Investing for Beginners

If you are still keeping your money in a jar or in a bank account due to fear of investing, here’s a post to help you understand the basics.

Goal & Horizontal Timeline

Before investing, it’s a good idea to determine what you are investing for. Is it for a trip or wedding, buying a house or retirement? This will provide your horizontal timeline and help you determine the type of investing you should focus on. For instance, if it’s for a trip or wedding,  your horizontal timeline may be 1 year, short-term goal, so you may want to invest in a less risky fund. If your goal is purchasing a house or retirement, then it might be  5+ years, long-term log, which affords you more flexibility with risk.

Risk Tolerance

There are 2 components of risk tolerance. You and the goal. Understanding your risk tolerance is crucial for mental clarity. Does the fluctuation of the market make your stomach turn or are you a risk taker? Also, consider the horizontal timeline. If it’s a short-term goal, then, you may  want to secure your funds in a less risky venture. If it’s long-term, this gives you time, so you can be more aggressive with risk.

Type of investor

Hands on

If you are a hands- on investor, it’s essential to become knowledgeable on the type of funds, their risk, volatility, and  how to monitor them. Equally important is understanding how to rebalance portfolios, maximize tax benefits, and change levels of risk when nearing retirement.


If you are a passive investor you may consider robo investing or hiring a financial planner. With robo investing, you can do it online by answering a few questions and you are on your way. This option is usually free.  Or, you can hire a financial planner who can help you. This option can be more costly.

Type of Funds and Risk Factor:

Individual Stocks

The riskiest type of investment are stocks since the price changes moment by moment. You can assess if you are able to ride the roller coaster of price change; otherwise, you may sell prematurely and lose money. It’s important to know the company you are investing in and the flow of the market.  Things to consider are your goal and horizontal timeline. If it’s a long-term investment, this could be a good option, but if you feel you can’t stomach the high’s and low’s, a more diversified option like a mutual fund or EFT’s might be a better fit for you.

Mutual Funds

Mutual funds allow companies to pool money together from shareholders and invest it in securities such as bonds, stocks,  and other assets. Some mirror the S&P 500, real estate, or socially responsible investing. There is a minimum investment requirement. The cost of purchasing these funds can be low or have no fees at all. The risk with mutual funds is that you can lose some or all your money as it is dependent on the market. It’s imperative to review the fund’s volatility as it determines the risk factor. High volatility equals a higher risk factor.

Exchange Traded Funds (EFT)

EFT’s  are similar to mutual funds as money is pooled from investors to purchase other investments; however, it is traded daily similar to stocks. They can be purchased per stock or a fraction of a stock. EFT’s risk assessment is similar to mutual funds. Stocks, mutual funds, and EFT’s have a rating system done by Morningstar Rating of 1-5 stars. 5 being the best. There is a paid service, Morningstar Investor, which costs $249 a year. Nerdwallet offers it for for $199 for their readers. There is a basic option which is free but limited.

401K (Traditional, Roth or other type of retirement accounts)

This is an easy way to save for retirement. If you have the option through your job, it’s even better as withdrawals can be made directly from your paycheck and deposited into your account. If your company offers a match, it’s extra money. Since these accounts include funds traded on the market, there is a higher risk factor involved. However, some companies offer target-date mutual funds in their plan which are designed to switch to less risky investments as you approach retirement.

Certificates of Deposit (CD)

CD’s are a simple way to save and earn interest on your investment. It’s low risk, but your money will be tied up depending on the term which can range from 6 months to 5 years.

High-yield Savings Accounts

High-yield savings accounts are low risk, earn more interest than the regular savings or checking account opened through a bank, and give you access to your funds. They are available through online banks.

Mindful Reminder

With investing comes some level of risk. Knowing your financial self is important, so you will be able to ride the waves of the market without anxiety, depression, or stress. This can be achieved by paying close attention to your thoughts and body and implementing healthy coping skills. Change in the market is inevitable, but it is also not permanent. Understanding this will help soothe your emotions and maintain a stable mind through the process.  

Attend a Workshop

If you are interested in attending a live webinar on improving your relationship with your finances, please visit my events.

[expand title=”References“]

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