When it comes to investing for beginners, it can be hard to know where to start.
After all, the term investing is pretty broad. It could refer to any number of ways that people put money into a project or enterprise to generate income, from trading stocks to becoming a partner in a restaurant to buying up real estate.
It can be exciting to have so many options — there are so many directions you could take to potentially gain returns.
On the other hand, it can be overwhelming … What type of investing is right for you? How much money do you need? How risky is it?
My personal approach to building wealth has been through penny stock trading. I’m not an investor, though I invest my own money in trades … That might not make sense now, but by the time you’re done reading this post, it will.
If you’re interested in trading penny stocks, my Trading Challenge can be a great starting point for you. However, I only want serious, dedicated students. So I think it’s important that you have a basic understanding of different investment options for beginners first.
In this post, I’m talking about investing for beginners — particularly with little money. You’ll learn about some popular methods of investing as well as my tips for getting ahead no matter what style you choose.
Why Should You Invest?
Investing is a relationship that involves you giving another person or entity your money in exchange for a share of profits.
Quick disclaimer: I’m not an investor and I’m in no way giving you financial advice. All trading and investing is risky. Never risk more than you can afford. Do your due diligence.
Unless you’re bored and have a massive trust fund, you’re probably not interested in investing purely for the fun of it. Most people invest because they want to make money.
Of course, profits are never guaranteed. You can also lose money on investments.
A lot of people think of the stock market when they think of investing, but really, there are investment opportunities all over the place. And they come with the potential for gains and losses.
For example, say you’ve got a friend who wants to open a restaurant. They ask you for a $20,000 investment to secure a location, buy equipment, and so on.
Your buddy opens the restaurant … and fails. In this case, you lose your investment, because the business didn’t succeed and didn’t generate profits.
However, in an alternative scenario, let’s say that you bought a 10% stake in the restaurant for $20,000, and the restaurant earns $500,000 in profits during its first year. In this case, your investment is successful. You make back your money and then some.
Where Should You Start Investing as a Beginner?
The first step toward investing as a beginner is educating yourself. These are some investing basics everyone should know…
Short-Term vs. Long-Term Investments
Investments can be short term or long term.
Real estate, bonds, and mutual funds are examples of long-term investments.
But note that just because an investment is long term, that doesn’t necessarily mean it’s safe or that it will definitely deliver returns. You still need to educate yourself on the market and avoid taking unnecessary risks.
If you don’t want to wait that long to grow your account, short-term strategies like trading penny stocks could be for you. But there can be a lot of volatility with this trading style. Build your knowledge account first. It’s important to educate yourself on the market mechanics so you don’t blow up your account.
How Much Should You Invest as a Beginner?
You’ll get sick of me saying this, but I gotta keep the lawyers happy: I’m not an investor. And I’m in no way giving you any legal advice. Investing is risky. Don’t risk more than you can afford to lose.
This is the age-old question. Unfortunately, there isn’t a simple number that I can give you because every situation and every investment is different.
But there’s a good rule of thumb to stick with. So let’s back to that disclaimer I keep repeating: never invest more than you can afford to lose.
It can be tempting to go all-in with an investment. But you run the risk of failure every time you invest. And if you go all-in, you risk losing it all.
If you’re interested in trading, it is possible to get started trading penny stocks with just a few hundred dollars.
In fact, one of my top students started with a $1,500 account, and to date, he’s up over $8 million in profits.** That’s an exceptional success story, of course. But it just goes to show that great things can come of even the most humble beginnings.
[**Note that these results aren’t typical. This student put in the time and dedication and has exceptional skills and knowledge. Most traders lose money. Always remember trading is risky … never risk more than you can afford.]
Investing Techniques for Beginners
There are tons of different investing opportunities for beginners.
For the purposes of this article we’ll mainly stick with investing techniques for the stock market –– here are some common starting points.
6 Types of Investments for Beginners
In the stock market, you buy shares of companies based on their stock prices. With every share you purchase, you’re buying a tiny piece of ownership of the company.
You can then sell your shares for a profit if and when the stock price goes up. That “if” is important though –– there are no guarantees.
You can also go in the opposite direction and short sell stocks. This is a method of trading where you anticipate that the stock shares will go down in price over time. In a perfect setup, you borrow shares of stocks that you think will fall below the current price point. Once the share price drops, you sell the stock and profit.
I don’t recommend short selling as a good starting point for beginners, but it’s a method that should be on your radar … read more about short selling here.
2. Penny Stocks
Penny stocks are the lowest tier. These are very small companies that might be new, have just one or two products, or be in emerging industries.
The name is slightly misleading –– penny stocks are actually stocks that trade for less than $5 per share.
Trading penny stocks has been the focus of my career.
Now, if you’re not familiar, I should tell you that penny stocks have kind of a bad reputation. They’re volatile and risky. Most of these companies will eventually fail.
For this reason, penny stocks are NOT suitable for long-term investing. They’re better suited for short-term strategies. But this doesn’t mean they’re bad. It just means you need to approach them differently than you would when buying shares of a huge company like Amazon or Google.
I’ve been trading penny stocks for decades. Penny stocks have made me a millionaire,** and I’ve learned a thing or two over the years.
When I got started on my trading journey, I didn’t have a mentor. I had no idea where I’d even find one. So I had to learn a ton of things the hard way. The good news is that you don’t have to. I’m now a teacher and mentor. I created a Trading Challenge to help new traders learn the ropes and become self-sufficient.
There’s so much noise out there … I want to cut through the BS and teach traders how to really succeed in the long term. It takes a ton of work and studying, but knowledge can pay off in the stock market!
As a Trading Challenge student, you’ll have access to a ton of resources like an extensive video library, webinars, tons of trading commentary, and frequent video lessons. You’ll also be part of a community of like-minded traders who can help motivate and inspire you.
I only wish I’d had a resource like this … you get to take advantage of it.
3. Fixed-Income Securities (Bonds)
The stock market involves investing in shares of a company, which constitutes equity.
Bonds, on the other hand, are all about debt. The company or municipality issues a bond to raise money and agrees to pay a specific amount of interest on that debt to anyone who invests.
Bonds tend to provide a lower return on investment, but they’re great when you’re interested in investing but have a low risk tolerance.
While high-risk bonds exist, most pay back the entire principal to investors — in addition to the interest, of course.
ETF stands for exchange-traded funds. This is a type of fund with underlying assets that are divided into shares.
There are a ton of different types, ranging from commodity ETFs to foreign market ETFs and ETFs designed to track indexes like the S&P 500. As an ETF holder, you’re entitled to a portion of the profits, which you receive through interest or dividends.
5. Mutual Funds
A mutual fund includes money that’s been collected from a number of different people. It’s managed professionally by a person or entity who invests the money in assets that will hopefully generate income.
There are several different formats for a mutual fund, and many different principal investments involved. Some examples of mutual funds might include bond funds, money market funds, stock funds, or hybrid funds (those might include both stocks and bonds, or other securities).
Options trading is similar to regular stock market trading except you’re buying the option to purchase or sell a stock or security at an agreed-upon price by a specific date.
As the name implies, you have options. In this case, you can choose not to go through with the buy or sell order. For this privilege, you need to pay a down payment or premium. If you decide not to go through with the order, you don’t get this money back.
Do You Need a Financial Advisor to Start Investing as a Beginner?
The short answer is no. You’re not required to have a financial advisor to start investing. BUT (of course there’s a but)…
The longer answer is that you shouldn’t expect to make smart investing decisions until you’re educated.
A financial advisor probably knows a whole lot more than you about investing. If you’re interested in long-term investing, an advisor can help you out with things like IRAs, 401(k)s, and other investment vehicles.
So if you’re interested in investing but don’t know where to get started, an advisor could be a great resource.
Investing for Beginners with Little Money — 9 Tips
1. Cut Losses Quickly
This is my #1 rule for trading, but it applies to any style of investing.
If the investment doesn’t go the way you planned, don’t hold on to the hope that things will turn around. It might, but it might not. I think it’s better to cut losses quickly and move on.
As a trader, it’s important to create a specific trading plan detailing your entry and exit points. This way, if a trade isn’t going your way, you know exactly when to cut losses.
I can’t stress this tip enough: cut losses quickly!
2. Choose a Good Broker
Whether you’re day trading or long-term investing in the stock market, you need a broker to execute your trades. Your broker is the gateway between your money and trades, so you want to be sure to find one that’s high quality and reliable.
Many traders get caught in the trap of going with the first one they find or the cheapest one.
Don’t be hasty. Take the time to research things like account minimums, requirements, and online reviews from users. The quality of your broker can have a huge impact!
3. Adjust Your Expectations
Penny stock promoters are quick to hype how quickly your money can grow.
Yes, it’s possible that a penny stock will go from $1 a share to $10, and it’s possible that you’ll double — or even triple — your money on a single play.
But do you know how much I try to make with each trade? Just $0.50–$0.75 a share.
Sure, I’m happy if I make more, but keeping my trades small — getting in and out when I know the numbers are right — helps protect me from risking disaster and major losses that far too many traders endure.
If you constantly chase big wins, you can force trades that aren’t really there. And these kinds of mistakes can take you out of the game before you even have a chance.
4. Respect Risk
Part of the reason I keep my profits — and my losses — small is that I respect risk.
Sometimes I might take profits or losses too quickly, but I’m OK with that.
A stock that you think is on its way up can tank in a few minutes. A stock that you think is a surefire short sell can reverse course in the blink of an eye.
You can’t fight risk … but you can respect it.
Make sure you’ve never committed too much of your portfolio to a single play. (The percentage amount is different for everyone. It’s whatever you’re comfortable with, and not a penny more.) And ensure that the position you take won’t affect the stock’s price action.
5. Keep a Trading Journal
As a beginning trader, one of the best things you can do for yourself is to set up a trading journal where you log what moves you made, what size positions you took, and whether you had a profit or loss on the trade.
Over time, this log will teach you a ton about your tendencies as a trader––both good and bad. When you learn from this data, you can begin to improve over time.
You can use a pen and paper for this, or you can use a program like Profit.ly. Either way, commit to keeping and updating your trading journal every time you make a move.
6. Invest in Your Education
I used to be cocky when I was younger, and I walked around acting like I knew everything there was to know about penny stock trading.
Sure, I’ve learned a lot in my 20+ years of trading, but do I know everything about stock trading? Nope!
That’s why I make education such a huge priority, and why I recommend that you do, too.
Mentorship matters. If you can find people who have achieved what you want to get out of your life and learn everything you can from them, it will serve your trading or investing career in ways you can’t even imagine.
This is the sort of thing that helps you become a stronger, better-informed trader or investor.
7. Think Long Term
One of my top trading mantras is “it’s a marathon, not a sprint.” Even if my trades only last minutes, the actual undertaking of being a trader is a long-term prospect.
If you start trading or investing, don’t think about it in terms of making this much money every week or month. It takes time to hit your stride.
For example, one of my top students wasn’t profitable for his first 9 months!
Don’t try to rush things, because that’s usually when you’ll make risky decisions that you haven’t thought through carefully.
Give yourself the time to acclimate to investing and to learn what works for you and what doesn’t. It’s worth the time to set up a strong foundation.
8. Only Invest What You Can Afford to Lose
If you’re having trouble making rent and think that an investment opportunity will solve your financial woes fast … think again.
If you can’t meet your basic needs, don’t deposit money in an investment account. Don’t start day trading.
Focus on growing your savings. Focus on learning everything you can about the markets. Then, when you’re mentally and financially ready, circle back to investing or trading. Never invest money you can’t afford to lose.
Even though I’m a millionaire, I don’t risk too much money on any one trade or investment.
I like my lifestyle too much to give it up. You’ll never see me risking money I can’t afford to lose, and I urge you to take the same approach.
Sure, you might have to start small, but you won’t be the first to trade with a small account. And it’s better to build knowledge and your account over time than to risk it all and lose big.
Don’t put all your eggs in one basket. You already know this, right?
Most millionaires have several streams of income. This helps them maintain s
uccess over time … There’s always a natural ebb and flow in the stock market. Having a variety of investments can help you stay afloat.
For example, say you tie up all of your money in a biotech stock … and then it fails. You lose everything.
Don’t put yourself in that sort of risky position.
If you’re trading stocks, be sure to have a mix of stocks from different sectors. Consider having some long-term and short-term investments. Or meet with a financial advisor to figure out a plan that works for you.
The Final Word on Investing for Beginners
I’m a trading teacher, so why am I telling you all about investing?
Because it’s so important that you educate yourself and work to continue your education throughout your trading and investing career.
Most trading teachers won’t give you this information — they just want to sell you something. That’s not my style.
I don’t want more students just for the sake of having students. I want motivated students who want to learn.
That’s why I’m telling you that there are other options. I want you to explore them and make your own decisions.
Now that you know more about the different ways you can invest, it’s time to consider what approach is right for you. So go ahead, do some research. Read my Penny Stocking 101 Guide. And if trading penny stocks sounds good to you, apply for my Trading Challenge today.
I want to know what YOU think. Leave a comment!
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