Enjoy this insightful guest post by John, who hails from Frugal Rules!
Now that we’ve stepped into the New Year, it’s time for resolutions. As suggested by USA.gov, most of the common resolutions revolve around saving money, losing weight, or landing a better job. Among these, a worthy addition would be starting to invest in the New Year.
With a background as a stockbroker, I’ve observed an influx of new investors each January. This can appear daunting, especially for beginners who are not familiar with the stock market. I believe, however, that it needn’t be so intimidating. To ease the journey, I encourage the adoption of some essential rules for novice investors. If your New Year’s resolution involves investing, these fundamental yet powerful guidelines could steer you in the right direction.
THE PERCEPTION OF LACKING FUNDS SHOULD NOT DETER YOU
A common misbelief is that investing in the stock market requires a hefty sum—thousands, if not tens of thousands of dollars. This is simply not true. Indeed, you can kickstart your investment journey with a modest amount of money. Though the definition of “modest” may vary depending on personal circumstances, it’s a fallacy to think that you need to amass a large wealth before you can invest. Many brokerages actually accept accounts that begin with just $500 or less.
Don’t be discouraged if you have limited funds. Instead, consider this a challenge and start investing as soon as possible. If you’re currently lacking funds, start by saving a small amount each month. By saving an extra $20-$50 per month, you’ll be able to initiate your investment journey within half a year via many online brokers. Always remember that every penny counts and your future self will appreciate the fact that you started investing, despite having only a small sum to report.
AUTOMATION IS YOUR FRIEND
Oftentimes, the tasks we deem important yet time-consuming get postponed or even forgotten as life bombards us with other responsibilities. The very task of investing for your future may become one of these overlooked objectives. To counteract this, the solution is automation. If you struggle to manage regular contributions to your investment accounts despite having sufficient funds, automate it.
Numerous online brokers, including Motif Investing and others, offer the provision to establish automatic deposits at virtually any frequency of your choice. This takes the hassle out of manual contributions and you are less likely to feel the pinch of money withdrawal from your bank account. If you have a 401(k), you should be able to implement a similar approach, whether that means increasing deductions from each paycheck, or setting up annual account rebalancing.
KEEP IT SIMPLE
Many novice investors unwittingly complicate their investment strategies. Trying to outperform the market often leads them down risky paths. Instead, consider investing in low-cost index funds. These generally keep pace with market trends, thereby reducing complexity.
Most of the online brokerage accounts present a categorically listed selection of top-rated funds. You can also discover these through a straightforward internet search. Moreover, if you’re investing in a 401(k), most plans offer at least a few low-cost funds. In case they don’t, connect with your Group Benefits department to request options, as they’re there to assist you.
For those initiating their investment journey this year, congratulations! Stick to these simple yet effective tips and you’ll be well on your way toward accruing wealth that will serve you for many years to come.
John Schmoll, the founder of Frugal Rules, created this blog with the aim of helping individuals attain financial independence. A savvy budget planner and keen investor, he enjoys sharing his knowledge to assist others in avoiding potential financial errors. A financial service industry veteran, John holds an MBA in Finance and has professional experience as a licensed stockbroker.
