First Time Investor: 5 Things to Know Before You Invest
You’ve saved your money and now you want to make your first investment and become a first-time investor.
Investing isn’t about jumping in wherever you feel like it with your money. It’s not about saving more to jump in with. It’s about finding something that you love and you understand to buy and hold.
Remember, Warren Buffett says, “Risk comes from not knowing what you are doing.”
Knowing these 5 things will better prepare you and reduce your risk.
1. Expect to Open a Trading Account
You can expect a reduced taxable income. In order to start investing, you need to open up a trading account. One of the most common options is an IRA account, which also doubles as a retirement fund. When you have an IRA account, especially a Roth IRA account, you save for retirement with tax-free or tax-deferred dollars.
The money placed in a Roth IRA is taxed up front but grows tax-free. So neither of your contributions nor the earnings are taxed when you withdraw at retirement!
2. Expect to Get Emotional
Another thing you can expect is investing to get emotional. It’s full of ups and downs and highs and lows. It can feel amazing when stocks go up and it can be downright scary when the market fluctuates downward.
While we do use our emotions to find businesses that we love and care about existing in the future, it’s important that Rule #1 investors act rationally. This is what sets us apart from fund managers and other investors — the ability to stay calm when others panic. We actually can use other investors’ fears to our advantage and buy when they panic.
We think long-term and we don’t panic over short-term fluctuations in the market because we know we own a wonderful business.
Here’s a quick video to teach you what to do if you buy a stock and then the price drops:
3. Expect That Getting Rich Will Take Time
We buy businesses with the intentions of keeping them for the long-term. We do research on wonderful businesses that we predict are going to be around for the next 20 years. It’s important to remember that this is not going to happen overnight, although you may want it to. Rule #1 investors think long-term because they want to work hard now and enjoy the fruits of their labor in retirement.
4. Expect That You May Have to Sell at Some Point
But that being said, there are going to be times you can expect to sell. While the best time to sell is never if you found a wonderful business, there are certain situations where you may need to sell off your investments. They are:
- When you need money for your cost of living during retirement or earlier.
- When your wonderful business investments are no longer wonderful.
- When a business you won gets priced above the Sticker Price.
- When the market has a downturn.
If a situation occurs when one of these things happens to a company, while rare, you may end up having to sell some of your stock.
5. Expect to Have Fun
Learning how to invest for the first time and understanding what you’re investing can actually be enjoyable and not something to no longer be fearful, confused, or stressed about. If you invest Rule #1 style, you’ll look forward to checking on your stocks and watching your savings grow.
Are you prepared to invest? Learn these 4 rules before you do anything with your money. Leave a comment below with your answer, and I’ll be sure to follow up with you.