If you’re new to investing, it’s important to know what you’re doing before you start buying stocks. The last thing you want to do is put all of your savings into one stock and then watch it go bust. Instead, a more balanced approach can get you on track to earn some passive income!

Keep reading to learn the 5 tips for first time investors!

Give Yourself An Investment Budget

How much should you invest? For a first time investor, that answer depends on your current financial picture. Take a hard look at what expenses or loans you have to pay off as well as any big purchases on the horizon.

Most experts suggest putting 10 to 15% of your income into retirement planning. If you can’t afford that much, it’s better to put in even 5% if you can. Anything is better than nothing!

Consider how much you want to divert from your paycheck each month into an investing plan. Some people like to do monthly deductions, while others prefer to do a lumpsum investment a few times a year.

Invest In Your Workplace’s Retirement Plan

Many workplaces offer 401(k) or other retirement plans. If your workplace does, take advantage of it! This is an easy way to start building a retirement nest egg.

Your workplace might offer an investment match, too, which helps grow the account even quicker. Some places offer a 2% match — others offer even more. The gist of an investment match that if your company offers a 2% match, you can contribute 2%, and ultimately you’ll have a 4% contribution to your retirement plan.

You won’t be taxed on any contributions until you remove money from the account, which ideally happens at retirement. You can contribute beyond what your company matches, too. There are limits to how much you can contribute, but there are other investment services you can use to build a bigger portfolio.

First Time Investors Should Open a Brokerage Account

One of the best options that you can use in addition to a workplace retirement plan (or in place of one) is a brokerage account. A brokerage account lets you buy stocks, bonds, mutual funds, and ETFs. The broker acts as the in-between executing your investment requests.

There are many licensed brokerage services online, and you’ll want to do some comparison shopping.

One popular brokerage account is Ninjatrader, which offers a host of investing features to suit investors interested in options and stocks. Can you trade options with Ninjatrader? Yes, and their order entry screens make the process a breeze for even a new investor.

When you’re getting started with a brokerage account, you can transfer money from your bank account into a money market fund with the brokerage account first. From there, you can invest your money.

The money market fund won’t yield much interest, so you should map out an investment plan to get your money working for you!

Wondering how to begin investing? Aim for a portfolio that has equities (stocks) and bonds. You can buy index funds and ETFs, which pool together a variety of stocks and offer less risk. Bonds don’t usually offer as high of a return as equities, but you do need to have some bonds in your portfolio for the sake of balance.

The ratio of equities to bonds depends on personal preference. Some investors want to be more aggressive and weight their portfolio more toward stocks, while others prefer a more conservative 50/50 split.

Aim for some blend of investments between equities and bonds. And within equities, aim to invest in some small-cap, mid-cap, and large-cap stocks to keep things diversified.

Small-cap funds pool together smaller and newer businesses, which means that they are riskier. You could get some great returns, but maybe not. That’s why you want some large-cap funds, which represent more established companies, to add balance.

Be Aware of the Fees

When you’re investing, it’s important to know about fees and penalties. These can add up quickly if you’re not careful.

By using a brokerage account, you do save on the costs of hiring a person to take care of investments for you. But you need to look at the fees associated with the account and each purchase.

For starters, be aware that these are taxable investments on a yearly basis, as opposed to a 401(k) plan.

You may run into account fees that cover the maintenance of your account over the course of the year. There are load fees, too, which happen during transactions. Some funds may claim that they are no-load funds, but do some sleuthing to see if there are any different fees that essentially take their place.

Plan For the Long-term

It’s easy to want instant returns on your investment, but you’ll be better off if you hold out for longterm investing results. Putting all of your money into high-risk stock in hopes of a big and quick return is risky.

It’s better to distribute your investment over a variety of funds. If one equity plummets, the others can help neutralize the effects and keep your investment stable.

You can use investment return calculators online to project what your investments can look like over time. Tweak the contributions to see how adding even 1% more of your income each year can make a difference.

Start Investing Now

It’s never too late to start investing, and it’s worth putting in some time to learn the ins and outs of responsible investing. Letting your money sit in a savings or checking account won’t help your financial picture grow. With a diverse portfolio of assets, you can make some safe investments as a first time investor that will enable you to feel financially secure.

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