How To Learn To Invest Your Money

It's no secret that getting started with investing when you're a total beginner can be intimidating at first.

The learning curve of the stock market, combined with the fact that you're putting your own money at risk, is often enough to scare many people away from what is actually one of the safest ways to financial freedom.

That's why it's important to remember that even the most successful investors had to start somewhere, and it's never too early to start planning for the future and learning how to invest.

The fact that you're here reading this investing guide is already a huge first step – so congratulations!

In this first chapter, I'll cover everything you need to know to start investing on your own and make sure you're setting yourself up for success.

And here's something I learned first when I was getting into investing that changed everything for me…

The financial industry purposely uses confusing language and terms meant to scare the average investor away. The big fund managers have been able to dominate the market for a long-time this way, so let's remember that they are the only ones who benefit from scaring the rest of us away.

It's time more of us learn to play in their sandbox, so let's do this.

Chapter Guide

Step 1: Pay Off Bad Debt and Avoid Money Traps in Your 40s
Step 2: Create an Emergency Fund
Step 3: Learn the Investing Basics
Step 4: Utilize Investing Resources for Beginners
Step 5: Create an Investment Plan
Step 6: Decide What Type of Investment to Make
Step 7: Establish Your Investing Strategy
Step 8: Determine Where To Invest
Step 9: Build a Stock Watchlist
Step 10: Know When to Buy Your Stocks

Step 1: Pay Off Bad Debt and Avoid Money Traps in Your 40s

Take a pause here and realize I just said "bad debt". Bad debt means unnecessary debt – like the new car you didn't need or the upgraded phone you couldn't afford and put on a credit card. I'm not talking about your student loans or home mortgage.

If you have "bad debt" from credit cards then you want to pay those off before you start putting money into the stock market. There is a good reason for this.

Credit cards charge you interest. If you have a an 18% interest rate on your credit card balance then you'd be losing more money than you can earn from investments, even at 15% average returns. Pay that down first so all the cash you can funnel into your investments is truly only making you money and growing your bank accounts.

It's also worth mentioning that you should do your best to avoid common money traps people fall into. A money trap is anything you're spending your hard-earned money on that you can't really afford or don't really need just to "keep up with the Joneses".

These are things that will take all your money so you have nothing left to invest. Spending money wisely is one of the most important steps you can take to put yourself in the best possible financial situation before you begin investing.

Step 2: Create an Emergency Fund

If you've figured out how to spend your money wisely, you've probably figured out how to save it. An emergency fund is… you guessed it… part of your savings that you have set aside in case of an emergency.

It's a good idea to put 3-6 months of your living expenses into your emergency fund (it can just be in a savings account) that way you're covered if something crazy or unexpected happens (like a pandemic) !

Emergencies might look like your car breaking down, get unexpectedly laid off, or having an unforeseen medical expense. An emergency fund will also come in handy in case of a recession .

Even if you don't have to tap into it, you'll have peace of mind knowing there is a cushion available if you need it.

Step 3: Learn the Investing Basics

You wouldn't jump into a boxing ring without knowing the basics of sparring and self-defense, so you shouldn't jump into the stock market without knowing the basics of investing.

Before you begin building wealth, it's important to understand the true goal of investing as well as the process you'll need to use to reach that goal.

At the most basic level, investing is all about buying $10 worth of value for $5.

When you're able to buy a company for less than its true value, your investment return will grow over time – this is the ultimate goal of investing.

I go more in-depth on the basic principles of investing in these posts:

Stock Market Basics and How It Works
13 Investing Terms All Beginners Need to Know

If you're brand new to all this, those are some great guides to bookmark for later.

Step 4: Utilize Investing Resources for Beginners

The most important thing you can do to become successful is get an investing education.

This does NOT have to be a formal program. In addition to the posts I shared above, there are plenty of resources available on my site and online if you want to learn more about the stock market and how to succeed as an investor.

These resources include things such as books, blogs, podcasts, apps, investing software, and more.

Tip: Jumpstart your knowledge with my investing resources center. This is a great page to save in your notes for later — there are year's worth of tips and guides that will take you through your journey.

Best Investing Books for Beginners

There are a lot of wonderful investing books written by highly successful investors that are chock-full of helpful tips, insightful information, and inside knowledge on the world of Wall Street.

In the last chapter of this guide we'll go into these in more detail – but a good place to start is by reading Rule #1. It gives a great foundation for investing principles used by Warren Buffett and other great investors.

Best Investing Classes for Beginners

Investing courses or online trainings are some of the best ways to learn hands-on investing instructions from experienced investors.

My Rule #1 Transformational Investing Webinar is a great place to start. Especially if you're starting to think about how to create generational wealth or you're getting closer to retirement and you have money tied up in a 401(k) that isn't growing fast enough.

Best Podcast for New Investors

Listening to an investing podcast is a great way to gain access to timely and relative information on investing and the current state of the market. Start by checking out the InvestED Podcast that I host with my daughter, Danielle.

Best Online Investment Sites for Beginners

In addition to checking out Rule #1 Investing for new videos, blog updates, and more, there are plenty of other great investing websites that you can use to stay up to date on the market and learn more about how to invest. Some sites that I follow and use regularly include Barrons, Seeking Alpha, and Wall Street Journal.

Best Investment Apps for Getting Started

There are a number of investing apps available with a variety of uses from apps such as Acorns that automatically round up your purchase totals to the nearest dollar and invest the leftover change.

Some of these apps may prove quite helpful, while others may be little more than a distraction. If you find an app that works for you and helps you become a better investor, though, feel free to use it.

Step 5: Create an Investment Plan

Before you put your money in the market, you need to have a clear plan of what you want to accomplish and how you are going to do it. This is where creating an investment plan comes in.

The best investment plan is one that is customized to your lifestyle, so follow the steps below in order to set yourself up on the path to success.

Evaluate your current financial standing to understand how much risk you can take.
Determine your goals and how long it will take you to realistically achieve them.
Figure out which types of investments and strategies are the best way to get you to where you want to be.

Having a clear investment plan will give you a ton of clarity as you begin investing.

Let's review the third step below and compare some of the different types of investments you can consider as a beginner.

Step 6: Decide What Type of Investment to Make

We'll get into more detail on investment types in the next chapter – but for now, let's review some of the high-level information to get you started!

Investing in Stocks For Beginners

When you purchase an individual stock, you become a partial owner of the company whose stock you purchased. That means when the company makes money, so do you, and when the company grows in value, the value of your stocks grows as well.

Investing in stocks is by far the most rewarding investment option since it allows you to profit from owning any publicly traded company that you wish to invest in.

Important: This is where 'value investing' comes into play. Since you're investing in companies you already spend money on and believe in, it makes the process WAY more fun and interesting.

On average, the entire stock market grows at a rate of about 7% a year, but it's possible to achieve much higher returns by investing in hand-selected individual companies.

Investing in Bonds for Beginners

Bonds can be purchased from the US government or from individual companies. Rather than buying ownership in a company, bonds essentially allow you to "loan" money to the government or to a company in exchange for modest returns. On average, bonds offer a return of 2-3% per year.

Those returns aren't great, especially if you're getting close to retirement and don't have 40 years to grow your money. It's also important to remember that the average rate of inflation each year is 3% or more so you may technically just break-even.

Investing in Investment Funds for Beginners

An investment fund (like mutual funds, ETFs, etc) is a collection of stocks that is overseen by a fund manager. While these funds are built and managed by so-called "financial experts", they typically have a hard time beating the market when you factor in the fees that fund managers charge to manage them for you.

You'll have a much easier time (and more fun!) learning how to invest money on your own, rather than relying on some mutual fund manager who can't beat the market.

So, what is the best type of investment for a beginner? Stocks!

Don't let financial advisors and so-called "gurus" scare you into giving them your money or talk you into over-diversifying in some fund that will makes you the same money it costs you. Breaking even isn't our goal.

With the right strategy, investing in stocks breaks down to a few simple principles that ANYONE can learn, which brings us to step #6.

Step 7: Establish Your Investing Strategy

Investing is more than picking a few stocks and hoping for the best. If you're doing it right, there's a real strategy involved.

These investment strategies include:

Impact Investing: Investing in companies that have a measurable environmental or charitable impact
Growth Investing: Investing in companies that exhibit signs of above-average growth
Income Investing: Investing in securities that pay dividends
Small-Cap Investing: Investing in small companies that are new and have potential to grow quickly
Value Investing: Investing in great companies when they are on sale for prices lower than they are worth

The Rule #1 Investing strategy follows the principles of value investing.

When you invest in this way, you can still buy growth companies, small-cap companies, and impact companies, but you buy them when they are on sale.

This is the only kind of investing that will give you the highest rates of return with the lowest amount of risk. When you buy wonderful high-value companies for half or even a quarter of their value, you can experience big returns.

Prefer a video? Learn more about the pros and cons of different types of investing strategies by watching this…

Step 8: Determine Where to Invest

Once you decide that you are ready to start buying and selling stocks, you'll want to choose what platform or service you'll use to make your investments.

For most investors, an online broker will be the best option because online brokers allow you to place trades for a relatively small fee while still offering all of the resources and information you need to make wise investments.

Best Investment Firms for Beginners

There are a lot of online brokers available to choose from and most are fairly competitive in regards to the fees they charge and the services that they offer. Here are just a few great online brokers for you to consider include:

TD Ameritrade
E-Trade
Ally
Fidelity
Merrill Edge

While you should check out the fees each one charges and get a feel for each platform before you make your decision, you really can't go wrong with any of the major online brokers. After all, they're made for this.

Step 9: Build a Stock Watchlist

Ready to get real?

You've educated yourself and made your investment plan, so now it's time to start narrowing down your list of potential investments. If you decided stocks are the right type of investment for you, you're in the right place.

A stock watchlist is your own personal list of companies that you've researched and found to be worthy of your investment. Once you build your watchlist, you watch and wait for those companies to go on sale.

So, how do you build a watchlist?

Do Your Research

The best companies to invest in for beginners are companies that have been around for at least ten years, companies that you understand, companies that exhibit past growth and the potential for future growth, companies that are run by trustworthy management, and companies that are on-sale relative to their value.

You can break down these qualifications into what we call the Four Ms of Investing. It will take a bit of research to discover the Four Ms for each company, but the payoff will be worth it.

If you find a company that meets these qualifications then you've found an ideal investment for any investor, beginners included.

Practice Patience and Wait

Remember – once you have found a company that meets your qualifications, it still may not make sense to invest in it right away. Instead, you'll want to wait until the stock market places it on sale.

The good news is that the market puts wonderful companies on sale all the time. If you're patient, the companies on your watchlist will eventually dip to a price that allows you to buy them up for a bargain rate and profit once the price of those companies goes back up to their true value.

Investing Tip: Check Your Emotions

By far, the most important investing tip for beginners to follow is this: keep your emotions in check.

If you invest in wonderful companies at a point when the market has placed them on sale relative to their value, it's hard not to make money; that is, if you don't let your emotions get the better of you.

Key Takeaway: Even great companies can experience dips in price over the short-term, and these dips often cause inexperienced investors to become afraid and sell off their shares before they can make a comeback.

By the same token, greed causes many investors to buy into a company at times when the company is overpriced (usually because it's in the news and "everyone else is doing it"). This leads to lower returns or even losses.

If you want to succeed as an investor, you have to avoid letting fear or greed drive your decision-making process. Remain patient and logical as you invest and you'll be able to avoid many of the pitfalls that beginner investors often fall prey to.

Step 10: Know When to Buy Your Stocks

Succeeding in investing in stocks is all about choosing the right companies as well as the right time to invest, but the right time won't last forever. Once a company on your watchlist goes on sale, it's time to buy.

At this point, all you need to do is place your money in the company and keep it there for the long term. If you made a wise investment, your money will grow in value for many years after you invest it in the company.

Investing Tip: Practice with Paper Trading

Paper trading is an excellent way to build up investing experience without having to put any real money up!

You can think of paper trading as an investing simulator in the sense that you can buy and sell stocks, track your profits and losses, and do everything else you would do with real investing all while using imaginary money.

There are a number of online platforms, like Think or Swim, that allow you to engage in paper trading free of charge so you can practice investing in the most realistic way possible without risking any real money.

Bonus Step: Continue Learning Strategies for Beginners

Investing is kind of like riding a bike… once you get the hang of it, it's with you for life…

And it makes you richer over time.

Continue on to the next chapter now for a deep dive into investment types.

We only scratched the surface here and there's a lot more to cover – from CD's to Mortgage-Backed Securities – so you can make the best decision for yourself.

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