The beginning investor might feel overwhelmed at first. Here are three keys to help you stay on track.
One of the best ways to build wealth for the future is to start investing. Investing is one of the ways that you can put your money to work for you, improving your situation over the long haul. In fact, investing is one of the reasons I've designed a life I enjoy.
However, it can be overwhelming for a beginning investor. The good news is that it doesn't have to be that difficult. Make use of the following three keys, and you can improve your situation.
1. Start Simple
One of the reasons the beginning investor has difficulty is due to concerns about complexity. While investing can be complex, it's important to note that it doesn't have to be. Investing can be simple. There are several simple investments that you can start out with.
Many recommend that you begin with a low-cost index fund or ETF. These investments are easy to understand, and fees are less likely to erode your returns. While you can branch out to more complicated investments later, start simple. As long as you get started, you are on the right track. Start with the easy stuff, and while your money is growing in an index fund or ETF, you can start researching other investments.
(Check out my guide on how to start investing for ideas on simple ways to get begin building a portfolio.)
2. Invest Consistently
Next, make sure you invest consistently. Be consistent even if you can only start with $50 a month. Set up an automatic withdrawal and an automatic investment plan. Most online brokers offer these opportunities to invest each month automatically. Take advantage of them, and you will be less likely to fail.
Consistency allows you to keep compound interest and dollar cost averaging working on your behalf. Keep investing consistently, whether adding to your tax-advantaged retirement account or using a taxable account. Create a plan that allows you to invest consistently, and then stick to that investment plan.
3. Increase Your Investment Amount
Finally, you need to plan to increase your investment amount over time. While there is a lot to be said for getting started early and investing consistently, you also need to make sure that you are investing enough. Look for ways to increase your investment amount. If you are only investing $50 a month right now, consider how you can free up more money so that you are investing more.
At the end of each year, I review my investments and decide if I need to increase my monthly investment amount. Whether you find ways to earn more or save money on unnecessary expenses, chances are you can find a little more room in your budget to invest a bit more each month.
Investing is an important part of your financial plan. However, it doesn't have to be difficult. And, if you don't want to invest in more complicated investments you don't have to. Get started with something simple, invest consistently, and work to increase your investment amount, and you stand a better chance of building long-term wealth.