Expert Advice for the First Time Investor

By Shannon C , last updated June 20, 2011

When entering into the investment market for the very first time, there are some basic guidelines that experts urge all first time investors to consider. Following this expert advice can spell the difference between a successful experience, and the heartbreak that comes from investing without first equipping yourself with the right tools to make sound financial decisions for your own wellbeing and for the wellbeing of those who financially rely on you. While it can seem like a simple enough enterprise with the wealth of handy tools available via the internet, there is still no substitute for taking the time to study, research, learn, plan, consult in experts, and, when in doubt, to wait until the doubt is gone before making the investment. Learn more from experts about how to make a successful first time entry into the investment market.

Know Your Risk Tolerance

Every investor has what experts often call a "risk tolerance", or the amount of financial uncertainty they can tolerate when making financial investments. Your personal risk tolerance can be a combination of your age, your past financial history and current and future anticipated earning potential, your retirement goals and how near to retirement you are, your level of interest in being actively involved in the day to day operations of managing your investment portfolio, your level of financial and investment knowledge, the number of dependents in your household, your current level of debt, and other factors. Knowing your risk tolerance will help you to determine which types of investments are the best fit for your financial portfolio and help streamline your research and learning efforts towards making good choices in those areas.

Study and Learning Never Ends

Even the experts continue to research, study and learn daily to keep up with market changes, new regulations and rules, investment trends, new opportunities, and changes in different types of investment vehicles. There are many ways to learn and study how to make smarter, more lucrative investments, from taking a class at the local college to signing up for investment newsletters to consulting a broker or financial advisor to doing your own independent research into each company at the local library and then using online investment tools to make investments for yourself. The bottom line is, the more you learn and study, the smarter you can be when making investment decisions that allow you to feel calm and confident about your financial future.

Seek Out Diversity

Experts urge investors at all levels of expertise to seek out diversity when building their investment portfolio. What this translates into is managing risk by selecting a portion of investments that represent lower risk and then a selection of investments that are median to high risk. Generally speaking, younger first time investors who are just beginning to build their investment portfolios may be more interested in tolerating a bit more risk in exchange for a higher potential rate of return, versus investors who are nearing their retirement years and may be willing to sacrifice a portion of potential returns in exchange for a lower risk.

Identify Short-Term and Long-Term Goals

Experts caution that some types of investments are better suited for longer-term investment strategies, while other types of investments tend to perform better when given a shorter life cycle. In general, investing on the stock market is considered a long term investment strategy, while investing in bonds, real estate, and other less immediately volatile vehicles may be a better choice for shorter term investment goals. The important factor to success is to match the investment vehicle to the type of outcome desired.

Start Small

In all new endeavors, it is always best to keep enthusiasm in check and start small when learning the ropes. Select a small amount of money that you feel willing to consider your "learner fund", and do not venture beyond the boundaries of this fund you have set aside for yourself until you have learned the basics and feel more confident to expand the scope of your investing activities. Starting small allows you to leverage a margin of error without placing your own financial wellbeing or that of those who may be relying on you at risk while you get your feet wet in the investment market. Finally, starting small allows you to learn at your own pace, celebrating small victories and easily recovering from small learning curves without losing your enthusiasm for learning more about how to invest intelligently and safely for your financial future.

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