Investing money can be a daunting task. However, you don’t need to feel overwhelmed with how to invest money. These proven ways will help you make money through investing right away.
How to Invest Money: 13 Proven Investment Tips to Get Started
If you want to invest money, you are probably thinking one thing: how? How should I invest for success? I wrote a dividend investing book to help people get started investing.
The book is titled Dividend Investing Your Way to Financial Freedom and features a number of resources to help you invest for financial freedom, including:
- Improve your portfolio returns
- Understand the pros and cons of a dividend investing approach
- Develop and craft your own dividend investing strategy
- Build wealth through a long-term compound interest plan
Here I break down the many proven investment tips that have helped me make money from investing. If you want to know how to invest money, you need to know two things:
- Plan to get started on how to invest
- Use investment advice to make your first investment
Let’s get into how to invest your money and a plan on how to get started first.
How to Invest Your Money: A Plan to Get Started
In order to invest money effectively, you have to do a few things which include setting your budget to determine your contribution limits, identifying your risk tolerance and finding a reliable investment platform.
1. Set a Budget for Investment Contributions
The very first step on how to invest your money is determining how much you continually contribute to your investments. You absolutely need to find a way to put money to work for every paycheck.
If you need help with the personal financial planning process, consider using our personal financial plan example as a guide.
The basic budgeting hierarchy to determine how much you can contribute is the following:
- 401(k) contributions
- Income (day job income)
- Debt Obligations (student loans, etc.)
- Housing Expenses (rent, mortgage, etc.)
- Living Expenses
- Retirement Account Contributions (Roth IRA, IRA, SEP, etc.)
- After-Tax Portfolio Contributions (brokerage accounts, real estate, funds, dividend portfolio, etc.)
You need to follow this hierarchy. Start with maxing out your 401(k) as much as possible. Then, from there walk your income down including all expenses. Whatever is left you should contribute to your retirement accounts outside your 401(k) which would include IRA, Roth IRA, etc.
Make sure to max out your Roth IRA, IRA contribution limits as much as possible to remain tax-efficient. From there, whatever is left after that you invest in after-tax investments. After-tax means that your contributions are all after-tax AND you will have to pay eventual taxes on gains and income.
If you contribute to a Roth IRA, you pay no taxes on any gains. With a 401(k) your contributions are all made pre-tax out of your paycheck.
Why I Love Side Hustles
I use side hustles to immediately increase my income. This income slides right in between #5 and #6 of the hierarchy above. Yes, I’ll have to eventually pay tax on my side hustle income. However, I can use this to immediately start increasing my investment contributions.
It’s a great way to save faster, invest more or pay down debt sooner.
2. Identify Your Risk Tolerance
There are millions of ways to invest money. Even more so in today’s age. There are several platforms out there that allow you to gain exposure to certain asset classes. Investing your money is all about allocation. Choose your allocation to certain assets upfront.
As you work through your investing lifecycle, adjust your allocation accordingly. The older you get the more likely you will want to be income-oriented.
Obviously, I’d advise that you have a majority of your investment exposure geared to
- Stocks: Investing as a part owner in a company. These apps will give you free stocks just for signing up.
- Bonds: Bonds are a loan to a company or government to fund a project or refinance other debt. Bonds are debt and are typically called fixed-income instruments. In addition, bonds typically make regular cash interest payments to investors. The principal amortizes over time with final payment set on a maturity date.
- Funds: Funds include mutual funds, index funds and exchange-traded funds (ETFs), these can be used to purchase a basket of fully diversified stocks and/or bonds in one vehicle. A Standard & Poor’s 500 index fund, for example, will hold 500 of the largest companies in the United States. I use global dividend growth funds to get exposure to dividend stocks internationally.
- Real estate: Real estate is a great way to diversify into real assets. You don’t need to actually own a home and rent it to someone (or just own it outright) to have exposure to real estate. There are a number of different Real Estate Investment Trusts (REITs) out there that you can use to gain exposure to commercial real estate. You can use online crowdfunding real estate platforms such as Fundrise or RealtyMogul. These two platforms are considered the best real estate crowdfunding for non-accredited investors.
- Personal Lending: The rise of peer-to-peer lending has created a significant opportunity and frankly an entirely new market. I’ve been using LendingClub to gain some refinancing peer-to-peer lending exposure. I like the yield component of this type of lending. You essentially buy a portion of the loan going to a person that needs to refinance their credit cards, make a large purchase, etc. This is a small allocation of my capital.
- Cryptocurrency: Cryptocurrency is highly volatile and pure speculation. You can use this as a way to diversify further by allocating a small percentage of your assets to this investment class. For me, I don’t have much exposure. I do agree that there is potential for this asset to act as a form of gold. However, there are significant risks associated with investing in cryptocurrencies.
3. Find a Reliable Investment Platform
Your investment platform is a crucial component of your investing strategy. It is not the most important part of the equation. Execution is.
However, you want to find an investment brokerage or platform that fits your user experience that most. In addition, find a platform that offers competitive rates on fees. There’s nothing worse than giving away extra money for no reason. Fees erode your returns.
My Recommended Investing Platforms
- Robo-Advisors: M1 Finance and Wealthsimple; read more about M1 Finance in our review here
- Brokerages: Robinhood (use my link and we each get a free share of stock)
- Retirement Fee Tracking: Blooom and Personal Capital
Read more about my favorite investing apps here.
The stock market is filled with uncertainty; however, there are tried and trued principles that you can follow to increase your chance of long-term success.
Let’s take a look at the 11 concepts that you should know when investing in the stock market. This will help you invest money effectively and efficiently.
Some investors sell appreciated investments to increase profits and hold onto any underperforming stocks in the hopes that these stocks will rebound.
However, you should understand that good stocks can continue to increase in profitability and underperforming stocks can actually zero out completely.
Read the following tips to help you make informed decisions when investing in the stock market.
First, here is a quote to help you stay motivate and to get started investing.
13 Investment Tips to Help You Invest Your Money
These investment tips come from some of the most sophisticated investors in the world. If you want to learn how to invest money, you need to follow these proven tips for success.
1. Create a Roadmap for Saving… Make Investing Routine
I’m a huge fan of planning. It’s paramount for your future financial success. I’ve built a five-step plan that I need to follow in order to live off dividends forever. Each person is different their savings cadence, investing goals and strategy.
My plan might not be appropriate for other people. However, my five-step plan for investing for financial freedom is pretty straightforward and simple. I think anyone can follow it:
- Contribute $200 per month
- Increase your monthly contributions by 25% per year
- Any dividend income you receive should be reinvested into your dividend growth portfolio
- Invest in high-quality stocks that achieve at a 6% rate of return on equity
- Repeat steps 1-4
Download and Use Our Dividend Investing Calculator
Below is a snapshot of our dividend reinvestment calculator. This is completely free to use and try on your own time. Schedule out your financial plan for living off dividends.
The dividend investing calculator is very simple to use and input your own assumptions. It literally only takes 5 minutes!
2. Riding a Winning Stock
Peter Lynch talked about ten-baggers. Ten-baggers are investments that increase in value by tenfold. Mr. Lynch said his success was the result of having these stocks in his portfolio.
However, discipline was required to hang on to these stocks after they had increased exponentially if he believed these stocks still had room to increase. The takeaway from riding a winning stock is you should not cling to arbitrary rules.
Instead, look at the stock based on its own merits.
3. Selling a Faltering Stock
There are no guarantees in the stock market, including that a stock that has declined will rebound. You must be realistic when it comes to determining whether to sell a stock that is poorly performing.
When you acknowledge that a stock is not going to rebound, you can feel like a failure; however, you should feel no shame. Instead, realize that you made a mistake, sell off the stock to prevent further loss and learn from your mistake.
Both of these scenarios show you how important it is to judge a stock on its merits when determining if there is future potential for profits in the stock or whether it is time to sell off the stock.
4. Forget about those “Hot Tips”
No matter the source, never assume that a stock or bond tip is genuine. You should always analyze the company yourself before ever investing your money.
Although some tips do pan out, you must research the company to ensure your long-term success. I like to rely on credible sources and stock screeners. I love using FINVIZ or Finbox to use a screener to simply remove the emotions of investing. Just look at the numbers. Here is how to use FINVIZ to screen for stocks.
In addition, use tools that will position you for success. If I’m going to be investing thousands of dollars over the span of years, I want the very best tools. I’m willing to pay a price for tools. Tools can enable success.
Here are a few reviews that should help you:
- TradingView Review: Learn to Chart Like a Pro
- Motley Fools Stock Advisor Review: Is it Worth it?
- Blooom Review: Analyze and Optimize Your 401(k)
- Finbox Review: A Powerful, Affordable Stock Screener
5. Release the Small Stuff and Stop Worrying
I remember the days when I’d invest that I would watch day-to-day movements in the stocks in my portfolio. I can’t believe how much time (from watching) and money I wasted (by selling too early). It simply isn’t worth it.
Rather than panicking over short-term movements of stock, look at the big picture. You must be willing to invest in the company long-term and should never be swayed by any short-term volatility.
Don’t be concerned about a few cents change. When the market is in a down cycle and volatility increases, don’t worry. This is natural. There are cases where volatile stocks are actually good for your portfolio.
There are active traders who use the fluctuations that occur every minute to help them lock in gains; however, long-term investors are successful when they think long-term.
Oftentimes, these investments will be held on for years.
6. Don’t Place Too Much Importance on Price-Earnings Ratios
Investors often place too much importance on price-earnings (P/E) ratios; however, concentrating on a single metric is a recipe for disaster. P/E ratios should be used with other analytical processes to determine the value of a stock.
A low P/E ratio does not mean that the stock is undervalued. Conversely, a high P/E does not mean that the stock is overvalued.
These are the best investing ratios that you should know beyond P/E ratios.
7. Resist the Temptation of Penny Stocks
Many people think that they are less likely to lose money with low-cost stocks. However, a $5 stock can plunge to $0 just the same as a $75 stock can plunge to $0. In either scenario, you have lost 100 percent of your investment capital.
Thus, both types of stocks carry the same risk. In addition to this, penny stocks are typically riskier and are less regulated than higher priced stocks.
There is no place for penny stocks in your portfolio. Period.
8. Choose a Strategy and Follow It
There are so many strategies when it comes to choosing stocks that it is important that you choose one philosophy and stick to it. Changing approaches is very dangerous.
Take a look at Warren Buffett.
He stuck with his strategy and avoided the dotcom boom in the late 1990s, which also helped him avoid major losses when tech startup companies crashed.
You can either take the active management route or the passive management route.
- Active Management Investing: Active management investing entails you building your own portfolio from scratch rather than investing in funds. I’ve been building a dividend portfolio in addition to my after-tax index investing and retirement accounts. I look for undervalued dividend stocks that have a high likelihood of increasing their dividends in the future.
- Passive Investing: With passive investing, consider using a robo-advisor for your success. I’ve enjoyed using Wealthfront and M1 Finance. If you want to evaluate our guide on the best robo-advisors.
9. Focus on the Future
Investing in stocks requires you to make decisions based on occurrences that have not happened yet. Past data can be useful when determining how a stock may perform; however, this information is never guaranteed.
“One Up on Wall Street” was a popular book in the 1990s. Peter Lynch said if he had asked himself if his stock choices would have gone higher, he would never have invested in Subaru, which had already had a twenty-fold increase.
Instead, he researched the company and realized that the Subaru stock was still cheap and purchased it.
He held on to the stock and made a sevenfold profit. You must make a decision based on the company’s future potential rather than its past performance.
The market will always be forward-looking.
10. Long-Term Perspective Required
While certain market neophytes can gain large short-term profits, long-term investing in means such as property bonds, is the best way to ensure success.
Although you can make money actively trading short-term stocks, there is a greater risk than long-term strategies. Recognize where you are in the capital structure BEFORE you make your investment.
11. Keep an Open Mind
Many companies are household names; however, many of the top performing investments do not have brand awareness. In addition to this, there are thousands of small companies that could potentially become a blue-chip company tomorrow.
In fact, small-cap stocks historically have larger returns than large-cap stocks. From 1926 until 2001, the average return on small-cap stocks was 12.27 percent while the S&P 500 had a return of 10.53 percent.
This is not to say that you should fill your entire portfolio with only small-cap stocks; however, there are many great companies beyond those found on the Dow Jones Industrial Average.
12. Be Aware of Tax Liabilities But Don’t Worry
Putting tax liabilities above everything else can cause you to make a bad decision. Although the tax implications of investing are important, they should be second to securely investing and increasing your money.
Yes, you should minimize your tax liability when you file your online taxes; however, the main goal should be to achieve high returns on your investments. Use a stock calculator to understand your profits ahead of time.
13. Mistakes Will Happen and That’s Okay
Everyone makes mistakes. Everyone makes mistakes with investing. You live and learn from it. Don’t let the small things with investing get to you. You need to learn from them and move on.
If you want to be a pro at how to invest money, you simply can’t let mistakes affect your future decisions.
Conclusion on How to Invest Money
There’s a tremendous opportunity out there for you to invest money. I believe that anyone can invest money. In today’s age, you don’t need a lot of money to get started.
The most important part of investing is that you just need to start. Develop a pattern of investing early. From there push yourself for higher goals and set the bar higher each year. You will be amazed at the outcomes.
More Investing Resources on How to Invest Money:
At Millionaire Mob, we have significant investing resources that will help you invest your money. Use these tools to position yourself for investing success.
- Our guide to building a dividend portfolio
- Our free downloadable dividend discount calculator
- List of all the Dividend King stocks out there
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