One of the best ways to build wealth over time is to invest. And becoming an investor doesn’t have to be complicated or difficult. If you’re hoping to learn how to become an investor, there are a few things you can do to take your first steps on the journey. Here’s what you need to know about getting started, developing good investing habits, and avoiding bad investing habits.
How to Be an Investor
First of all, becoming an investor is about, well, investing. If you use your money to buy an asset that has the potential to increase in value, you’re an investor.
One of the easiest ways to invest is to purchase stocks. This can be done with the help of many online brokers, including robo advisors. You can also use some investing apps to buy small portions of shares (also known as fractional share investing), or invest your pocket change.
Other types of assets, such as real estate and gold, can also be bought in the hopes that they will gain in value. Any time you purchase something with the reasonable expectation that it will gain in value, you’re investing.
Over time, though, the stock market is one of the most likely ways to invest and grow wealth. In fact, if you have a retirement plan through your employer, you’re probably already an investor. According to the Pew Research Center, more than half of U.S. households have investments in the stock market — usually through retirement plans at work.
If you want to increase the chances that you’ll be a successful investor in the long term, developing good investing habits can make a huge difference.
Good Investing Habits to Gain
As you get ready to learn how to become an investor, developing the right habits can go a long way. Here are some good investing habits you can work on:
- Create an investing plan. One of the best things you can do is consider your long-term needs and goals and create an investment plan that meets your needs. Then stick to the plan even when things get tough.
- Consistency. If you want to build wealth over time, consistent investing is a good start. Even if it’s a small amount, getting into the habit of putting money into an investment account can help you grow wealth. Choose to contribute weekly or monthly, and make it automatic so you don’t have to think about it.
- Allocate your assets. An important part of investing is diversifying your assets. Figure out an asset allocation that makes sense for you. A mix of stock and bond investments — along with cash and maybe some other assets such as real estate — can make a difference. However, you want to make sure your allocation is in line with your investing plan and goals.
- Manage your portfolio for the long haul. Don’t get caught up in the short term. Market movements can feel scary at the moment. However, if you look at a stock market trend line over the long run, you’ll see it smooths out. Historically, investing offers a chance to grow wealth over time if you can practice good investing habits and stick to your plan.
Bad Investing Habits to Drop
- Trading too frequently. Making frequent trades can be problematic since it’s hard to exactly time when you’ll get the best price on something. Too much trading can reduce your overall returns. For many investors, it probably makes sense to hold assets for longer.
- Relying too much on individual stocks. When we think of investing, we often think about picking stocks. However, trying to pick the “right” stocks can cause problems. For many investors, it makes sense to focus more on index funds and exchange-traded funds (ETFs) and use individual stocks for only a small portion of your portfolio.
- Attempting to time the market. Market timing can also hold you back. It’s impossible to know exactly what the market is going to do — and when. Trying to time the market can lead to losses and reduce gains. Instead, sticking to your plan, even during volatility, can help you weather the storm and recover.
- Selling when the market is down. Many investors panic during a market drop. This can result in selling low and losing money. Instead, for many investors, it makes sense to view market drops as a time when things are “on-sale” and consider buying. However, it’s important not to fall into the trap of market timing.
- Thinking short-term. Short-term thinking and listening to the media can encourage you to abandon your portfolio. Instead, look at things from a long-term perspective with your investing. You’ll be more likely to succeed in the long run.
Is It a Bad Time to Invest?
Technically, it’s never a bad time to invest. In fact, the idea of buying an asset that is likely to appreciate over time — or provide you with reliable income — is always a good idea. While it can be tempting to wait until a “better time,” the reality is that most good investments, including investing in stocks, generally go up over time. Even if it feels like you’re getting in at the current market top, there’s a good chance that in a decade or two, the market will be even higher.
For many people, the best time to invest is now. Getting started can be a good way to begin a journey to grow your wealth for the future. Becoming an investor is one of the best paths to long-term financial security.
Tips for How to Become an Investor
If you want to get started as an investor, there are a few things you can do to begin.
- Start small. You don’t need a lot of money to invest. You can start small. In fact, there are platforms like Acorns and Stash that allow you to invest with as little as $5.
- Begin investing today. Don’t wait to invest. Set up automatic investments and begin investing now. You’ll be in a much better place over time. The earlier you start, the more time you have to take advantage of compounding returns.
- Increase your investments over time. Even though you start small, you can increase your investment amount over time. Make it a priority to increase the amount you invest.
- Start with funds. One of the easiest ways to get started is to use index mutual funds or index ETFs. These funds can help you take advantage of a wide swath of the market easily, without the need to pick stocks.
- Branch out when you’re comfortable. As you get comfortable with investing and growing your portfolio, you can do your research and branch out to individual stocks or other assets. Don’t try to do everything at once.
- Be consistent. Finally, be consistent in your efforts. Whether you start with your retirement plan or some other account, consistently contribute to it.
Investing Doesn’t Have to Be Complicated
Becoming an investor isn’t a big secret. Just about anyone can do it, especially if you start small. Educate yourself and try to find out everything you can about investing. It might seem complicated and overwhelming, but it’s not as scary as it looks. Take the time to start investing, and over time you’ll build a portfolio that can help you meet your goal of financial independence.