I remember trying to puzzle out investing and yearning for beginner investing tips to help me find my way through the maze of possibilities.
I looked for investing tips in books and became more muddled by the complex maths and long and unfamiliar words.
I searched for opportunities, and my anxiety reached paralysing levels.
I yarned for role models and read the heroic origin stories of white, old men.
Guess what?
When I started, helpful investing tips were few, stocks and shares investing were obscured by the mythology of heroism and the mysticism of numbers, and the rest was inaccessible.
Things have changed, but investing tips are still more likely to confuse than enthuse.
Today I share my top investing tips for absolute beginners. I want to tell you much, but I am limiting myself to seven essential investing tips. These are:
- Invest only money you won’t need in the next twelve months
- Invest now and invest regularly
- When the stock market is going down, do the opposite to what you feel like doing
- Invest in index funds and ETFs
- Use digital wealth managers to invest
- Keep the costs of investing low
- Invest don’t speculate
Here we go.
Seven Investing tips for absolute beginners
#1. Invest only money you won’t need in the next twelve months
It is a truth universally accepted that the markets go up and they go down. That is entirely outside your control, and there is nothing you can do about it.
Apart from worrying about losing your money, feeling insecure about investing and, naturally, not investing. Not smart.
There are two things you can do to cope with these insecurities.
One, you must ensure you have the resources to survive a year in case things go wrong because a year is enough time for you to grief your losses, get angry at the world and everything in it, and get your act together to start building the future you crave again.
And two, you must ensure that you have enough, so you don’t need to draw down on your investments for a year (rolling) because even market drops of 20% typically recover in this time frame. Only complete catastrophes don’t recover, and in the last hundred years, there has been only one – the slump around World War Two.
The bottom line, ensure you can survive a year without touching your investments for peace of mind and the chance to recover if things go wrong.
#2. Invest now and invest regularly
Photo by César Couto on Unsplash
I was chatting with a friend of mine a couple of days ago, and our conversation turned to investing. He has some investments and a generous retirement fund, so he is not an absolute beginner. Imagine my surprise when my friend told me that he is not contributing to his investment account now because ‘everything is so expensive’ – his words, not mine.
My friend is wrong, and that kind of thinking is the road to investing doom.
Never try to time the market if you don’t want the market to time you out!
Start, or continue, investing and invest regularly. If you have £1,000 to contribute to your investment account, though, don’t dump it in stock all at once. Add £150 every week.
It is known as dollar/pound cost averaging. You can learn more about how dollar/pound cost averaging works.
But trust me, this is the only investing strategy that has worked for me emotionally and materially.
#3. When the stock market is going down, do the opposite to what you feel like doing
When the markets are going down, I always want to sell. It is understandable – I watch my hard-earned cash disappear, and I burn with fear and the desire to salvage what I can.
Every time I feel like that, I do the opposite – I go to my investment account and buy more. Why do I do that?
Because when the stock market is going down, you are at the best sale ever.
#4. Invest in index funds and ETFs
You may decide to play with investing in individual stocks – it is fun, and the returns are great when you get things right. Value and dividend investing are wonderfully profitable when things are correct, but it is also easy to get things wrong.
I dabbled in value stock investing for a couple of years, made a good profit and decided to call it a day. Because value stock analysis took over my life and left little time for anything else by the time I had read up on all the companies in my holdings. Value stock investing was like having a relationship with an extremely high maintenance partner – time, energy and effort consuming and ultimately open to disappointment.
Now I invest only in index funds, and ETFs. They are like finding a lifelong partner – they love you if you treat them right, e.g., select them properly and tend to them devotedly.
Invest in index funds – managed or not – for peace of mind and ease. Learn more about index fund investing reading ‘The Simple Path to Wealth” – one of my take ways from it is that index funds, apart from being diversified, are also self-renewed because when a stock fails to meet the criteria for inclusion, it drops off and another one takes its place. You also must learn how to select index funds and discern the differences between index funds.
If you are curious, I use Vanguard to invest in index funds and Nutmeg to invest in ETFs. I also invest in Blue Whale Capital, a managed fund.
#5. Use digital wealth managers to invest
Photo by Brett Jordan on Unsplash
Digital wealth managers, or robo-investors, are an innovation that revolutionised investing and brought it to the masses.
These platforms depend on technology to match your circumstances and investing strategy, construct the investment portfolio appropriate to you, rebalance your portfolio and much more.
I use Nutmeg to invest. You may prefer to check other digital wealth managers before making up your mind. Please make sure that these platforms still operate in the UK.
#6. Keep the costs of investing low
That may sound trivial, but it always surprises me how many people ignore or underestimate the effect of costs on your investment portfolio.
Everything in investing compounds – this includes costs.
Keep your investment costs low because a percentage makes a considerable difference to your investment returns in the long run.
#7. Invest don’t speculate
Many beginners and even more seasoned investors confuse investing and speculation.
Remember that Forex trading, NFTs trading and stock trading is speculation, not investing, and your returns depend on psychology without generating value.
Buying stocks regularly and benefiting from the company’s increased value is investing. Buying real estate is investing.
There are two differences between investing and speculation:
- Level of risk; and
- Whether value creation is involved.
Learn more about speculation and investing.
Invest for the long term. If you fancy dabbling in speculation, do it on a small scale and only with money you can afford to lose.
Final words: investing tips for beginners
Investing doesn’t have to be confusing and prohibitive when you use the seven investing tips offered here:
- Invest only money you won’t need in the next twelve months
- Invest now and invest regularly
- When the stock market is going down, do the opposite to what you feel like doing
- Invest in index funds and ETFs
- Use digital wealth managers to invest
- Keep the costs of investing low
- Invest don’t speculate
Photo by Mathieu Stern on Unsplash