There's so much more to investing than just handpicking a couple of stocks and wishing for the best. Apps like Robinhood and Wealth Simple may make it seem like it's as easy as that, but without the fundamentals and a proper strategy, your money may never grow the way you want it to. If you're just starting out on your investing journey, make sure to check these three must-dos off your list:
1. Take the plunge
All forms of investing come with a risk of loss, which can discourage first-time investors from taking the plunge. But being too conservative has its risks too—by not investing, you'd be missing on a huge opportunity to grow your wealth, and that is a loss in itself. If you play it too safe and leave your money locked into low-yield accounts, you could actually end up losing money since the inflation rate will likely exceed the annual percentage yields of those accounts. A good way to avoid this is by diversifying your wealth—with proper asset allocation, you can put your money into multiple investment streams that could potentially offset each other's losses.
2. Prioritize high-interest debt
Before you even start investing, you should pay off any high-interest debt generated from credit cards or payday loans. Such debt often costs more than the amount that you can typically earn on investments. For example, many credit cards have annual percentage rates (APRs) greater than 30%, while payday loans can have APRs greater than 100%. Considering that the stock market typically generates around a 10% annual return (i.e., if you invest all of your money into stocks), you aren't likely to make enough gains to make up for the interest you would accumulate on credit card debt or payday loan debt. If you have debts to pay off, it would be smart to focus on those first.
3. Invest in the right places
When it comes to investing, there is no one-size-fits-all solution. Everybody has different financial goals, risk tolerances, and investing periods, so your investment strategy should be in line with your own personal circumstances. For most beginners, index funds are a great place to start—these are groupings of stocks that mimic the market performance of indexes like the S&P 500 and the Nasdaq Composite. Not only will you be able to generate returns close to the index you choose, but your fees will also be kept low as the securities in these funds don't change often.