Investing for Beginners: The Ultimate Guide

I know, I know. No one really wants to talk about investing. It's confusing. And confusing isn't sexy.

Do you know what is sexy, though? Making money.

What else? Not eating cat food and having to live like a college student when you're elderly.

This is meant to be a guide for novices and those who have accounts (See how to set up a TradeKing account here) set up but are looking to get better with them. I know the terminology of investing is intentionally tricky and scary, but you're tough so don't let it derail you.

This is your year to start investing, saving for retirement, and GROWING YOUR MONEY. Don't forget that.

So, here goes, the complete beginner's investing guide!

1) Put Your Money In an Investment Account – there are lots of different kinds

Seems simple doesn't it? You just pick the type of investment account you want, and then open it. But people often get caught up in the many different kinds of investing accounts.

Anum Yoon recently wrote for LBMT everything you need to know about IRA's in 2015. IRA's, however, are just one type of retirement account. (And there are like five of them: Traditional, Roth, Rollover, SEP and Simple. Learn the differences in this great Scottrade article here.

Other retirement accounts includes 401k's usually offered through work.

If you don't want a retirement account you can invest in the market through just a regular ol' brokerage account (PBA's). You can get one for yourself or jointly with a spouse. These work well for folks who want do more “hands on” trading outside of what they invest/ save for retirement purposes, but these accounts none of the same tax benefits as retirement accounts (boo), but they also have no cap on how much you can contribute (yay!).

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2) Select Investments

I'm really blowing your mind with this stuff, huh? But if it were easy, a lot more people would do it.

This FANTASTIC article by Lifehacker details the specific types of investments you can make (Click here to read, I highly suggest it!) But basically, there are three kinds.

Ownership Investments: Stocks, Real Estate (I'm a real estate investor), investing in a business (yours or someone else's) and tangible items like art, jewelry etc.

Lending Investments: This is where you play the bank. Less risk associated with these, but you do have to have a certain amount of capital. Well known examples of these are bonds (where you essentially lend a company money) and CDs.

Cash & Alternatives: Alternatives include commodities, gold, and Real Estate Investment Trusts (REIT's…read a great article about these here.)

Funds are also worth mentioning here, although they aren't a type of investment, but rather a product you can pay for which gives you a bunch of different types of investments hand picked and managed by an investment company. You pay a small fee for the convenience of having the fund managed by “experts.”

Well known types of funds include: mutual funds, index funds, target date funds, exchange-traded funds (ETF's) and hedge funds (where I used to work, actually!)

3) Do Your Homework (Like Reading this Investment Guide for Beginners!)

It is important when starting out with your investments to spend a good amount of time researching companies, stock prices, and activity on “the markets.” (Imagine I'm doing my best Michael Douglas impression right there.) I want to encourage you that if you're a novice, don't get scared off. You're going to have to think for yourself about what would be a good fit for YOUR portfolio and YOUR money.

Homework also needs to be determining how much you'll need for retirement and setting a plan of how much to save each month. Use Ellevest's free investment planning tool to get an idea of how much you'll need to save. (This link is an affiliate link.)

4) Diversify!

You know that saying “don't put all your eggs in one basket?” Well it works for relationships, job prospects, income streams, and investing too. If you put all of your money into one investing, like Lord Grantham did on Downton Abbey, you could stand to make a lot of money, or lose a lot of money. And if you don't have a lot of money, (or unless you like playing fast and loose with your finances) it makes more sense to spread out your wealth.

Investing isn't really a great avenue to “Get rich quick” (..but what is really?)

Bad things happen to good companies and technology advances can drastically change our lives. Let’s say you put all of your money in utilities and suddenly someone invents an incredibly cheap power cell and we no longer need big electricity companies because it’s basically free. Well, you just lost most of your money on something that you couldn't have foreseen. But if only 15% of your holdings were with electric companies, you aren't happy about the loss, but you’re still doing fine.

5) Invest ONLY in what you understand

This piece of advice comes from the most renowned investor in the world, Warren Buffet. He only invests in companies that he understands. This means in order to invest in something, we should/need to be able to understand the business model of the company so we can understand how we're going to MAKE MONEY.

Ford makes cars. Coke sells soda. ALCOA sells aluminum.

Stocks make you money when the company makes money. The price can go up and the company can pay you a dividend, which is actually a portion of their profits. Stocks are part ownership in a company, remember? Since you are literally owning the company, you should understand it’s basic operations.

6) Look for dividend paying stocks

This can be a “golden goose.” Even if after 30 years the stock price hasn't moved an inch, but you've been earning yearly dividends of 5% (and have been automatically reinvesting the money) then you will have made a LOT of money.

When it comes to student loans and credit card debt, compound interest can work against you. When it comes to investing, however, compound interest can be a beautiful, beautiful thing.

  • You start with $1,000
  • End of year 1-$1,050
  • Year 2-$1,102.5
  • Year 3-$1,157.62
  • Year 30-$4,322

This is how the rich get richer-by letting their money make them money. Even if it is a small amount at first (as in our example), every little bit helps. Also, it's been proven that any money you contribute in your 20's in worth more than money in your 30's and 40's. 

Take a shortlist of companies/things you're potentially interested in investing in and go to Google finance (or Yahoo or whatever you prefer) and search for the stock symbol and pull up a chart of that stock. Looking at the chart we can see the current stock price, any major trends over a long period of time and (most importantly) stock splits and dividends. It will show every dividend ever paid, the dollar amount and the percentage when compared to the stock price at that point.

7) Increase Your Investing Acumen Over Time

Investing, like all finance related matters, can't be a “set it and forget it” type of thing. While it can be overwhelming at first, if you commit to learning a little bit at a time, soon you'll have a basic (and maybe even beyond-basic) level of understanding of what it means to be an investor!

Some great educational sites are (but be careful because they have some factual inaccuracies) And of course (but take everything they say with a healthy dose of skepticism as well.)

My favorite tool is the MS Cheat Sheet course, which I wrote about in this post. It has single-handedly helped me get better about investing by providing a monthly breakdown of investment news/advice and a slew of videos on how to really leverage your money via investments.

8) Pull the Trigger….And Try not to Panic

Okay, so you've set aside some money for your account, done a little homework on what you'd like to buy, and now it is time to DO IT. Many brokerages offer super easy-to-use platforms for buying and selling stock online, or you can get old fashioned and call up the brokerage and let them know what you'd like.

But who the hell are we kidding? This is 2016, just do it online.

This is probably the hardest part, but once you buy a stock or invest in a fund, or any of the above….DON'T TOUCH IT. Stock prices fluctuate….Drastically. There could be hundreds of doubts in your mind about it. If you have doubts, do more research. Not only is it expensive to make frequent trades (you'll get charged a trade fee by the brokerage for any trades you “execute”), but longevity can serve you well when it comes to holding a stock.

Don't panic just because of a bump in the road.

9) Make Regular Contributions

When you are investing, it is important to put in extra dollars to grow your investment, whether you are contributing to retirement or simply a standard investment account. You can either contribute a monthly amount to “max out” your Roth or SEP IRA, or contribute enough to get the employer match on your 401k, OR contribute quarterly (as I do, now that I'm a freelancer.)

Another way to come up with a monthly figure to contribute is to figure out how much you'll need in retirement and work backward.

Either way, putting aside money works in much the same way as saving for other goals: best when you “pay yourself first.”

Ready to get started investing? Click here. 

A post for novices and those who have accounts set up but are looking to get better with them. So, here goes, a complete guide to investing for beginners.

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  • Kristin
    June 18, 2015 at 4:02 pm

    Woah, thanks so much for including my Lifehacker post! You’ve written an excellent article for getting started with investing (and keeping up with it). Great read.

    • Lauren Bee
      June 18, 2015 at 5:29 pm

      You are super welcome Kristin. I’m a big fan of your work!

  • Petrish @ Debt Free Martini
    June 18, 2015 at 9:15 am

    These are all really great tips for the newbies like me. I have a major phobia of investing my money and still putting it off from diving full in with investing until I become debt free. I did lose some money when I tried to play around with buying stocks but I realize like you said, it’s important to understand what you are investing in.

    • Lauren Bee
      June 18, 2015 at 5:29 pm

      Once you understand it a bit more it definitely becomes less scary.