Defining an End Goal
Investing aimlessly in stocks with no clear goal will set you back over the long run, even if some of them do well in the interim. Forget others' get-rich stories and establish a timeline and scope that align to what's ahead in your life.
Factors to Consider
If you're starting with a small amount of cash or don't have an income that can contribute regularly, consider a longer-term approach.
Volatile price swings may bring you inherent discomfort. Or, you may have life commitments that can't absorb even moderate losses.
When do you need to turn your holdings back into cash? If it's soon, stick with heavily-traded securities.
If you have the cash on-hand, it's usually best to first pay off existing debt before investing in new assets.
If you have a demanding financial agenda, you may need to limit both your timeline and risk tolerance.
A Few Examples
If you're long-term focused, you can consider riskier assets with high upsides that outweigh losses over time.
Employer benefits packages allow you to contribute a portion of your paycheck directly to a retirement fund.
Finance Future Event
Growing cash for a wedding or down-payment requires a liquid, less-risky portfolio as you near the event date.
Building the Portfolio
Having defined your overarching investment goal(s) and associated risk tolerance, it's time to determine the right mix of assets that can achieve that desired return and how you'll obtain them.
Where to Begin
Allocate Your Cash
Rather than investing in a single asset, you'll want to manage risk by spreading your cash across assets, even if starting with just $500.
Pick a Broker
To be able to trade financial securities, you'll need a brokerage firm that can buy and sell assets on your behalf.
A Sample Mix
Funds - 70%
As a beginner, it's wise to allocate at least half of your cash to diversified funds that buoy returns during a rocky economy.
Stocks - 25%
If you have the risk appetite, you can tap into stocks that, as a whole, tend to outperform other asset types over time.
Cash - 5%
A small set of cash is always a good buffer for your portfolio, which can be used for trade commissions or paying capital gains taxes.
Diversification is crucial, no matter the market
It's common for beginner investors to invest in consumer-focused companies that they know well. But, being too heavily exposed to a specific sector, such as technology, can amplify losses when the market has a downturn. Incorporating a variety of companies and assets in your portfolio puts necessary bounds on how much you'll lose or gain.
Common Brokerage Providers
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