4 Steps to Start Investing: A Beginner’s Guide

April 8, 2024 |read icon 7 min read
A young professional woman looks at her laptop screen while meeting with a financial professional to learn how to start investing.

When you start earning significant money—whether as a new graduate beginning your first job or a new business owner who’s secured your first sales—your initial financial focus will most likely be to cover the basics. The cost of food, rent, utilities, car payments and even gasoline can add up quickly. At first, it may seem like you have very little left over to spend on anything else.

But once you’ve established a budget to handle your day-to-day living costs and created a short-term savings account to pay for unexpected expenses, it’s smart to consider setting money aside for your future. Fortunately, the path to start investing is easy. These four quick steps can help point the way.

Investing quick start step one: Understand why investing is important

You’ve probably heard many times how important it is to start investing as soon as possible, but until you understand the power of investing, it’s likely to be the last thing on your to-do list. Why should you make investing a higher priority?

  1. Investing can fast-track your savings growth: Compared to traditional savings methods, wise investing allows you to leverage the power of compounding interest. Compounding interest means that your investments generate earnings, and those earnings, in turn, yield returns that get reinvested into your account. This process may help fast-track your wealth growth potential over time.
  2. Investing can help protect you from inflation: If it seems like everything is getting more expensive every time you go to the grocery store, you’re not wrong. Inflation continues to increase, eroding the value of every dollar you make. But the interest rates offered by most traditional savings accounts are typically far below the rate of inflation. By comparison, interest rates offered on investments are frequently higher, which can help ensure that your money maintains its value and continues to grow.
  3. Investing can help you achieve multiple financial goals: While your primary financial goal may be to fund your retirement, investing may help you achieve any number of monetary goals. Whether you dream of owning a house, funding your children’s education or starting that next new business…investing may help get you there, faster.

Investing quick start step two: Set goals and plans

Success as an investor comes down to four key elements: your goals, how much you choose to invest, the products and tools you select to invest in, and your commitment to the process. Let’s break those elements down.

  • Set your goals: To be successful as an investor, you need to set clear goals about what you want your investments to achieve for you. With a powerful goal, you’ll be far more likely to keep your money working for you long-term, vs. pulling it out too early. So ask yourself how—specifically—do you want to use the money you are investing? To fund your retirement? To buy a vacation home? To pay for college or trade school? Get crystal clear on your “why” for investing, and you’re more than halfway there.
  • Set your initial financial contribution amount: Before you move farther, you should identify how much you will invest every month. It will be easiest if you set up your contributions to your investment fund via automatic deduction, so deciding up front that you’ll deposit a set amount or a set percentage every month will help take the guesswork out of your process. What’s a good target amount? Everyone’s situation is different, but typical recommendations include investment amounts of 5% to 15% of your monthly income, so consider that a starting point! Remember, you can increase that amount as you are able to do so.
  • Choose your tools: Next, you’ll want to choose your preferred investment products. Some common investment options include stocks, bonds, mutual funds, real estate, annuities, deferred compensation plans—the list is quite long! Take the time to educate yourself about these options to make informed investment decisions. Looking for a short cut to making your final choice? We’ve got you covered in step four.
  • Commit to the long-term: Finally, make the decision to play the long game as an investor. By harnessing the power of compounding returns, making regular contributions to your investments over time and continuing to stay informed about market trends, you may help set yourself up for success.

Investing quick start step three: Create an investment strategy

Creating an investment strategy may sound a little daunting, but it really comes down to answering a simple question: what kind of person are you? Does the idea of investing in new or speculative stocks or markets with potentially higher risk (and higher reward) appeal to you? Or, would you prefer to invest in the largest and typically most dependable companies —with potentially lower return, but higher safety. Where you fall on this scale helps to identify your risk tolerance, a crucial key to your strategy.

Importantly, no matter what your risk tolerance is, to diversify your investments across different asset classes, sectors and geographical regions. For example, even if you prefer low-risk investments, you should still spread those investments out over several different industries. This helps limit your risk by reducing the impact of any single investment’s performance on your overall portfolio. Diversification can be a powerful tool for any investor, however, it does not guarantee a profit or protect against loss. It’s important to note that investment products are subject to the risk of loss, including principal.

Once you assess your risk tolerance, you should ask yourself how involved you want to be with the investment process. Passive investing essentially allows a financial company you choose to invest your money for you. Active investing is very hands on, allowing you to dig deep into the investment process and learn more about the funds and companies in your portfolio. Knowing your investment style can help you choose a financial professional or platform for your long-term success.

Investing quick start step four: Get professional advice

As you start your investment journey, it’s important to know that you don’t have to do it alone. In fact, the right financial professional can offer you invaluable advice and make sure you’re asking all the right questions as you set up your investment plans.

Who’s the best professional for you? It depends on your specific needs and preferences. You should look for someone who is experienced, knowledgeable and trustworthy. Consider their areas of experience, such as retirement planning, wealth management or specific investment strategies that align with your goals.

Understanding the costs and benefits of professional advice is also important. While there may be fees associated with hiring a financial professional, the value they provide in terms of experience and personalized guidance can far outweigh the costs. A good financial professional can help you navigate the complexities of the financial market, create a tailored investment plan and provide ongoing support as your life changes.

At Ameritas, we’re proud of our diverse, dynamic team of financial professionals who are particularly skilled in helping their clients prepare for the future. Learn more about how we can help you meet your financial goals with investments.  Congratulations on getting started as a new investor!

Securities offered through affiliate Ameritas Investment Company, LLC, Member FINRA/SIPC.  Investment advisory services offered through affiliated Ameritas Advisory Services, LLC.

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