How To Begin Investing As A Novice

Investing is a long process and learning to do so correctly is a great skill. There are several ways by which you can start investing as a beginner. Several questions might come to your mind while starting your investing journey including how to invest. The most important things are choosing the right brokerage, selecting broad market funds to get diversified exposure, automating contributions, and maintaining a buy-and-hold perspective through education and discipline.

Starting early is the key to long-term investing. Here are a few tips for a successful investing journey. 

1. 1. Automate Your Contributions: Instead of stressing over trying to time the market or make complex decisions, automate small but consistent contributions from your checking account each month. Long-term success is built through discipline, not luck.  With long-term investing, the chances of getting higher returns are higher. Even just $25 bi-weekly can grow remarkably over decades through the power of compound returns. Automation removes emotion from the process while building powerful habits. Set it and forget it! This is enough to build wealth over time. 

• Choose Your Initial Funds: With your asset allocation in mind, here are some specific fund options suitable for novice portfolios:

– Total US Stock Market: VTI, ITOT, FXAIX

– Total International Stock: VXUS, SPEX, VGTSX  

– US Bond Market: BND, AGG, VBILX

Stick to broad, low-cost index funds or ETFs from respected fund families like Vanguard, Fidelity, and Schwab. Worry less about selecting individual stars and more about getting started and diversified. This reduces the risk of loss over time. Being diversified also helps in staying invested as the overall portfolio has a higher chance of being positive over time. 

1. Understand Tax Implications: Tax treatment varies based on account types, so educate yourself on the basics:

• Traditional/Roth IRAs have annual contribution limits but grow tax-deferred or tax-free until withdrawals. 
• 401(k)s also provide tax advantages plus potential employer matching. The contribution room depends on your job. Health savings accounts (HSAs) are another tax-advantaged option when paired with a high-deductible health plan. Brokerage accounts have unlimited funding but income from dividends and capital gains is taxable each year.
• Use tax-advantaged spaces like 401(k)s, IRAs, and HSAs before taxable brokerages when possible. Consult a tax professional if needed. Also, understand the type of ITRs that need to be filed due to your investment gains.

1.  Develop a Long-Term Mindset: To withstand inevitable short-term volatility, focus on a long-term investment horizon rather than constant monitoring. It is important to prioritize these prudent practices:

• Maintain your target asset allocation through annual rebalancing to buy low and sell high. 
• Continue automated contributions, buying more shares of undervalued assets after market downturns.
• Ignore short-term fluctuations and hold through temporary corrections, which are a normal part of healthy markets. Patience is rewarding.

• Educate Yourself Continually: No one innately understands everything about managing money. Commit to independent study and ongoing self-education to maximize your investment success:

• Use free platforms like Khan Academy, Coursera, and FutureLearn for finance foundations. 

• Follow analysts and financial experts on YouTube for insight into current events and long-term strategies. 

• Listen to investing, economics, and business podcasts during daily activities. 

• Read blogs, articles, and educational materials from your brokerage. 

• Check websites like Investopedia to build financial literacy.

• Knowledge is power, and gaining comprehension helps weather inevitable difficult markets. Continue challenging yourself.

• A common simple starting point is:

– Age 20-30: 80/20 stocks to bonds 

– Age 30-40: 70/30 stocks to bonds

– Age 40-50: 60/40 stocks to bonds

– Age 50-60: 50/50 stocks to bonds

– 60+: More conservative mix emphasizing fixed income

• Annually rebalance your portfolio back to your targets over time as market shifts alter your weights between assets.
• Keep Transaction Costs Low: Transactional and trading fees eat into long-term returns, so choose:

• Commission-free online brokers for buy-and-hold ETF/mutual fund purchases. Avoid frequent trading.

• Index funds and ETFs which passively track entire markets versus actively managed alternatives. 

• Electronic trading platforms rather than calling a broker directly if self-trading frequently. 

• Paying 1-2% extra per year in unnecessary fees over decades compounds to massive sums forfeited. Practice frugality.

• Consider Professional Guidance Too: While low-cost self-directed options serve beginners well, professional financial advisors provide value in complex situations like:

• Managing an unexpected windfall or inheritance.
• Navigating retirement income planning intricacies or tax strategies. 
• Developing sophisticated plans spanning generations of families.
• Do your research to find a fee-only fiduciary aligned with your best interests if extra help makes sense for your unique needs down the road. 

• Continuously Expand Your Knowledge: An important part of your investment journey should be continual self-education. Markets and best practices evolve, so growing your financial literacy leaves you better prepared to adapt.

• • Use online resources like YouTube tutorials, Khan Academy courses, and Investopedia definitions to reinforce basic concepts. Read articles or blogs regularly on new topics that interest you. 
  • As comfort increases, try online certificates or diplomas from reputable providers like Coursera or edX. Stay curious and turn independent learning into a lifelong habit that serves you well for decades to come.

• An added benefit is education strengthening your confidence to stay on the long-term course, even through periods of volatility, rather than panicking. Consider your ongoing knowledge growth just as important as your asset growth.

Get Started Today

Taking your first steps to competent investment management can be achieved with just five simple actions:

1. Open a brokerage account: This is the first step towards investing.
2. Fund it initially and automatically going forward: Fund the account with whatever amount you can and plan for long-term investing. Make sure that you can maintain consistency.
3. Choose low-cost index funds for diversification: This helps in minimizing risks.
4. Build a target asset allocation strategy: This helps in clarification.
5. Develop a buy-and-hold habit through education: This is important for educated risk.

By choosing a brokerage, allocating assets to broad funds automatically, focusing long-term, and educating yourself continually, anyone can feel empowered and learn investing to manage their wealth successfully. Don’t delay – take that first step towards your brighter financial future today! With the right approach, investing seems simpler than it appears. You’ve got this.