5 Investing Tips to Become a Successful Investor
The market is down right now, and you are thinking about learning to invest. The following five investing tips will give you some ideas about where to put your money first. And what happens to that money will help you learn how to become a successful investor. Even if you’re just a beginner!
Perhaps you have only $10,000 or even just $1,000 to play with. Don’t worry. That is a start. In fact, you are wise to start small so that any losses are minimized. Remember, you are learning.
So without further ado, here are the five investing tips that will help you become a successful investor.
The Five Investing Tips
Investing Tip No. 1 – Define Your Goals.
Are you a 30-something with a bit of extra cash looking to learn to grow it? Are you in your 50s and realizing you haven’t planned adequately for retirement? Do you have teenagers and don’t know where money for college is going to come from?
These are people with three vastly different life situations who will need three different approaches to investing.
If you are the parent of college-bound kids and need an investment vehicle that will grow savings with a target end-date and withdrawal of returns that will be tax-free – this exists!
Or if you are a 50-something, you may be permitted to double the amount of your annual contribution to a retirement account. And if you are a 30-something, then you have many options to play with. For example, there are traditional mutual funds, bonds, stocks, peer-to-peer lending and REITs.
These three beginner investors will have differing risk tolerance profiles. Generally, the greater the risk of loss, the higher the return on an investment. How high is your risk tolerance?
The trick to this investment tip is to answer these questions for yourself and define your goals. Then, you are armed with the knowledge you need to look at various investment types and vehicles and determine which are best for you.
Tip No. 2 – Consider Investments With a “Guaranteed” Return
Is there an investment with a guaranteed return? Not exactly, but the following four strategies in this investment tip are almost certain to improve your financial future. They are…
Paying Down Credit Cards
Is the money you have to play with really “extra”? If you have high-interest credit card or personal loan debt, pay that off first. Paying down high-interest debt is an investment in your future guaranteed to outstrip most other returns on investment. And that’s a huge investing and financial tip in general.
If your credit cards have ballooned out of control, you might consider seeking the advice of a debt settlement attorney. A debt settlement attorney can help you pay off your debt for less than you currently owe to your creditors.
Paying Into a Retirement Plan
Another investing tip is to consider paying into some sort of retirement plan. Many people have a 401(k), a 403(b), another type of employer retirement plan or perhaps a Roth IRA if eligible. Why? Because the tax-deferred retirement plans allow you to grow your money tax-free.
Also, contributions put you in a lower tax bracket than you would be in had you not contributed. This way you can pay less income tax. Taxes on gains in after-tax retirement accounts like a Roth IRA are deferred until withdrawal at retirement, at which point you will likely be in a lower tax bracket.
Another good investing tip: Many companies offer to match part or all of your contributions to your 401(k) up to a certain maximum. If your employer has a contribution-matching program, maximize that. It would be silly to turn down what is essentially free money!
Investing in a 529 Plan
Named for section 529 of the Internal Revenue Code, a 529 plan allows investors to save for future education costs and grow those savings. These are often known as “qualified tuition plans.” And they may be offered by states or state agencies, or by educational institutions themselves.
While an investor will contribute to the 529 plan with after-tax funds, the return on investment is tax-free if the student uses all of the funds for educational expenses. In many states, investors can deduct a portion of their contribution to the 529 plan from their state income tax. And minimizing your taxes is also a great investing tip to follow.
Tip No. 3 – Commit to Keeping Costs Low
Whichever type of investment vehicle you are considering, this investing tip urges you to look carefully at the fees charged for administration. Some investment vehicles will charge a flat fee, others, a percentage of growth.
If you are investing only $500 or $1,000, the percentage may be more advantageous. Later on, when you start making money, you can revisit your advisor or trading platform’s fee structure
Tip No. 4 – Consider Using a Robo-Advisor
There are multiple online platforms offering investment services, and they are commonly called robo-advisors. In general, these services offer low minimum balances, user-friendly interfaces and a streamlined enrollment process. This investing tip is to see if robo-advisors may be the right option for you.
Often a robo-advisor will ask only five or ten questions asked regarding risk tolerance before opening your account. And again, fees will vary, so make sure to shop around.
Tip No. 5 – Look at Investment Alternatives to Stocks and Bonds
For this investment tip, we recommend that you make sure to diversify your portfolio. There are different alternative investments you’ll want to look at, including…
- Precious metals like gold and silver
- Energy commodities like oil and natural gas
- Cryptocurrencies like bitcoin
- Startup investing and IPOs.
Or peer-to-peer lending may be an option for you. This is similar to crowdfunding. A small business will propose a business plan or product on an online lending platform. And you can choose to invest in it.
Portfolios are also available containing several of these investments, which will vary in risk and return, so you can rely on that online platform to diversify your portfolio for you. Minimums are generally low, and so are fees.
Conclusion on These Investing Tips
These investing tips should help you get started and learn more about how to invest and what your tolerance for risk is. The opportunities for investing are as diverse as the people wanting to invest. Explore these options and discover which types of investments suit you.
About Veronica Baxter
These 5 investing tips are brought to you by Veronica Baxter, who is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy Philadelphia bankruptcy lawyer.