53% of all U.S. families owned a publicly-traded stock in 2019, which was up 32% from 1989. As more Americans aim to become financially independent, building an investment portfolio has become essential.
Investing allows you to grow your wealth and make passive income, but how can you get started? It can seem overwhelming at first to learn how to navigate the investment world, but it doesn’t have to be.
Keep reading our guide below to learn important investing tips for beginners so that you can become a successful investor in no time.
What Is an Investment Portfolio?
An investment portfolio is your collection of assets, like bonds, stocks, and exchange-traded funds. This will most likely not be a physical portfolio, as most investing is done digitally.
Instead, it is more of a concept for you to have all of your investments in one place, so you can see how they work together. You most likely will have different investment accounts, such as a brokerage account and a retirement savings account.
Knowing how each piece fits together can guide you on your next investments, which is why deciding to start an investment portfolio is so important.
Open an Investment Account
To learn how to start investing, you must first open an investment account. You need to choose the right type of investment account based on your needs.
Generally, this means opening a regular taxable brokerage account. This will allow you to invest in bonds, stocks, exchange-traded funds, and mutual funds.
With an investment account, you will be required to pay taxes on your profits and dividends, but you can withdraw your money at any given time.
When you open your account with an online broker, inquire about any hidden fees that could occur. Ask about the total costs for purchasing, maintaining, and selling your investments, as well as any maintenance fees.
Because you’re a new investor, you’re more likely to get scammed or hit with extra fees. Avoid this by being upfront and asking questions in the very beginning.
Choose Your Asset Allocation
Asset allocation refers to the percentage you have of each type of asset in your portfolio. So, your investments may include 60% stocks and 40% bonds, for example.
To determine your asset allocation, you should factor in your age and future income needs. If you are in your 50s and are considering retiring soon, your asset allocation will look much different than for someone in their 20s.
One trick for determining your asset allocation is to subtract your age by 110 and invest that much into stocks. So, if you were 30, you would allocate 80% of your investments into stocks, and the other 20% would be for other assets like bonds.
The allocation of your assets will also depend on your personality and how willing you are to take risks. You may prefer to risk more for the chance of higher returns, or you may not be willing to risk much at all and would rather see smaller, slower returns.
Whatever the case, take your time determining your asset allocation, and don’t be afraid to change it as needed.
Pick Your Assets
Now it’s time to pick your assets to find what to invest in.
The different types of assets include stocks, bonds, and exchange-traded funds. Stocks allow you to own a percentage of a company, so you will make money as they make money, which also means you’ll lose it as they lose it.
You can invest in individual stocks by way of index funds, mutual funds, and exchange-traded funds. While individual stocks carry a greater risk, they also have the highest return rate.
Bonds are like loans that you give to the government, which they then pay back with interest. Bonds carry the least amount of risk, and the returns are lower.
Exchange-traded funds are traded like individual stocks but don’t have as much risk attached to them. They are a great way to diversify your portfolio without increasing your risk.
One of the most critical pieces of investing advice for beginners you’ll hear is to diversify your portfolio. Whatever assets you choose, you don’t want to put all of your money into one industry or even into two.
Spread out your investments to not only make more money but also have less risk of losing it all in the event of a sudden stock market crash.
To learn about NFTs and their part in investing, check out this resource.
Balance Your Portfolio
Now you have your assets chosen, you’ve diversified your portfolio, and decided on your asset allocation.
As you make money investing, you’ll need to rebalance your portfolio from time to time to ensure your assets are where you really want them to be.
Every six to twelve months, review your portfolio and see if any of your assets have shifted. If your stocks were at 80% and now they’re at 85%, you may need to rebalance your allocation.
Use These Investing Tips for Beginners Get Started Investing Today
Getting started investing can seem a bit daunting, but using these investing tips for beginners can help you be successful. Be mindful of the assets you choose, and take your time with your allocation.
As you begin making money, remember to revisit your portfolio to balance it every few months, and don’t be afraid to take a few risks.
If you’d like to learn something else today, it’s appropriate to reach out to an automated investment advisor.