Investing 101: The Tips, Tricks, and Terms Every First-Time Investor Should Know
Written by
Laura Bogart
Edited by
Kristen Mae
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When you think about investing, you might picture a bunch of people in suits clamoring over each other on the floor of the New York Stock Exchange. It can seem like the domain of far savvier people. However, you don’t have to look like you could be an extra in “The Wolf of Wall Street” to get started with stocks. It’s actually easier than you might think.
You can even begin your investment journey while relaxing in your pajamas, right at your kitchen table. With a willingness to learn and experiment, you can grow your wealth and build passive income through the stock market. And you don’t even have to travel to New York.
Figure Out Your Goals
Do you want your life to feel like it could be a montage from a Jay-Z video? Or are you hoping for a quieter lifestyle of sustainable returns? The latter is more realistic and practical when it comes to achieving major life goals like affording your retirement, buying a house, or paying for a family member’s education.
Once you know what you want, you’ll have a sense of how much you need and by when. If you’re looking to buy a house, you’ll likely need returns on your investments earlier than you would if you’re investing for retirement.
Know Your Level of Risk Tolerance
Setting a timeline for your goals will also help you determine your level of risk tolerance. While you might have heard that term casually bandied about as a piece of financial jargon, what it really means is quite simple: It’s the amount of potential market volatility and loss you’re willing to weather while pursuing your goals.
If you’re investing for a long-term goal, like retirement, you might be able to be more aggressive since you’ll have more time to recover from market dips. However, if you need access to your money sooner, you’re probably going to be a little more cautious and risk-averse.
Find the Right Accounts
Not all investments are created equal. The type of account you choose will depend on your goals. There’s the standard brokerage account that lets you buy and sell various investments like stocks, bonds and funds. This option works well for people who want more control over their investments. Just know that gains from these accounts are taxable, meaning you could owe taxes when selling investments that have increased in value.
You’ve most likely heard of — or are enrolled in — a 401(k) or 403(b), which is a retirement account offered through your employer. In these accounts, your money can be invested and grow tax-free over time. Another key retirement investment account is the Individual Retirement Account, or IRA, which is a tax-advantaged account that lets you save for retirement.
You can choose between a traditional or a Roth IRA. A Roth IRA lets you grow any potential earnings tax-free, while earnings in a traditional IRA are tax-deferred until you withdraw them. Roth IRAs don’t have required minimum distributions, whereas traditional IRAs do require you to start making withdrawals once you reach age 73. Overall, an IRA is a flexible way to build a well-rounded investment portfolio.
If affording education is one of your goals, consider a 529 plan. This tax-advantaged account is designed specifically for education savings. 529 plans aren’t limited to four-year colleges and can be transferred to other family members.
Diversify Your Portfolio
If you’ve ever even glanced at an article about personal finance and investing, you’ve likely come across the phrase “diversify your portfolio.” Though it might sound like decorating investment sheets with colorful stickers, it actually means spreading out your investments across different types of assets.
Vanguard puts it simply: “There are many types of investments to choose from to suit your needs, including mutual funds, exchange-traded funds (ETFs), and individual stocks and bonds. Be sure to diversify your portfolio by choosing a variety of investment types to help lower your risk and improve your chances of achieving your investment goals.”
Investing may seem overwhelming at first, but with clear goals, the right accounts, and a well-diversified portfolio, you can start building wealth on your terms. Remember, you don’t have to master every investment term right away. Start small, stay curious, and lean on trustworthy resources when you need guidance. Every expert investor was once a beginner — your financial future starts with the first step.
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