When starting out investing, there is a lot of information out there that might make investing seem complicated. It really isn’t. In this post, I am going to walk you through 3 key steps to understand and implement when beginning investing. If you can keep these in mind, you will experience success as an investor.
Investing For the Long-Term
Probably the most important tip when starting out investing is to focus on the long-term. Too many new investors think they will spot the next Apple or Netflix and turn their $500 investment into $1 million or more overnight. Unfortunately, the stock market doesn’t work this way.
To truly be successful in the stock market, you have to take a long-term approach. The reason for this is because over the short-term, no one, not even the experts, knows what the market will do on a given day. In other words, you have about the same odds as you do flipping a coin.
But the good news is that over the long term, we can say with some certainty what the market will do: it will move higher. Therefore, you have to look at the long term and keep investing through the good and the bad times. If you can ignore the short-term swings and keep your eye on the long term, you will be a successful investor.
Picking The Right Broker
Another important tip when beginning investing is to figure out who the right broker is for you. There are a lot out there and for good reason – all of us have different needs and investing strategies. It’s the same reason why there are many car brands and models out there as well as various ways to get out of debt. We all are looking for something different.
Because of this, it is vital that you do the research to find the right broker for you. If you are interested in investing in mutual funds and the broker you are considering charges a commission to trade all mutual funds, that choice doesn’t make much sense. This is because there are other brokers out there that allow you to invest in mutual funds for free.
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Make sure you take the time to sort through all of the brokers out there. Weed out all of the ones that don’t fit your needs and pick with the one that does. Don’t get tempted to pick one either because of a sign up bonus or other promotions. Look long term and pick the best one for you.
Paying Attention To Fees
The last tip is one that is overlooked by most investors, regardless if they are new or seasoned. You have to pay attention to the fees you are paying. You don’t get billed for the fees as they are taken out “off the top” of your investments.
This means that if your mutual fund earned 8% last year and has a 1% management fee, you earned 7%. On your statement, it will just show you the 7%, so in a way, you are blind to the fee. But the fee matters as it adds up over time.
For example, if you have $100,000 invested in a mutual fund that charges 1% a year, you are paying $1,000 in fees every year you own that fund. In 25 years, that comes to $25,000! On the other hand, if you invest in a mutual fund that charges 0.25% in fees per year, you are paying $250 in fees a year or $6,250 over 25 years. The difference is money you keep in your account! And these numbers don’t even take into account that your investments are growing over time either!
Please pay attention to fees. The less you pay, the more money you keep. And just to be clear, if an investment charges higher fees, it doesn’t mean it is a better investment. There is zero correlation between the two.
In the end, you can be a successful investor over the long term if you develop good habits from the start. This means you need to invest for the long term, choose a broker that meets your needs, and pay attention to the fees your investments charge you. If you can do these things, you will see your investments grow over time and they will help you to achieve the financial freedom you are looking for.