more advanced strategies that appeal to you.
Take a look at some of these investment strategies for beginners to help you get started.
What Exactly is an Investment Strategy
You certainly can just jump into the stock market, but sometimes it’s much better to have a plan. As a beginner, we’re assuming you don’t have a lot of knowledge about the different investment options out there. Start slow and build your knowledge.
The strategy is your beginning point, but what is an investment strategy?
A strategy is a plan, and it’s designed to meet your investment goals. In order to choose an effective strategy, you need to identify your goals, as well as your risk tolerance. These steps will help you determine just what you can handle and where to turn your interests for investing.
Take a look at your current financial health, map out your financial goals, consider the risk you can tolerate, and then start planning how to make things come together. This is what an investment strategy is.
It sounds like a lot, but you’re going to find it’s simpler to put things together than it sounds.
Top 6 Investment Strategies for Beginners
As a beginner, you’ve got to start somewhere. Take a look at these strategies and see if any of them appeal to you. Remember that this is just a starting point. The idea is to utilize these strategies to get started and to learn the markets.
As you learn more or your goals change, you can adjust strategies and continue to build your investment base up.
These are our top 6 investment strategies for beginners.
1. Invest for the Long Haul
While there are day traders and short-term investors out there, that’s not typically the approach we recommend for beginners. As a beginner, it might be far better to consider investing with a long-term approach.
The stock market is designed to be in for long-term results. It is cyclical by nature and will be a roller coaster all along the way. As you get started investing, consider buying to hold. You could start by investing in a retirement plan of some sort. This ties you to investing for the future and taking a long-term approach.
When you invest for the long haul, it doesn’t mean you can never sell a stock or fund that you choose. But the intention is that you can’t really know how an asset is going to perform overall until you’ve seen several years with the stock. Choose things that you will be comfortable holding for at least three years, and maybe more.
If you decide to invest not thinking about when you’re going to sell, it can be a lot less stressful for you.
Your approach from the beginning is holding those assets for quite some time. This takes some of the pressure away from making money fast and instead making money for the future. You will likely be pleasantly surprised.
Now here’s the catch. Are you prepared for the market roller coaster? It’s going to see both ups and downs through the years. Even if your goal is to hold your portfolio as is for five years, you’re going to see increases and decreases over that time. You need to develop the mindset to stick with it and just hold through those downturns.
2. Diversified Portfolio
One thing that a lot of beginning investors never consider is diversification. You might be starting out with just one or two stocks, and that’s ok. However, if you have the ability to create a full portfolio, we recommend making sure it’s diverse.
Don’t get us wrong. If micro investing is the best that you can do right now, that’s great! Even doing a little bit is better than doing nothing.
As you get some portfolio built up, be sure to diversify it.
If you’re starting with a larger number and creating a full portfolio, don’t put all your eggs in one basket. It’s not a great strategy to choose just one stock and put all of your money there. Instead, choose some assets from a variety of industries.
This strategy isn’t overly complicated, but if you are unsure, you can always work with a financial adviser, or even take advantage of a robo adviser type account. How you diversify will heavily depend on your risk tolerance and your goals.
The key here is to simply not be oversaturated in a specific industry. For example, if your goal is growth, then you will choose stocks and funds that are designed for growth. However, you should also supplant a percentage of your portfolio towards more conservative assets or income assets too.
3. Index or Index Funds
If you’re not so sure about stocks or where to start, you might just start with an index or an index fund. This is a common strategy for beginners because it gives you broad exposure.
There are a lot of different indexes out there to choose from. One common one that most people recognize in the UK is the FTSE 100. That’s just an example. The S&P 500 is another common choice.
You can invest directly into that index if you prefer. You can also invest into an index fund that tracks the index and tries to mirror the return or get better than the return of the index. Choosing your index might take a little bit of research, but you should be able to pick something that appeals to you.
Start by looking at different indexes on the market, or something you recognize.
We recommend then looking for a mutual fund or an ETF that is tied to that particular index. This gives you some diversification but also provides a pinpointed tracking measure.
Just like with other investments, these will also see ups and downs. It’s important to recognize that you can see both gains and losses. Be willing to hold in the downturns so that you can reap the benefits of the upturns. This is the way of the stock market.
4. Income Strategies
Another great investment strategy for beginners is the opportunity to earn some income. This might appeal to you because you feel like you’re getting something back for your investment. You get cash in your pocket that you can then reinvest or use for what you will. If you reinvest, you can grow your portfolio more in that way as well.
Investing for income is a slightly more conservative approach, and it may be well-suited to someone who isn’t as comfortable with extreme ups and downs in the market. Just because an investment is paying income doesn’t mean it won’t also gain and grow in the markets, it just means that isn’t the sole focus.
In that scenario, you reap the benefits of both capital gains and income from your portfolio.
So, how do you invest for income? Well, there are several ways to do so. You can choose a variety of things, but don’t forget to add some diversification. You can choose high-yielding funds or high-dividend stocks.
You can also choose ETFs and funds that are known for a good return overall. If you’re not sure you want just income, look for middle ground income-producing investments. Or you can choose a variety of these things as well.
Many times, these stocks are considered lower risk, because they aren’t super focused on growth. Their prices won’t fluctuate as heavily as some out there. They are still stocks and nothing is guaranteed. The risk is that the company may change their mind about dividends or interest, and that will affect what you receive as income.
5. Dollar Cost Averaging Strategies
Another popular choice for beginners is dollar cost averaging. This is a good choice for someone who can’t invest a ton of money to get started, but they are able to regularly add to their investment account so it can build.
Start by figuring out how much you can contribute to your investment account on a monthly basis. Maybe you add weekly, monthly, or even quarterly to this investment account. On a monthly or quarterly basis, you then go in and purchase with those funds so that they are put to work in the market.
You don’t worry so much about the market, you just choose a few wise investments, and then at every routine interval, you buy a specified amount. This works well with mutual funds and ETFs that are managed for you.
All you have to do is invest the funds at your specified intervals.
The nice thing about this strategy is you aren’t worrying about buying at a low or trying to figure out the timing of the market. You’re just buying when you’re supposed to buy and spreading it out.
As you routinely invest, the buy prices are going to average out, which is the point of dollar cost averaging. Rather than feeling like you lost money to a market high, you have an average expenditure that is more fair across the board.
This is also a great way for your portfolio to grow over time. There are risks of course, and sometimes you will buy at higher amounts, but the average should equal out more.
6. Passive Investing Strategies
For some beginners, that overwhelming feeling of the market never goes away. The market can make people very anxious. It can also be incredibly difficult to choose the investments that really fit what you want to accomplish.
Rather than focusing on figuring out the markets, you could instead invest with a passive strategy. There are several things that fall into this category. Here are a few.
- Robo adviser accounts
- Managed accounts
- Mutual funds
- ETFs
- REITs
Choosing to invest passively means you are going to either pay someone to choose your investments, or you’re going to choose some things that are managed on your behalf. You can do it either way. If you don’t want to pay for full account management, you should focus on things like mutual funds and ETFs.
Unlike stocks, these types of assets are managed in the background.
They are a bundle of different stocks and holdings that are compiled for a specific purpose. They can dive into several categories. If you’re concerned about diversification, try choosing several different funds from a variety of categories.
The goal here is that you choose how you want to get started, and then you let the managers of those funds, or your account, make the big decisions. You don’t have to be actively involved and making big decisions, but you are still invested for the long haul.
Choosing an Investment Strategy
We’ve shared several strategies here that are great for beginners. You just need to choose an investment app or platform to get started. There are lots of awesome choices.
Now, how do you choose the right investment strategy for you? There are just a few details to consider. Check these out.
How Much Are You Investing?
The first thing to know is how much you are investing. Do you have a large sum of money, or do you plan to add money over time? If you are starting small, you may be slightly more limited on your choices. You will have to invest in a way that you can afford.
But the good news is that even if you are investing small amounts, you have choices. There was a time that you couldn’t invest without a lot of funds. But those days really are no more. Now, you can invest even with just pocket change.
The nice thing is there are investment options for every budget. But in order to choose your strategy, you need to be able to figure out what or how you will be investing funds into this account.
Choose a strategy that works with your current financial status.
Risk Tolerance Profile
The next thing to consider is your risk tolerance. We are all different here, and some people are far less bothered by the risks of the market. It’s simply not worth it to be anxious and nervous all the time about your money in the market.
Choosing how much risk you can tolerate might help determine the best strategy for your needs. It might also help you figure out what to invest in within a certain strategy.
If you are anxious, you might be better with income investing or even index funds.
If you have no problem with risk, things like growth or even passive investing could be a great choice. Of course, you could choose any of these strategies and then fine tune the investments within your portfolio to work with your risk tolerance as well.
Financial Goals
The other thing to consider in choosing your strategy as a beginner is what your goals are. Do you want income, do you want growth, or do you want something entirely different?
Knowing your goals for investing, or even for this particular account, can help you define the investment method that you should choose. Your goals should be the focal point of how you invest. After all, you’re likely here to invest because you have a goal.
And if you are just investing for the fun of it, then chances are you can be a little bit more laid back with the strategy that you choose. But even if that is your plan, you still have goals in mind.
Investment Tips for Beginners
This scary investment world doesn’t have to bring you to your knees. It really is a lot and it’s going to take you some time to learn the market and get comfortable investing. You might be ready to jump into day trading in a year, while others will be perfectly content just sticking to a robo adviser account.
Everyone is different. But that’s the neat thing about investments. You can be unique and still be investing for YOU.
We wanted to share a few tips that might help as you get started. Check these out.
Don’t Invest Money You Need
Before you start investing, it might be a good idea to ensure you have an emergency fund or some savings set aside. Even as a beginner, your goal should be to invest for the long term. We recommend investing with the mindset that you won’t touch this money for the next five years. It’s the only real way to see what investing can do with the money.
If it’s easier to hold yourself accountable, you might want to invest in an IRA or retirement plan. This way you won’t be able to touch that money so it’s far less tempting.
The professional recommendation is that you ensure you won’t need this money in the next five years.
Then, you can truly put it to work and get to know the markets. This also gives you time to really get to know the market and figure out if you need to adjust your strategy.
If you are constantly having to pull money out or dip into your investments, you simply aren’t going to see results. Try to set yourself up in such a way that you can leave this money alone for five years and just let it work.
Get to Know Your Investments
As a beginner, most professionals would tell you to invest in what you know. And this is great advice. Even the most seasoned investors take the time to research their investments so that they can make educated decisions. You should do the same.
We’re guessing you’ve heard of things that interest you already. But have you done any sort of research on those investments? Choose investments that you know and are familiar with, even if that means you are going to do some research now to get familiar with them.
Understand Different Types of Investments
Get to know the different types of investments that are available to you. Here are a few choices.
- Stocks
- Bonds
- Mutual Funds
- ETFs
These are the top choices for beginners. There are also plenty of other asset classes, including things like cryptocurrency, commodities, futures, forex, options, etc. But as a beginner, you just need to learn and know the different investments out there.
Even in these four types of investments, there are thousands of choices in multiple categories. We recommend getting to know what these different types of investments are and how they work. It might help you choose what is best suited to your strategy.
As you get to be more familiar with investing, you can then start to learn about some of the more advanced mechanisms and decide if any of those is something you are interested in. Take the time to learn and know what you’re dealing with before you just dive into something.
Stay in Your Comfort Zone
Just because you hear about complicated investment strategies or more advanced trading selections, doesn’t mean you have to use those. They won’t be a good fit for every single investor out there.
Don’t invest in a way that is going to make you anxious or uncomfortable. It’s simply not worth it. Invest in ways that won’t leave you anxious and on edge constantly.
Final Thoughts
These investment strategies for beginners are a great way to get started in the market. You can easily learn and develop your skills, dabbling in different things that work for you. Remember to use an approach that fits with your financial status and works towards your goals.
Happy investing!
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