Making Smart Investments: A Beginner’s Guide

Discovering ways to make your money work for you (instead of the other way around) is one of the best things you can do for your financial well-being. After all, intelligently building wealth delivers tons of benefits. It can give you the freedom to pursue your business goals.

Allow you to retire at an early age. Moreover, it can help you create the resources needed to invest in things like your health, mental well-being, or lifestyle.

And if you look at the latest data, you’ll see that an increasing number of young people are starting to invest. According to Fortune magazine, Gen Zers are investing in their retirement funds more than older generations because they want to ensure they have the chance to retire.

So, if you, too, want to make smart investments but don’t know how to do it, this beginner’s guide is a good place to get started.

Why Invest?

Before we get into the tips for starting your investment journey, we must answer one key question. Why should you invest in the first place?

Well, the answer to this question is relatively simple.

By making intelligent investment decisions, you’re essentially building wealth with the money you have instead of losing it to inflation.

So, knowing that good investments can allow you to retain the buying power of your funds (or even create more wealth through interest rates), here are the top tips for ensuring you’re getting great outcomes.

Decide How Much You Can Afford to Invest

As you begin your investing journey — especially if you’re looking into stocks — your first instinct may be to put as much of your money into it as possible. After all, this will deliver the most significant, fastest gains and make your efforts pay off in the short run.

But the thing is, meaningful returns and lasting wealth are acquired over the long run. In fact, the longer you wait to cash in, the more you will earn. So, instead of putting all you have into stocks, real estate, or gold, ensure that you also have:

1. Enough money to cover your day-to-day expenses, along with some padding.
2. Sufficient savings (around 20%) to have at your disposal in case of unforeseen circumstances.

Once you’ve done that, you can move on to determining the amount of money you want to invest.

If you’re young and only began working at your first job, start with a sum you can spare — like $100 per month. Or, if you’re well-established in your career and have a sufficient disposable income, consider investing 10%, 15%, or even a bit more if you can afford it.

Pay Off as Much Debt as You Can

Another thing to remember when investing is that your priority should be to pay off your debt (if you have any).

In fact, if you repay high-interest-rate debts before you start investing, you’ll end up (potentially) saving more than you would earn by investing. Similarly, if you can, pay down some of your debt. This is an equally good wealth-generating strategy.

It will mean losing less money to interest rates and freeing up cash for potential investment opportunities. Of course, there are cases when paying off your debt won’t be the better alternative to investing.

In situations where you’re paying low or even zero interest rates and where the payments don’t make a significant dent in your budget, you can keep the personal loan.

That way, you’ll avoid having to pay a prepayment penalty or negatively impacting your credit score. Plus, you’ll be putting your extra cash to better use.

Choose the Right Assets for Your Goals

One of the biggest mistakes beginners make when starting to invest is taking on too much risk. Just think of all the young investors who lost astronomical amounts of money by investing in NFTs.

With this in mind, one of the most essential tips for choosing assets (especially when getting started) is to go for low-risk assets, even if they don’t deliver a quick ROI.

For instance, one of the absolute best choices beginners can make is to invest in S&P 500 Stocks. These have a good track record and are almost guaranteed to deliver good earnings (as long as you don’t cash in too early).

However, there are other great options for beginners as well.

High-yield savings accounts, 401(k) retirement plans, real estate, and luxury watches can help you create capital.

The one thing you should remember is to try and build a diverse portfolio. That way, market disruptions won’t affect all of your funds. Plus, it will give you a solid base for building wealth that will last.

Understand the Downsides of Trading

Lastly, remember that trading — especially when investing in high-risk assets — comes with multiple potential downsides. In addition to being stressful and time-consuming, it can also turn into compulsive behavior, especially when dealing with large sums.

So, if you want to improve your financial situation but do so sustainably, ensure that you’re making calculated decisions.

Try not to allow your emotions to steer your actions, and don’t be afraid to seek out an advisor. You’ll have much better chances of making the right choices with the proper guidance.

Furthermore, if you opt to go the DIY route, it may not be a bad idea to do some practice before you start trading real money. There are plenty of stock market simulators available, and these can be an excellent tool for helping you get the hang of the art of investing.

Wrapping Up

There you have it: a beginner’s guide to making smart investments. As you can see, there’s no formula for getting rich — especially not for doing so overnight.

Instead, smart investing requires a rational and calm approach to the activity, along with some patience.

So, if you have it in you to exercise self-control in high-pressure situations, go ahead and go for it. However, if you’re not the best at making financial decisions when dealing with stress or risk, then your best option would be to put your money toward safer assets like real estate or a savings account.

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