The key to becoming financially independent is making more money than you earn at work. That’s done by investing the money you have now so that it will grow bigger in the future. And that’s called becoming an investor.
Investing takes a variety of forms. You might buy land or real estate, develop it, sell it for a higher price, or lease it for monthly residual income. You could buy a run-down car and fix it up to sell for a profit. You can invest your time into writing a book, song, play, or online course and receive money for your one-time effort every time a copy of it sells.
You can also invest in the stock market. But that sounds daunting to first-time investors and can be riddled with risk if you’re not sure what you’re doing.
However, you can become a savvy investor with the right strategy and reliable information. We’re here to provide some time-tested investment tips to follow and show you how to build your portfolio with low-risk but steady, long-term gains to secure your financial future!
Small and Steady Wins the Race
In February 2021, the Reddit-fueled Gamestop stock surge saw many young first-time investors diving into the market — and losing in a big way. Encouraged by forum members to invest big in Gamestop and hang on for huge gains, investors watched their shares plummet to massive losses instead. Some invested an entire paycheck while others invested — and lost — thousands of dollars from student loans and their savings accounts.
The experience illustrates several examples of how NOT to invest. Investing in the stock market is not a “go big or go home” venture. Instead, here’s what seasoned, successful investors say is the right way to invest:
Do your research
Before investing, turn to trusted sources to educate yourself about the various aspects of investing. For example, you’ll want to know the difference between stocks, bonds, index funds, and exchange-traded funds (ETFs). Study the habits and advice of successful investors, such as Warren Buffet, Benjamin Graham, and Peter Lynch.
Learn how to read stock charts, understand when to buy and sell, and discover what type of companies are best to invest in. Most seasoned investors advise you to invest only in businesses you understand, and you should never follow the latest trend or jump on the noisiest bandwagon. Smart investing means doing your due diligence, so you’re making the best business decisions to minimize risk.
Create a diversified portfolio — but not too diversified
Having multiple streams of income creates more financial stability than relying on one job or asset. The same thinking applies to investing — you should diversify your portfolio by investing in high-quality small and large businesses across a variety of industries. However, the goal should not be to gather up as many stocks as possible. Think quality over quantity, and keep your portfolio under 60 holdings that have long-term staying power. You should also consider starting with EFTs and index funds as a lower-cost alternative to stocks. But stay away from penny stocks, and don’t dabble in high-volatility stocks until you have some experience.
Invest small in stocks
No more than 10% of your assets should go towards investing in stocks. EFTs, index funds, and money market funds are less risky, so you can allot more of your cash to them. For stocks, however, be conservative. Think of stocks as fun money to play with and see how it goes. More affluent people even put as low as 2% of their investible funds into stocks since it’s a comparatively higher amount. Never risk funds earmarked for essentials like next month’s rent, your child’s college fund, or emergency money. The cash you use toward stocks should be money you can live without.
Think of investing as a way to achieve long-term success, and you’ll be on the right path. Resist the urge to jump on a hot tip — remember to do your research. You’ll see profits if you discipline yourself to hang onto stocks you’ve researched well and stick to your strategy.
Choosing an Investment Account
In order to invest, you’ll need an investment account, and you have lots of options. One of our favorites, especially for beginners, is an investment app called Stash. Stash specializes in fractional shares, which means you can invest as little as $5 in stocks for quality companies you know, like Coca-Cola and Revlon (and over 3.5K more), as well as EFTs in a variety of categories, like environmentally-conscious companies, commodities, and tech firms.
Stash also makes learning about investing and researching stocks easier with its built-in learning center, money news, and articles on a whole slew of investment topics. You also get personalized advice from Stash consultants, and depending on the plan you choose — all of which are affordable — you can also have premium research and advice to help take the confusion out of investing.
The app is set up to allow you to bank, budget, create financial goals, and track your spending too. And when you choose to use Stash’s Stock-Back debit card, a portion of your purchases is invested in stocks that you pick — like a rewards system, but your rewards go toward long-term investments.
Another user-friendly option is Robinhood, which lets new investors start with just $1.
This free trading app, used by over 15 million people, lets you trade stocks, ETFs, and options commission-free. When your application is approved, they’ll give free stock worth $5 up to $200 for new members, with chances to get high-value stock on Facebook, Microsoft, etc.
Uniquely Robinhood has a retirement option, where they offer IRAs with a 1% match. Instantly get an extra 1% on every dollar you contribute to your chosen retirement account. An additional 1% yearly could grow to $26K+ in 40 years!
The Bottom Line
Becoming an investor may seem out of reach to many people, but it doesn’t have to be. You can build long-term wealth with the proper knowledge and strategy at minimal risk. Visit Stash or Robinhood to learn how they can provide the tools and information you need to secure your financial future with low-risk, high-quality investments.
- Robinhood vs. Stash: Which is Best For You?
- Acorns App Review: How To Invest Spare Change for a Big Change