Investing For Beginners: What Should You Know To Get Started?

If you’re like many people, you may not feel confident when it comes to investing. In fact, a recent poll showed that 68% of investors don't feel comfortable with their investing knowledge, and 45% of non-investors say that a lack of knowledge is the main reason they haven't started. Has lack of knowledge stopped you from investing?

The good news is that you don’t need to be a financial expert to invest wisely. Here are a few basics that can help you feel more confident:

1. Know What You’re Investing In

• Start simple. When you're just getting started, it's important to know the basics of what you're investing in. Common investments include stocks, bonds, and mutual funds. Stocks represent ownership in a company, while bonds are essentially loans to a company or government. Mutual funds pool your money with other investors to buy a mix of stocks or bonds.
• Why it matters. Knowing the basics helps you understand where your money is going and how it can grow over time.

2. Understand Risk and Reward

• Risk vs. Reward. Every investment comes with some level of risk, but higher risks often come with higher potential rewards. Stocks, for example, can offer high returns but are more volatile, while bonds are safer but will grow slower. Understanding your comfort with risk (called risk tolerance) will help you choose investments that feel right for you.
• Why it matters. When you know what level of risk you’re comfortable with, you can make smarter decisions based on those levels and can avoid panic when the market fluctuates.

3. Diversification is Key

• Spread it out. Instead of putting all your money into one stock or investment, diversification means spreading your money across different types of investments. This can include a mix of stocks, bonds, and funds to reduce your risk. It’s like not putting all your eggs in one basket.
• Why it matters. Diversification helps protect your money if one investment doesn’t perform well. This way, the ups and downs in one area won’t hit you as hard.

4. Invest for the Long Term

• Time is your friend.The stock market will always have ups and downs, but over the long term, it generally grows. If you invest with the mindset of leaving your money in for years (or decades), you’re more likely to see positive returns.
• Why it matters. Long-term investing helps you avoid emotional decisions based on short-term market movements, giving your money more time to grow.

5. Start Small and Keep Learning

• Don’t be afraid to start small. You don’t need a lot of money to begin investing. Start with what you can and increase as you feel more comfortable. There are even apps that allow you to start with as little as a few dollars.
• Why it matters. The more you get used to investing, the more confident you’ll become. Learning as you go is a great way to build knowledge without feeling overwhelmed.

6. Consider starting with an index fund.

These are a type of investment fund, like a mutual fund or exchange-traded fund (ETF), that is designed to match or track the performance of a specific group of investments, called an index.

For example, an index fund might track the S&P 500, which is a list of 500 large U.S. companies. When you invest in an index fund, you're essentially investing in all the companies or investments within that index, without having to pick and choose individual stocks or bonds.

Index funds combine diversification as it spreads your money across many companies, which reduces risk. And, low cost since it just follows an index, it’s cheaper to manage than funds that try to pick the best investments. In short, an index fund is an easy, low-cost way to invest in the broader market and build wealth over time.

Take the First Step

Remember, you don’t need to know everything about investing to get started. Focus on understanding the basics, and over time, you’ll grow more confident in making decisions that can build your wealth. Investing is a powerful tool for securing your financial future, so don’t let a lack of knowledge hold you back from taking that first step!