I know first hand how intimidating it can be to throw your hard-earned money into investments, whether it be stocks, mutual funds, ETF’s, bonds or maybe even cryptocurrency. However, investing is crucial to building your nest egg for your retirement.
Whether you are a beginner investor or someone who has had experience but suffered some financial losses in the past as I have, getting rid of the fear of investing is the key to building your future nest egg. Below are some tips on why and how you can start investing and knowing where to get started.
The strategy of dollar-cost-averaging can minimize the risk of investing a large sum of money when stock prices may be at an all-time high. It’s simply investing the same amount of money regularly (typically monthly) regardless of the cost, to lower the average cost per share of the investment. You can start with a small amount such as $50 or $100/month but the key is to be consistent. The earlier in life this strategy is put in place, the greater the chance of seeing your portfolio grow as it can help protect from market volatility over a longer period.
Grow your portfolio with compounding interest or dividends
Earnings from some of your portfolio holdings may earn interest or dividends that could be used to invest in more shares thereby helping you to grow your portfolio. For example, let’s just say you own a share of a stock that is worth $30/share and you currently own 100 shares. The value of your portfolio is $3,000. If the dividend is $3.00, then you can use the $3.00 to purchase another 10% of one share thereby giving you 100.10 shares in that portfolio.
Regularly rebalance your portfolio – Diversify
Don’t get into the trap of holding a portfolio that is too stock heavy when the stock market is up (bull market) or, having too much in bonds during a bear market. Rebalancing your portfolio regularly will insulate the risk of purchasing too many stocks at a very high cost. Doing your research on different types of investments will increase your understanding and hence, your confidence.
Invest for long term
One of the biggest mistakes I made in the past is to sell off my investments as soon as the value declined. Since none of us have a crystal ball, we should not attempt to time the market. investments that have a higher short-term volatility risk, will probably have higher returns over a long period of time. Another reason to hold your investments for the long term is lower taxation. Any gains on stocks that are realized within a year are taxed at ordinary income which is almost always a higher percentage than long-term capital gains taxes which are between 15%-20%.
Aside from lower tax advantages, the other advantage for investing long term is that it provides more benefit and incentives in the companies that help build the economy rather than speculate on stocks to turn a quick buck.
Choose the trading site suitable for you
Whether you’ve never invested before and just need some investing experience by playing with virtual cash (not real money) or is a seasoned investor, using the right online trading platform is a very important aspect to your success. A couple of things to watch for are fees and ease of use depending on your experience level. Take a look at one of the most comprehensive reviews of 13 of the best online trading sites and find the one that best suits your investment level.
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