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Best Way to Invest Money for Beginners

Simon Quayson
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The Best Way to Invest Money for Beginners Who are Inexperienced

The first step to investing as a beginner is to choose a broker?  Not quite.  Many online resources have a way of putting the cart ahead of the horse.  The best way to invest money for beginners is to put the most important things first.  As an inexperienced investor, you’d want to lay a good foundation before you take the plunge into a new territory.

Your best move as a total beginner investor is to establish what investing IS and what it ISN’T.  This is often overlooked though it will definitely help you discover your investing style.  Your investing style, philosophy, or tribe is the way you invest in relation to your goals, purpose, as well as your temperament.

Discover What Investing Is and What It’s Not

Investing is definitely an operation that requires a clear definition.  The beginner needs to take this seriously.  This would be the basis for every investing decision you make from here on.

We’ll briefly consider the definition of investing according to Ben Graham.  Graham is the author of The Intelligent investor; and also the mentor and former boss of Warren Buffett.  Buffett is globally known as the greatest investor of all time.

Now, Graham wrote in his aforementioned book, that the best way to invest money for beginners was first to perform some thorough analysis.  The investor was required to reduce his downside risk, and also seek a reasonable yield or rate of return for their money.

The inexperienced investor must pursue a long-term position – with as little selling as possible.  Graham concluded by saying that activities that do not align to these directives are said to be speculative.

So there you have it.  This is a clean cut baptism to the world of stocks.  The best way to invest money for beginners like you is to avoid losing money.  Start this way and save yourself a mountain of tribulation in the world of investing that is waiting ahead of you.

Read Books to Learn About Investing

The next step is to invest in yourself through educate.  Financial literacy is paramount.  More especially, the world of investing and personal finance.  Grab a couple of books and use online articles from some of the best personal finance blogs as a reading supplement.

One best way to invest money for beginners is to learn while investing.  They go hand-in-hand actually.  But what are some good books for the inexperienced?  Just start with the basics.  You need not pile up dozens of books before making your first investment.  As a matter of fact, your education should be a life-long process.

My Personal Journey with Investing Books:

1) Investing for Dummies

2) The Warren Buffett Way

3) The Intelligent Investor

These books will give you a good perspective into intelligent investing – especially the last 2.  Intelligent investing is the buying and owning of financial assets through rational examination of their fundamentals.  The intelligent investor only buys the asset when the price makes sense in relation to the underlying value (intrinsic value).

Start Budgeting and Saving

You might want to jump straight into stocks now wouldn’t you? As anxious as you might be, lay the right foundation first.  I’ve had my fair share of mistakes and false starts in the past.  I wish someone had told me to budget and save before beginning.

Adequate preparation is the best way to invest money for beginners.  Obviously, your long-term goals should include the factor of budgeting.  A basic budget helps you keep your money in order.  This will help you live below your means and have surplus savings.

It is your surplus savings that are allocated into investing eventually.  This habit of budgeting places your after-tax dollars is a few simple categories.  Your priority is to trim down your living expenses to make your financial goals more achievable.

Using the 50-30-20 Budget Rule, place 50% of your income towards your essential needs.  Then reserve 30% for your wants, and then allocate the final 20% to savings.  Be sure to check your debt levels and utilize effective debt repayment plans to settle outstanding debt.  This is the best way to invest money for beginners who start budgeting to make room for a consistent savings habit.

Create an Emergency Fund

An emergency fund is a rainy day savings stash.  This fund will come in handy if you fall into financial problems during your investing lifetime.

Your emergency fund should generally be 3 to 6 months of living expenses.  If you ever lose your job or find yourself in some kind of financial emergency, you’ll access these funds to solve that problem.

The main purpose of the fund is the secure your stock investments.  Selling your investments to pay for home or car repairs is the worst thing you could ever do.  The best way to invest money for beginners is to avoid losing your investments to personal emergencies that emerge out of nowhere.

Disrupting the growth of your financial nest egg is not wise.  You will interrupt the power of compounding and destroy your beautiful capital that is working for your financial freedom.  Your emergency fund is built with the 20% savings we allocated in our budget above.

Test the Waters by Using a Stock Simulator

Your emergency fund need not reach the 6 month threshold before starting to invest.  On the contrary, you could begin investing after stashing 3 months of living expenses in a High-Yield Savings Account.  Continue to grow to the full 6 month target.

But before undertaking any serious investing, the best way to invest money for beginners is by trying out online stock simulators with virtual cash.

I started my journey using a stock simulator too.  It was fun trying out all kinds of stocks, large and small from the simulator’s dashboard.  The simulator game gave me instant feedback on how my positions were doing in relation to the market.

This could be the best way to invest money for beginners like you who wish to get their feet wet.  Dive in and start making your mistakes without the consequences of losing real money.  Put into practice all the stuff you’ve learnt from the books you’re reading.  Build your confidence in the next few weeks with stock simulators.

Invest in ETF Investments

Exchange Traded Funds (ETFs) are investments that mimic a broad stock market index.  A few of these indices include: S&P 500, DJIA, Russell 500, etc.  An ETF is therefore traded just like an individual stock.  Investing in an index fund will give you instant diversification.  They’re priced similar to normal stocks so you don’t need to worry about qualifying to hold a fund.

Why should this be a good start for beginner investors?  Because sometimes the best way to invest money for beginners such as you is to begin with a low risk alternative.  Secondly, your money will never go to zero.  You have a fully diversified asset.  Take the S&P 500, for example, it has returned an average of ~10% over decades.

An ETF will help you grow your money moderately and consistently in the long-term.  You should have other investments in your basket of course.  Allocate funds for the various assets and justify every inclusion.

Sage Topic Family:

A Few Parting Words

The inexperienced beginner investor has a lot to learn in his or her journey.  If you’re investing for financial freedom, then you’re in a marathon – not a sprint.  The absolute best way to invest money for beginners such as you is to start small.  Secondly, do not procrastinate your first investment.  The power of compound interest will begin to benefit the decisive investor.  Finally, do your homework and apply basic due diligence to your pursuits.

I too started out as an inexperienced investor.  Occasionally devoured massive amounts of online articles, bought the books, and binge watched CNBC and Bloomberg back-to-back for months.  I even got lucky on my very first stock pick; and made 100% capital gains on the stock in just a month.

Thanks for reading! Now, are you ready to jump into the investing game? Or are you stuck waiting for a few questions answered first?  Comment below with some of your questions, anxieties, and contributions.

Best Way to Invest Money for Beginners

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