This question is very broad, so the answer is likely also very broad. But here are 5 things you can do right now to get started investing in the right way.
- Timeline – how long can you stay invested for and when will you need the money returned. You will and can get a better return the longer you are willing to stay committed. Have a timeline in mind for each investment you make.
- Keep your costs low – investment costs like internal fees, taxation, and transaction costs are a total loss of capital. Keeping them low should be important from day one.
- Write down a vision – why are you doing this in the first place? Few people buy stock on a whim. Knowing the reason you want to invest will help you when volatility sets in. This is also going to be handy if you ask for help – putting your investment advisor on the right path is likely more important than picking the right stock.
- Most people have an income target they are trying to replace – usually some employment income – write that number down and develop an income strategy to match.
- Avoid single stocks, at least to start. It’s far more time consuming and risky to be building a collection of stocks you get to watch. There are so many strategy centric or industry-specific funds and ETFs that assist investors in getting broad exposure in a single tool. This is better for most beginners. Build a core holding with these first.
There are so many charlatans, get rich quick ideas, and hot stock types that tend to derail investors early on, just like investing early has a compounded effect on wealth, missing on investments early can impair your long term wealth at the same severity. Example: I had a client who routinely made $500 moon shot bets on penny stocks. He said, I’m young and can afford a $500 loss now. But each $500 loss today is a $15,000 reduction to his retirement self.