While it might not be your absolute favorite topic to chat about with your friends, the subject of investing may come up in conversation from time to time. For some of us, these conversations are exciting and become a chance for us to talk about our new investment ideas, successes, or failures. For others, though, the idea of investing is completely foreign, and can even be scary to talk about.
If you have ever been sitting in a discussion like this, where the topic of investing in stocks arises, chances are high that at least one person made a comment such as, “you invest your money? I have always heard that investing is good, but I have never known how to get started. I wish I had some way to start off slow.” Don’t believe us? Ask a few of your friends if they invest their money and see what they say. Odds are good that at least one person says they wish they could start investing but have never known how to start slowly. You might just find that there are many more aspiring investors than you thought.
With that, we have assembled a few of our best tips for every person who sits on the opposite side of these conversations – those people who just want to start off slow. Here are four good tips for reducing your risk:
1. Do your research.
Before you even make a single move, it is probably best to get acquainted with the landscape of investing. What investing platforms are simplest to use? What platforms best match your anticipated investment style? How do investments even work? These are all questions that beginners should find the answers to before they even think about picking different stocks. Even if these things seem unclear right now – and they might for a little while – doing your research thoroughly from the start will help you to ease into investing in the best possible way for you.
So, before you start thinking about stock picks, try to know the answers to the following questions: what is a stock? How can I buy a stock? What other investment options are there? What are some good methods of allocating my money?
The more you read, the more you’ll get a feel for what things make sense to you and what path you want to take in the future.
2. Don’t try to beat the market.
If your goal is to beat the market but you’re just starting out with investing, you end could up putting more stress on yourself about the logistics of investing than you really need. Many new investors try to speed right out of the gate and end up over-thinking both their buying and selling time frames – eventually selling for less than they could have or buying in at a price higher than they could have. Instead, you may want to aim to simply match the market. To do this, you’ll inherently take less risk. Why? The thought process goes: the more you try to match the market, the more stocks you should buy. The more stocks you buy, the more protection you have from anyone stock crashing and the better your chances of success than if you had picked only a few investments.
3. Diversify between “less risky” assets.
One great way of investing in as many stocks as possible is investing in “less risky” assets, like ETFs. ETFs (“exchange-traded funds”) are sold as individual securities on the stock market, and they typically track indexes. This means that they track the price movements of a variety of investments – such as selected stocks – and their price reflects the shifts in each security they contain. Therefore, buying an ETF is similar to investing in many different stocks all at one time. Then, you can even further diversify your investments by choosing several different ETFs and opening your portfolio to all of the different stocks they contain. This level of diversification can be especially useful for new investors, who just want to try their hands at purchasing securities without having to narrow down their portfolios right off the bat.
4. Make your riskiest investments with the smallest section of your portfolio.
Lastly, if you want to make a few riskier investments, set aside a small portion of your portfolio to do so. Contrary to popular belief, your risky investments do not need to take up a huge part of your portfolio in order for you to benefit from them. So, if you are just starting out in investing, you might want to allocate your money strategically, such that you can still include your riskiest stock picks, but face less of a cost to your portfolio if your picks end up being less successful than you had hoped.
The bottom line is that investing can be tricky, but there are certainly ways to make it less so. By looking up strategies to ease yourself into investing, you could start to feel a lot more comfortable in your investing decisions down the road!