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3 Pro Tips For New Investors

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Investing takes effort and determination. It’s not always easy to motivate yourself to save and build an investment portfolio. However, it’s a worthy cause and a wise step towards securing your financial future and making substantial money.

If you are a new investor, we’re excited to help you get started. Before making your first investment, let’s go over three important things you should consider to help you make the most out of your savings.

1. Create a Budget

Regardless of how much money you start with, investing is always a good idea. While a large investment brings in big returns, time is even more powerful in creating wealth thanks to the compounding effect. With time, your small investment today can grow to be meaningful.

To reach your full growth potential, you should regularly put aside money for investing, and budgeting can help you do just that. Making investing a part of your monthly budget allows you to set aside money before you spend it on a whimsical purchase. Budgeting is a great way to take control of your finances. It can guide intelligent spending and encourage maximum savings.

2. Build Your Investment Strategies

If you stick to your budget, you’ll be ready to put your money to work. The next step is to understand how you want to invest. Investing is a personal thing. The way you manage your investment depends on a variety of factors such as time, risk tolerance, and investment goals.

3. Open a Brokerage Account

Now that you have a better understanding of your investment strategies and goals, the next step is to open a brand-new brokerage account. You can open either an IRA (Individual Retirement Arrangement) or a regular investment account.

Choosing the right account is crucial.

An IRA (Individual Retirement Arrangement) is a tax-advantaged account for retirement savings. There are two types of IRAs: traditional IRA and Roth IRA. A traditional IRA allows you to make contributions with tax deductions, but your withdrawal during retirement will be taxed at your ordinary-income rate. A Roth IRA allows you to withdraw without taxation on your incomes and gains, but the contributions must be made with after-tax income.

So if your goal is to save for retirement, you should absolutely open an IRA account to take advantage of the tax benefits. If you’re saving for short-term goals, you should open a regular investing account. With this account, you can invest in stocks, bonds, funds, and even derivatives. You can also withdraw the earnings whenever you want without penalties, but regular investment accounts don’t offer any tax benefits like the IRAs.

Investing is a great tool to improve financial security for you and your family. For a new investor, it’s an exciting step. A well-thought-out plan and a realistic understanding of your investment strategies can protect you from mistakes and move you closer to your goals. 

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Actionable Steps


1

Establish an emergency fund.

Before investing your savings, it’s critical to first build up an emergency fund. An emergency fund is the money you tuck away for rainy days. Ideally, you should have enough savings to cover 3-6 months of expenses. We recommend putting this money into a savings account or a short-term certificate of deposits. While these accounts do not generate large returns, the money will be accessible at a moment’s notice to support you in case of emergencies.

2

Use automatic transfer.

Following a budget is harder than making one. We all want to save and invest but sometimes the temptation is just overwhelming. Fortunately, most brokers offer automatic transfer services that will send part of your monthly income directly to your investment account. After planning your monthly budget, set up an automatic transfer. Saving is less painful when it’s done automatically.

3

Invest your additional income.

Tax refund, quarterly and annual bonuses, and even lottery winnings are great ways to boost your investment portfolio. This money is normally not earmarked for expenses and can be invested more readily. If you can invest 50% of this money, you’ll be happy to see the incredible difference it can make in a few years.

4

Decide how involved you want to be.

Investing can be a very involved task, but that doesn’t mean everyone must spend days researching stocks and bonds. Today’s market offers many options for busy investors. It’s important to be realistic about how involved you can be and choose a strategy accordingly. 

If you like researching and are confident in your skills, you can pick your own stocks and bonds. This strategy is time-consuming and requires deep understandings of the financial market. Thus, it’s more suitable for seasoned investors and finance professionals.

Alternatively, you can own a well-balanced portfolio easily, with mutual funds and ETFs (Exchange-Traded Funds). These funds pool investor money and hire professional managers to build diversified portfolios. Each fund has its own investment objectives. For example, some mutual funds focus on equities in the technology sector while others invest in high-yield corporate bonds. You can choose one or many funds that share your investment objectives. Mutual funds and ETFs are great products for investors who want to control the general direction of their investment without spending time on each individual stock or bond.

If you prefer a more hands-off investment approach, there are robo-advisors who will manage the portfolio for you for a small fee. These services will learn your investment goals and build a balanced portfolio to help you reach them.

For example, DiversyFund has a hands-off approach to creating wealth for the everyday investor. They make it possible for all Americans to invest like the 1% by helping people diversify their investments beyond stocks and bonds and into Commercial Real Estate (alternative assets). You can easily create an account to start making money today!

5

Decide your risk tolerance and investment horizon.

Risk tolerance is another crucial factor to consider. It refers to your ability to deal with the fluctuations in your investment both financially and emotionally. Taking losses is hard. Even seasoned traders suffer from anxiety when their savings are at stake. When people invest in products that exceed their risk appetites, they might panic when the market is volatile and sell their investment at the worst time possible. Consequently, a realistic understanding of your risk appetite can help avoid losses and headaches.

An investor’s age can often affect their risk tolerance. A young investor with more future income can afford higher risks. On the other hand, a retiree would prefer to avoid risks as they are more dependent on their investment income, due to a lack of other income sources and medical obligations.  

A good way to check if an investment fits your risk tolerance is by looking at the worst historical intraday performance for the security. You can imagine how you would react to that loss if it happens again in the future. Would you feel pressured to get out of your investment immediately or are you able to still make rational decisions?

Risk tolerance directly affects your investment strategies. If you have a high risk tolerance, you can include more equities in your investment. Stocks are volatile but they also offer greater growth potentials. For conservative investors, their portfolios should include more fixed income products with stable streams of income.

Your investment portfolio also varies greatly based on your investment horizon. Young investors tend to have a small portfolio but a lot of time for the portfolio to grow. For them, stocks are great investments due to their growth potentials over time. On the other hand, retirees have larger portfolios but a shorter investment horizon. They care more about regular income than future growth. Debt investments that provide stable interest payments are great for these investors.

6

Decide your investment goals

Before making any investment, you should be clear on your investment goals. Are you investing for retirement, a down payment on a house, or a wedding in two years? Knowing your goal not only helps you select the right investment account, but also encourages you to stay on track!

7

Gather your documents and set up your account

When opening a brokerage account, you will be asked to provide the following information:

– Social security number
– Government-issued IDs
– Employment status
– Financial information

This information helps the broker to verify your identity and offer relevant product information. For most online brokers, account opening takes only a few minutes.

You can fund your account in many different ways, such as electronic fund transfers, wire transfers, and checks. Once the account is funded, you can start investing and taking charge of your financial future.

Not sure where to create an account? For over 30 years, real estate beat the stock market by a significant margin with less daily volatility. Diversify away from the stock market’s roller-coaster ride and grow value with real estate. Create an account on DiversyFund and invest like a Millionaire today.

Still need help? Ask the coaches!

About the Author


Kehan Zhou

Kehan Zhou

CEO of Wall Strategies

Kehan is a registered financial representative and investment advisor with over 5 years of experience in trading and investment banking. Kehan started his financial career as a proprietary bond trader on Wall Street. Later, he led Citigroup’s European structured loan program in London, working exclusively with platinum clients.

In 2019, Kehan founded Wall Strategies which offers free investing strategies and videos created by Wall Street professionals. He aims to break the hereditary nature of financial education by making Wall Street investment strategies accessible to everyone. Wall Strategies covers a wide range of topics from investing in cryptocurrencies to saving for retirement.
Wall Strategies | YouTube


This article was re-posted with permission from the author, Kehan Zhou, at Wall Strategies.


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