How to Start Investing- The Ultimate Beginner’s Guide to Investing Your Money (2024)

Are you investing your money? If not, you should be. And if you are, are you investing your money wisely? In this beginner’s guide to investing I’ll show you the basic principles for investing money and how do to it wisely. I’ll also show you the basics of getting started with investments, and some of the most popular assets you can invest in to get an exponential return on your money.

Contents hide

1 What Is Investing?

2 Why Should You Invest Your Money?

3 Basic Principles for Investing Wisely

3.1 Keep Your Investments Simple

3.2 Always Understand Your Investments

3.3 Stay Out of Debt

3.4 Invest 15% of Your Income

3.5 Keep Your Emotions Out of Your Investments

3.6 Don’t Be Too Conservative

3.7 Be Patient

3.8 Seek Wise Counsel

3.9 Watch the Fees

3.10 Always Invest Tax-Free and Invest Pre-Tax Money First

4 How to Set Up an Investment Account

5 Where Can I Open an Investment Account?

6 How Does an Investment Account Work?

7 What are the Different Types of Investment Accounts?

7.1 Traditional IRA

7.2 Roth IRA

7.3 401k

7.4 403b Plan

7.5 Self-Directed IRA’s and 401k’s

What Is Investing?

The first thing you should know is, what is the definitionof investing?

Why Should You Invest Your Money?

Unfortunately, money loses value over time due to inflation.So, if you’re like your weird, paranoid Uncle Steve and put all the money yousave under your mattress, it will have less and less buying power as the years progress.

However, when you invest your money and grow it at a rate greater than inflation, you end up with exponentially more money than you originally put into the investment. This is how you build wealth, and eventually financial freedom for you and your family!

7 Habits of Wealthy People That Will Make You Rich Too

Basic Principles for Investing Wisely

Before you invest any money, you should understand that youneed to know a few basic principles for how to invest wisely. Growing yourmoney only happens when you do the right things, and avoid the traps that canscuttle your investments over the long term.

Below, you’ll find some of the basic principles of wise investing you can use to keep your investments moving in the right direction.

11 Tips for Beginners to Invest Your Money Wisely

Keep Your Investments Simple

There are tons of complicated investment strategies outthere. Many of them are promoted by people who tell you if you just use their unique,complicated strategy, you will make millions. They are usually promoted by someonetrying to sell you a service or a newsletter.

Complicated strategies almost never work.

And if they do, they don’t work over the long term.

Believe it or not, the best investment strategies areusually the most boring. The simplest, easiest way to invest in stocks isto buy shares of index funds that match the returns of the market as awhole.

Another simple strategy is to invest equal amounts in mutualfunds covering 4 different categories:

Growth
Growth and Income
International
Aggressive Growth

The more complicated your strategy, the more likely it is you don’t completely understand how it works, and that’s a recipe for disaster.

Why the Rich are Getting Richer- and You Can Too!

Always Understand Your Investments

If you can’t clearly explain your investment to someone sothey can understand it, then you don’t need to invest in it.

Stay Out of Debt

This is the number one concept I preach about the most.When you stay out of debt, you can invest more money. When you havemore to invest, your nest egg grows faster, and you become a millionaire years(or even decades!) earlier than if you are constantly battling the bondage ofdebt.

If you need to get out of debt, the first step is to gettotal control over your finances. My top-rated online course is a great way tomake that happen. For a modest sum, it will save you literally tens of thousandsof dollars over your lifetime! You can find it here: The Divine Art of Money-21 Days to Manage Your Money Like a Pro!

Invest 15% of Your Income

Your goal should be to consistently invest 15% of your take-homepay every single month.The easiest way is to have it automaticallydeducted from your paycheck and deposited straight into your investmentaccounts.

Being consistent and disciplined is the key. Automatically investing 15% is best way to be consistent and have discipline when it comes to saving and investing. All you have to do is set it and forget it!

How to Achieve Financial Freedom- Millionaire Habits to Grow Your Wealth

Keep Your Emotions Out of Your Investments

The media like you to think investing as an exciting, gameof hot stock tips and constant buying and selling. But the reality is,investing is really boring if you do it the right way.

It’s about as exciting as watching paint dry.

The ups and downs in the market will happen no matter what. Somedays you make money, and some days you lose. But you can’t let the ups and downsplay on your emotions. When you do, your returns will suffer massively over thelong term. You will buy and sell at the worst possible times, and miss out on gainsbecause your acting out of fear instead of knowledge.

Don’t check your investments every day. For thatmatter, don’t check them every week or every month. Check them once everyquarter.

Constantly checking your investments makes it far too easyto become emotionally involved. You end up making terrible decisions based onan emotional response. Believe me, I know this from personalexperience!

Don’t Be Too Conservative

Be careful about being too conservative with yourinvestments. Keeping most of your money in CD’s (Certificates of Deposit)or a money market account or is a terrible way to invest your money! Yet millionsof people do it all the time, thinking it’s a good way to invest because thereis no chance of losing money.

Yes, these investments are very safe, and you won’t lose themoney you put in. Unfortunately though, they have an extremely low return oninvestment. In fact, the returns don’t even keep up with inflation, so youactually do lose money, because your money loses buying power over time.

Be Patient

After over 25 years of investing, I’ve finally learned to bea patient investor. It’s tempting to try to make money quickly. But ashort-term mentality almost always means more risk, which means you end uplosing money.

Remember, investing is a marathon, not a sprint. It'stotally normal for the value of your investments to go up and down overtime. But as time stretches on, your portfolio will always go up invalue. So be patient if your investments are not performing very wellright now.

Don’t think about your investments in terms of how they aredoing today, or the last 6 months, or the last year. Think about yourinvestments in time spans of 20-30 years or more. Taking a long-term viewhelps you keep things in perspective.

Seek Wise Counsel

It’s always good to seek wise counsel. Especially when itcomes to investing. The best counsel comes from a professional such as afinancial advisor or financial planner. Seek out pros who charge a flat fee or anhourly fee.

Hiring a financial pro that takes a percentage of the moneyyou invest as compensation will put a huge dent in your investmentreturns. 1% may not sound like much, but it costs you tens of thousandsof dollars (or more) over your investing lifetime.

A great financial planner has the heart of a teacher. Theywill make sure you understand everything about your investments, and not take ahuge chunk of your money in the process.

Watch the Fees

Investment fees will really eat into your returns over time.High fees will literally cost you tens of thousands of dollars over time due tothe fees themselves, as well as diminished investment returns. Some common feesyou should to be aware of:

Annual Fees- This is charged everyyear you own shares of a mutual fund. They range from as little as .2% upto as high as 5-6%.
Front End Loads- for some mutual funds,you have to pay a load of up to 5-6% of your total investment just for the privilegeof purchasing their funds.
Transaction Fees- These fees areusually pretty low, and are charged every time you buy or sell shares of aninvestment.

The thing about fees is that they can be really sneaky.It’s wise to know when and how fees are charged when you invest in anything. Everytime you pay an investment fee, the money you pay in fees never has a chance togrow.

Always Invest Tax-Free and Invest Pre-Tax Money First

Tax Free Money-The money you invest intoRoth IRA and Roth 401k accounts is taxed just like regular income.However, when you retire and start taking money out of the account, you don’tpay taxes on the withdrawal.

Pre-Tax money- The money you invest inan IRA, 401k, 403b, is not taxed as income, so you will savemoney on taxes in the same year you invest the money. However, when youstart withdrawing money at retirement, you will pay taxes on the withdrawals.

Free Money- There’s nothing better than freemoney!If your employer matches your contributions to yourretirement accounts, take advantage of it.

How to Set Up an Investment Account

Setting up an investment account is really very easy. In fact,it’s not much different than setting up a bank account. To start, all you needto do is provide your basic information, such as:

Name
Address
Date of Birth
Social Security #

You will be asked for additional information such as:

What kind of account do you want to open?- traditionalinvestment account, IRA, Roth IRA, or any number of others.
Beneficiary info- who do you want to inherit theaccount in case you die.
Bank account info- so you can transfer moneyfrom your bank into your investment account.

Signing up for an account is easy, and typically only takesa few minutes. You can start investing as soon as you put money into the account!

Where Can I Open an Investment Account?

There are a huge number of brokerages where you can open aninvestment account. The most popular ones are the online brokerages such asVanguard, TD Ameritrade, Charles Schwab, and Etrade. I keep my investmentaccounts at Vanguard because they have the lowest overall fees and excellentcustomer service.

You can also open an investment account with most banks,especially the larger ones.

How Does an Investment Account Work?

Once you open an investment account, you will actually havetwo accounts within your investment account.

Settlement account– also called aholding account, this is where the money goes when you transfer money in fromyour bank. You can use it to purchase stocks, bonds, mutual funds, ETF’s andanything else your brokerage offers. When you sell investments, this is where themoney goes after the sale is finalized.
Investment account- When you buyan investment, it’s held in the investment account. This is where you will seewhat investments you own, how many shares you have, and how much those sharesare worth.

What are the Different Types of Investment Accounts?

There are many types of investment accounts. Too many to listhere or this post would be much longer than it already is. Here’s a list ofsome of the most popular types of investment accounts below.

Traditional IRA

Anybody can open an IRA as long as they have earned income. Somebrokerages let you open an IRA account with no money, and some require you tomake a modest deposit to the account when you open it. You can put pre-tax moneyinto an IRA, which means your contribution is not taxed when you put it intothe account, but you will pay taxes when you withdraw money at retirement.

Roth IRA

A Roth IRA works the same as a traditional IRA, except thatyour contributions are taxed as regular income, and you don’t pay taxes whenyou withdraw money at retirement. Clickhere for a handy comparison chart from the IRS comparing IRA’s vs. Roth IRA’s.

401k

A 401k is an investment account usually offered by your employer.The contribution limits are much higher than with IRA’s, and you can take your401k with you when you leave your employer. Some employers may offer a Roth401k option as well. Here’sa great article from Investopedia explaining all the ins and outs ofinvesting in a 401k.

403b Plan

Similar to a 401k, a 403b plan is offered to employees oftax-exempt organizations such as nonprofits, hospitals, churches, and publiceducation institutions. A Roth 403b option may be offered as well. Here’s a rundownof 403b plans from The Balance.

Self-Directed IRA’s and 401k’s

Self-directed IRA’s and 401k’s are special in that they areset up to allow you to invest in alternative investments (more about thosebelow). You are required to set up an LLC inside your investment account, and theLLC owns the investments. There are a lot of fees and legal hoops to jumpthrough to set up a self-directed account, but it’s worth it if you want toinvest in more than just the stock market.

I own a rental home with my Self-Directed IRA, which you can read about here.

How to Buy Real Estate with a Self-Directed IRA

How to Start Investing in the Stock Market

Most people who have investments have at least a portion oftheir money in the stock market. Whether you buy individual stocks, mutualfunds, or ETF’s, stock market investing is by far the most popular way to investyour money and make it grow exponentially.

You can buy any of these investments through an investment accountor one of the retirement accounts covered above.

Individual Stocks

When you buy individual stocks, you are actually become a partowner of the company whose stock you’re buying. The value of your stock risesand falls (sometimes very quickly) as the company makes or loses money.Individual stocks are generally more risky, as you have the potential to loseall your money if a company goes out of business.

Mutual Funds

Mutual funds tend to be less risky than stocks. A mutualfund is a basket of different stocks of individual companies grouped togetherinto one investment. Mutual funds usually have a theme, such as health care, retail,growth, income, and so forth. Unlike a stock, the price of a mutual fund issettled at the end of each day instead of being traded throughout the day.

ETF’s

ETF’s (Exchange Traded Funds) are like a mutual fund, inthat they are a basket of stocks grouped together into one package. Thedifference is, they are traded throughout the day like a stock. Fees aregenerally lower than with mutual funds, and there are tons of options dependingon how you want to invest. Some ETF’s can be very conservative, while othersare extremely risky but have the potential for huge returns.

Alternative Investments

Of course, there are literally hundreds of alternative waysto invest money outside of the stock market. Each one has its own set of rulesand risks involved. In general, you can’t invest in alternative assets unlessyou have a self-directed IRA or 401k, or you invest money that’s not in a retirementaccount. Below I’ll show you some of the more popular alternative investmentspeople use to build wealth.

Should You Invest in Real Estate?

Real estate is an awesome way to invest your money! Thereare a lot of ways to do it, and any of them can be extremely profitable whendone right. Here’s a quick list of some of the ways you can invest money inreal estate as an alternative investment:

Rental houses
Fixing up and flipping houses
Multi-unit rentals
Mortgages
Tax liens
Raw land
Real estate crowdfunding
Vacation rentals
House hacking

These are just a few of the ways you can make moneyinvesting in real estate. Each one requires a specific set of knowledge and skills,but none of them are rocket science. Anyone can do well investing in realestate if you’re willing to put in the time to learn.

Real estate is one of my favorite ways to invest. I currently own a rental house that I’ve had for several years now, and plan on buying several more in the future. Before that, I fixed and flipped a property. Here’s a couple of links showing you every detail about how those deals went down:

My Series on Buying My First Rental House

I Bought a House!- My House Flipping Experience

Should You Invest in Bitcoin or Other Cryptocurrency?

Cryptocurrency is a relative new kid on the block. The two mostpopular cryptocurrencies are Bitcoin and Ethereum, but there are literallyhundreds more available. Investing in crypto is extremely risky, and the pricescan fluctuate wildly on a daily basis.

Although there is huge potential upside, there is also the risk that you can lose your entire investment in short order. If you invest in crypto, it’s wise to make it only a small portion of your portfolio, understanding that it may not work out as an investment.

10 Crucial Things to Consider Before Investing in Cryptocurrency

How I Invest in Cryptocurrency- A Basic Tutorial

Should You Invest in Gold?

At the other end of the spectrum, investing in gold is amuch less risky proposition. Gold prices are typically fairly steady, which is whypeople use gold as a store of wealth, not expecting a large return. Gold pricestypically increase during bad economic times, so it can be used as a hedge toprotect some of your money when stock prices are tanking.

The Beginner Investor

Of course, this post is only the tip of the iceberg when itcomes to learning about investing. It’s a massively broad subject. But the moreyou learn about how to invest your hard-earned money- and do it wisely- thebetter you will be able to build massive wealth over your lifetime.

Below, you’ll find some of my most trusted resources on investing.