10 Investing Tips for Starting Your Investing Journey

Are you looking to create passive income and gain financial freedom? Whether you’re saving for a house deposit or retirement, we all have our own reasons for looking to invest. Thanks to technological evolution, it’s never been easier to start your investing journey. It takes only a few clicks to set up a savings account or to access the information you need to get started.

This guide gives you 10 tips that every investor should know before they get started. Whether you’re a complete beginner or have dabbled in investing before, this guide has something to offer everyone. These 10 investing tips will help you determine the kind of investor you are, decide how to invest, and help you develop a strategy to achieve your investing goals.

The first step of your investing journey is to figure out what type of investor you are. Not everyone invests the same or has the same strategy. Before you invest your first dollar, you want to consider what you want from your investing.

The main decision you’ll have to make is whether you’re a passive, active, or hand-off investor. This factor will usually depend on how hands-on you want to be with your investment portfolio. When you make this decision, it will help you narrow down which platforms you want to use for your investment portfolio.

1. What type of investor are you?

Here’s the first part of our investing tips. Let’s get to know the kind of investor you are; A passive investor is someone who wants to be active with their investing without spending significant portions of time on it every day. You’ll usually be investing in passive EFTs, mutual funds, and blue-chip stocks.

An active investor is hands-on with their investing and is involved in every process. They’re more emotionally invested and want to have complete control over their portfolio and select every component they invest in.

Finally, a hands-off investor prefers to stick to automatic investing. They aren’t usually making emotional decisions and often work with an advisor or automated system to streamline their investing.

2. Invest and pay down debt simultaneously

There’s a common misconception that you must pay off your debts before you can start investing. This myth isn’t necessarily true. While it’s entirely up to you, it’s possible to invest and pay off your debt simultaneously.

You don’t want to put off investing at an early age just to pay off your college loans or other liabilities. Instead, you want to start investing as early as possible for your long-term success. At the same time, you want to start paying off your debt. Start by prioritizing your debt that hasn’t the highest interest attached to it. Paying off your high-interest debts first will help you lower the additional fees you’ll pay.

At the very least, you want to create a balance between investing and paying off your debt that sees you at least invest the same as your employer’s retirement contribution.

3. Bucket your savings

If you’re thinking of investing, it’s likely that you’re also thinking of building your savings. Investing and saving go hand-in-hand for your long-term prosperity. The best way to start investing is by building your savings. Similarly, your savings will quickly become worthless in the face of inflation if you’re not investing.

You want to organize your savings into four buckets. The first is an emergency fund that will cover the cost of at least three months of living expenses. You can save your emergency fund in a standard checking or savings account. You don’t want to get caught up worrying about interest as this is a ‘rainy day’ fund.

The next bucket is for medium-term savings. This account is savings that you have a specific purpose for. It could be anything from a vacation to your master’s degree or home renovation. You’ll want to shop around for a savings account that gives you a decent interest return to help you maximize your savings potential.

Your third savings bucket is for long-term savings, primarily retirement savings. You’ll be building these savings for 20-40 years so you can take a little more risk with them. Most investors choose to use mutual funds, stocks, index funds, and EFTs for their long-term savings.

The fourth savings bucket is for everything else. This savings pot is extra money to play with, whether it’s saving for a new car, a designer handbag, or as additional spending money.

4. Don’t invest your emergency fund

Speaking of savings, our fourth rule is one of the most important for new investors. Do not invest your emergency fund. It should sit in a separate account and only be used in an emergency. Yes, you may be able to make more by investing your emergency fund, but you don’t want to take a risk.

An emergency fund takes time to build up and you don’t want to lose it on a potentially bad investment. A three-month emergency fund for most people will be around $5,000. That’s a difficult amount to save again if you make a bad investment. If you invest your emergency fund, you’ll likely have to pay tax associated with the amount.

It’s better to keep your emergency fund far away from your investment portfolio and resist the temptation of investing it.

5. Let a robo-advisor do it for you

One of the easiest ways to invest is using a robo-advisor. If you’re a hands-off or passive investor, this tip is one you want to start using. A robo-advisor is an investment platform that operates using an algorithm to automatically invest in your chosen portfolio. They’re an easy way to create a diversified portfolio and invest without needing to do it yourself.

There are dozens of robo-advisor platforms for you to choose from – but no two platforms are the same. You’ll want to take the time to do your research and decide which one is right for you. Some robo-advisor accounts come with fees and commission charges, while most have referral programs that you don’t want to miss out on when you’re setting up your account.

We have an in-depth comparison of the best robo-advisor to guide you about the difference between the most popular robo-advisor platforms to help you find the one that is best suited to your investing style.

6. Diversify your investments

If there’s one tip that you should take away from this guide, it’s that your investments need to be diversified. Don’t put your eggs into one basket. Diversification is all about reducing the risks associated with your investments by spreading them across different industries and instruments. It also helps to maximize your returns as not every industry will react the same way to current events, such as shipping disruptions and inflation.

While having a diversified portfolio may be more complicated at the beginning, it’s the best way to lower your risks, while working on getting the best return. Whether you have $100 or $10,000 to invest, you want to diversify the instruments you invest in to reduce the impact of volatility in the market.

7. Avoid penny stocks

When you first start investing, it’s easy to get caught up in penny stocks. You want to resist the temptation of falling into the penny stock trap. These stocks – which cost less than $5 – can look like an easy way to start earning money and building a portfolio, but they’re notorious for leaving you burnt after a time.

While it’s possible to make money off penny stock, they’re not the easy bargain that you might believe them to be. You could easily lose your entire investment in a penny stock if it all goes wrong. The U.S. Securities and Exchange Commission even promotes this warning.

8. Keep fees low

Investing will always have a cost associated with it. When you start your investing journey, you want to keep these fees as low as possible while building your portfolio. Instruments charge different fees; for example, mutual funds are charged an expense ratio.

You want to make sure you’re not getting burnt by high fees as this can quickly eat into your portfolio returns. You also want to be aware of any annual or monthly fees associated with your account, especially if you’re using a robo-advisor platform.

9. Ask for advice

The biggest mistake that beginner investors make is that they don’t ask for advice. The fact you’re reading this article shows that you’re different. There are thousands of investing platforms and millions of investors. You want to learn from those who have come before you to find out what mistakes they’ve made and what advice they have for getting the best return on your investment.

Don’t be afraid to ask for advice – whether you’re reaching out to someone online or in-person.

10. Understand the risk of investing

Our final piece of advice for newbie investors is to understand the risks associated with investing. There is risk associated with every type of investing – from bonds to mutual funds and stocks. You’ll want to do your research and decide what risk you’re comfortable with. Everyone’s comfort level is different, but you always want to be aware of the risk that’s associated with your investments.