When you start to consider if investing is an appropriate option for you, you may have questions. You might want to ask:
- How do I invest money, and where?
- How much money will I need?
- What are some common strategies for someone that has never invested before?
It’s OK to have questions. Investing can be a challenging subject to grasp. The more you learn about investing and the potential benefits, the more your confidence may grow.
It’s exciting when you decide to invest and watch your money work for you, but it’s more than just buying and selling. Investing requires careful analysis, research, and strategy. Whether you’re a beginner or even an intermediate investor, you are encouraged to seek assistance from a financial professional.
Receiving guidance from someone with experience can show you how the market works, how to research companies, and it can help you learn how to avoid common investment mistakes.
Get Involved in Investing as Early as Possible
To consider the potential returns on your investments, it helps to invest early so that you may improve your financial stability. One way this can occur is through compounding. Over time, investments can start to earn money on their own return. [i]
Why Do People Invest?
Some people invest to grow their wealth, while some have retirement goals like securing funds in a Roth, traditional IRA, or 401(k). Others invest for reasons unique to them and their financial situation.
How to Begin Your Investing Journey?
1. Decide how much money you are comfortable investing. Only invest what you are willing to lose.
2. Educate yourself on investing. Read books on investing and talk to people who are familiar with the investing world to learn more about investment opportunities and strategies.
3. Determine which brokerage firm would work for you and your investment goals. To locate a broker that could help build a strategy to match these goals, it may be helpful to seek guidance from someone with experience like a banker that you trust, a financial professional, a family member or a friend. Once you establish a few different possibilities, consider using these tips to narrow down your selection:
- Research brokers with a history of reliability.
- Be aware of account minimums.
- Take note of any commissions or fees that the firm may charge. For example, some brokers may charge a fee to buy and sell stocks and mutual funds. Exchange-Traded Funds (ETFs) are typically subject to stock trade commissions, however, commission-free ETFs are often available. [ii]
- Contact the brokerage firm and fill out an application.
4. Find a brokerage account that is suitable for your needs. Typically, there are three main accounts that are popular. A financial professional can assist you in figuring out which one may appropriately align with your goals. These accounts include:
- A standard brokerage account. This type of account is the most common and allows you to buy securities with only the money that you have at that moment.
- A retirement account is one that has a particular tax status where money can grow tax-free.
- A margin account is a variation of a standard account. It works like a credit card where you can borrow money to buy securities and then pay the lender back later. [iii]
What Are Some Investment Options?
- Stocks are a share of ownership in a single company.
- Bonds are a loan to a government entity or a company. It can be thought of as an I.O.U. between the lender and borrower. They pay you back over a period of time and you might earn interest growth on the money. [iv]
- A mutual fund is a collection of investments that are typically less risky than individual stocks due to the fact that they are often diversified. Mutual funds are managed by a professional. [v]
- An index fund is a type of mutual fund or exchange traded fund that seeks to track the returns based on the market. [vi]
- There are other investment instruments that a financial advisor can help you learn more about including private funds, insurance products, Real Estate Investment Trusts (REITS) and more.
Common Investing Mistakes
Being knowledgeable can help you avoid critical decisions that knock you off course as you pursue your investment goals. Here are four mistakes to avoid:
- Making too many trades too often.
- Not being diversified.
- Not having an instrument strategy.
- Buying high and selling low.
Building your confidence as an investor may take some time, but the lessons you learn on your investing journey can help you to prepare a strategy that is appropriate for you, your family, and your goals.
[i]How to Start Investing: A Guide for Beginners - NerdWallet
[ii]How to Choose the Best Online Broker - NerdWallet
[iii]Margin Account Vs. Cash Account: The Biggest Differences - NerdWallet
[iv]Bond: Financial Meaning With Examples and How They Are Priced (investopedia.com)
[v]Mutual Funds: Different Types and How They Are Priced (investopedia.com)
[vi]Index Funds | Investor.gov
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. All indexes are unmanaged and cannot be invested into directly.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Investing in mutual funds involves risk, including possible loss of principal. The funds value will fluctuate with market conditions and may not achieve its investment objective. Upon redemption, the value of fund shares may be worth more or less than their original cost.
An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors.
Investing in Real Estate Investment Trusts (REITs) involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions.
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