A beginner’s best investment strategy is to focus on opening a small investment account with modest funding. They should also try to pay off student loans and create a small emergency fund first.
Investment tactics can be changed. You can adjust your choice if it doesn’t work with your schedule or risk tolerance. However, switching investment philosophies has a price.
It is possible to generate taxable events each time you purchase or sell shares, especially when doing so quickly in non-sheltered funds. After your assets have lost value, you can also come to the conclusion that your portfolio is riskier than you’d want.
You’ve come to the correct spot if your resolution for the new year is to begin saving for the future but you are not sure how to get started. Investing need not be difficult or complex.
In fact, if you are a few decades away from retiring, investing in your future is one of the smartest long-term decisions you can make. This way, they can focus on investing with the funds they already have. The important thing is to avoid being impatient or looking for a quick buck.
Here are some of the best investment strategies for beginners today:
1. Investing in rental properties
While investing in rental properties can be lucrative, it can also be challenging. You must carefully plan your strategy and thoroughly research the market before investing. In addition, make sure to avoid common mistakes when investing in rental properties.
For instance, some beginners invest too much money in renovations or incur too much debt. These mistakes eat into their profits. The first step to investing in rental properties is to consult a financial advisor.
A financial adviser can help you make sound decisions and manage your finances. In addition, you should ask yourself whether you want to become a landlord. If so, you must ensure your investment property is in good condition and know your legal obligations.
Another method for investing in rental properties is to buy fixer-upper properties and refinance them after a few years. In this strategy, you buy properties at a discounted price and then fix them up and rent them out at a higher rate.
This strategy works well for multi-unit apartment turn-around projects. It can also be used in markets where property prices are appreciating quickly.
2. Investing in high-quality stocks
The best investment strategy for beginners is to invest in stocks likely to increase in value over the long run. This strategy only guarantees short-term gains but will increase your chances of success.
Beginners should start with small amounts of money and open a brokerage account. Stocks represent ownership in a company and are often traded in the form of common stocks, which give investors voting rights. Most companies grant one vote per share, and some pay dividends based on their profits.
Investing in individual stocks carries a higher risk than investing in mutual funds. However, you can increase your returns by including stocks from established companies with a proven track record.
Mutual funds and ETFs are ideal for this purpose. Investing in stocks is a good idea for those with a tight budget. Many well-established companies sell shares for as little as a few dollars. In addition, some brokers also offer fractional shares.
The best investment strategy for beginners is to focus on high-quality stocks. These are stocks that have the most vital fundamentals in the market. These companies often experience consistent growth, which will help build strong confidence in them.
3. Investing in an index fund
When it comes to investing in index funds, there are several factors to consider:
- It would help if you decided which index you want to follow. Some of the most popular indexes track the performance of the financial markets in the United States. Once you’ve determined the benchmark, you can look at which index fund is most closely matched to that index.
- You’ll want to find out how much the fund costs.
- You’ll want to determine if the fund provider offers other index funds.
Another significant benefit of index funds is their diversification. This means they won’t lose money even if the market crashes or declines. However, index funds are not immune to market crashes, and they can be risky in periods of market downturn. For this reason, many investors choose to invest in recession-proof industries and commodities.
Before investing in an index fund, you should determine your situation. Understand your risk tolerance and your budget. Also, make sure you have a source of emergency savings. Investing in an index fund can be a good choice for beginners, but only invest what you can afford to lose.
4. Investing in a broadly diversified ETF
If you are a beginner investor, the best way to get your foot in the door is to invest in exchange-traded funds (ETFs). They are inexpensive and generally carry lower risk than individual stocks.
Diversified ETFs are essentially pooled investments, and beginner investors can purchase a fund that tracks a broad market index, such as the S&P 500. This will give them exposure to the largest companies in the country.
However, it is vital to consider the expense ratio and risk before investing in an ETF. A lower expense ratio means lower risk, which will affect your return.
Try to invest regularly, maybe each time you receive a paycheck. Dollar-cost-averaging is the name of the approach used since frequent contributions over a period will help you develop the habit of investing.
Just pay attention to regularity. Even a portion of your paycheck may be routinely deposited into your investing account by some companies. Make sure the money isn’t just sitting in your account when it arrives.
The buy-and-hold ETF strategy is a good choice for beginners. This strategy doesn’t require hours of market monitoring and reduces the risk of making poor financial decisions based on emotion.
Moreover, a diversified portfolio of ETFs with high-quality stocks can withstand market swings and provide a consistent stream of profits. Another benefit of investing in an ETF is its tax efficiency.
I am Adeyemi Adetilewa, a media consultant, entrepreneur, husband, and father. Founder and Editor-In-Chief of Ideas Plus Business Magazine, online business resources for entrepreneurs. I help brands share unique and impactful stories through the use of public relations, advertising, and online marketing. My work has been featured on the Huffington Post, Thrive Global, Addicted2Success, Hackernoon, The Good Men Project, and other publications.