Investing for Dummies: Where To Start

Jose Hernandez
Head of Education

If you’re an adult, you know there is a lot that you should be doing. That list is a long and comprehensive one including tasks like: exercising, eating healthy, advancing your career, and of course, investing.

If you didn’t go to school for finance or you don’t work in the industry, the thought of investing may give you a great deal of anxiety. That’s very understandable.

Investing doesn’t have to be a chore. In fact, it’s never been easier to be an investor. If you’re feeling like you’re in a position to start building the financial future you desire, that’s great! Treat this article on investing for dummies like a beginner’s guide to building the future you have in mind.

Before we continue, Financial Professional wants to remind you that all materials in this article are educational in nature. This article is not meant to be interpreted as investment advice. Always consider your personal situation – and the help of a licensed financial professional – when making any investment decisions.

Before we continue, Financial Professional wants to remind you that this article is educational in nature. Any securities or firms named are for illustrative purposes only and do not constitute financial advice. Always do your due diligence and consider your situation – and the help of a licensed financial professional – when making investment decisions.

If you don’t yet have industry professionals handling your portfolio, we can help! Check out Financial Professional’s investment marketplace, where we partner with some of the best in the business to help find the right investment for you.

Investing for Dummies: First Thing’s First

At the core of every great investor is a strong foundation of knowledge. This doesn’t mean you have to be Ray Dalio or Warren Buffet when it comes to the markets (although those are good people to study).

What it does mean is, in order to succeed as an investor, you should have a good idea of the basics of the markets and finance. Depending on your learning style, there are plenty of options available for people that are looking to learn the fundamentals of investing.

Here are some subjects you’ll want to get comfortable with:

  • The different asset classes (types of investments)
  • Asset allocation
  • Diversification
  • Active vs Passive Management
  • Market and Economic Cycles
  • Risk and risk capacity
  • The different account types

If you prefer to read, here are a couple of books that will provide you with principles that will serve you for a lifetime in your investing:

  • The Little Book of Common Sense Investing by John Bogle
  • The Intelligent Investor by Benjamin Graham
  • A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton Malkiel.

Prefer not to read? That’s okay! There are plenty of people on the internet that are sharing their knowledge and experience in the subject of investing. Just make sure to do your due diligence and be mindful of who you take advice from.

Whatever route you take to get to a level of comfort with the fundamentals, as long as you get there, that’s all that matters. You won’t be an expert overnight, and you don’t need to be – you just need to be educated. The rest will come with time.

Investing for Dummies: Should I?

While it is very true that you should begin investing as soon as possible, it may be wise to analyze whether or not you’re in a position to start investing in the first place. What goes into this analysis? Here are a couple of things:

  • Income – Are you earning enough to live comfortably?
  • Debt – Do you have enough free cash flow to invest? Is the debt you have manageable?
  • Life Situation – Transition, Divorce, Children, etc.
  • Clarity – Do you know what you’re trying to accomplish with investing?

Everyone’s individual circumstances are different. Your goal should always be to either: get in a position where you can start investing, or get in a position where you can begin investing even more. We’ll cover this in a bit more detail later.

Your Goals

Do you know what you’re actually trying to accomplish with investing? If your answer is “make money,” that’s not going to cut it. You need clearly-defined financial goals.

While the point of investing is to build wealth, here are some great questions to ask yourself when it comes to your specific investing goals:

  • How much wealth do you intend on accumulating?
  • What is the wealth you want to build for?
  • Why do you want to accumulate that amount of wealth?
  • How much time do you have to build that wealth?

If you do not have all of the answers to those questions today, that’s okay!

However, an investor who knows what he or she is trying to accomplish is an educated and disciplined investor. The primary benefit of having financial goals is it provides you with context.

Context is what helps you keep your cool when the market takes a turn and everyone else around you is panicking. Want to avoid panicking? Stay disciplined. Have clearly defined goals and stick to them.

Investing without having the big picture in mind is very dangerous. You are essentially shooting in the dark. Take some time to get clear on what you’re trying to accomplish; it’s well worth the effort.

However, having goals isn’t enough. You have to make sure you keep yourself accountable to your goals. If you’re working with a financial advisor, hopefully they help you. If you are your own advisor, it’s wise to monitor your progress periodically.

Lastly, you should know that your goals will change as your life changes. Therefore, any time a major change happens in your life, it may be a good time to revisit your goals and strategy to make sure they are still in line with your vision.

Investing for Dummies: The Long Game

While many of the top minds disagree on several subjects, there is one that they agree on: investing takes time. As you go about your investing journey, you should be mindful of this at all times.

Why does investing take time? There are a couple of reasons.

The first one is the way compound interest works. Time is the exponential variable in the equation. You need time to really benefit from the effects of compound interest.

The next reason is that you earn a lot of your wealth when the market takes a turn. If you study the fundamentals, you’ll understand that markets and economies work in cycles. While it’s nearly impossible to “time” the cycles, it’s very clear that this is just how economies and markets work.

If you’ve ever heard the saying “you make the most of your money in a bear market”, you are familiar with the concept of “buying the dip” or purchasing assets at a discount. Keep in mind, just because you buy something when it’s down, doesn’t mean it will automatically shoot up.

However, over the long run, these dips in the market prove to be excellent entry points.

Accounts To Consider

Speaking of goals, what accounts should you use to reach them?

The accounts you go with should be the ones that are most suitable for helping you reach your financial goals. You should also be familiar and comfortable with the rules and taxes associated with each type of account.

Are you investing for retirement? Is retirement a long way away for you?

Consider using retirement accounts, regardless of the answer to these questions. The most common are your employer’s 401(k) and Roth/Traditional IRAs. These accounts offer the benefit of tax-deferred growth and may feature other ancillary tax benefits like the deductibility of contributions, in the case of Traditional IRAs, or tax-free withdrawals with Roth IRAs.

Blooom is a robo-advisor that manages 401(k)s and other plans, such as IRAs. They will help you get ready for retirement at your desired level of involvement while at a decent cost and let users customize their accounts on their own or with the help of their advisors.

What if your goals are closer or you want more flexibility with your investing without having to worry about contribution limits or early withdrawal penalties? A standard brokerage account may do the trick for you.

What if you’re saving for your child’s education? A State 529 plan can be a very handy tool.

The point here is this: There are plenty of tools available to you. The key is to pick the ones that you understand, and are in line with what you are trying to accomplish.

Other robo-advisors can help you through this process as well with companies like M1 Finance and Stash. Stash helps people with everything from budgeting to retirement savings. This platform makes it easy for you to invest and achieve your financial goals. While M1 Finance is a robo-advisor that is highly customizable for the user to create their portfolio. This allows the users to be able to invest for long-term targets and figure out what accounts they want to open.

However, there are also some brokers that are not online as well which will also help you figure out what accounts to consider.

Investing for Dummies: Should I Be Picking My Own Investments?

If you’re just getting started with investing, you probably don’t have the level of assets required to work with a full-service financial advisor. Again, that’s okay! If you’re not comfortable with selecting your own investments, there are several options available to you.

The rise of Robo-advisors has given everyday investors the ability to access a low-cost, professionally managed, rebalancing, diversified portfolio. If you DO go the robo-advisor route, make sure you are familiar and comfortable with the following:

  • Costs
  • Planning tools
  • Investing process, philosophy, and research
  • Customer services
  • App functionality

Is there value in selecting your own investments? Sure. But if you’re not the type of person that wants to keep up with the markets, just know, there are options for you. Just make sure you are familiar and comfortable with the tools you are using for delegating the management of your assets.

What Should I be Doing Aside from Investing?

While this article is mainly focused on investing, it’s important to know that there are things you should be doing outside of investing that can actually assist with you with your investing.

One of the best things you can do is eliminate high-interest debt from your personal balance sheet. This is a very organic way of freeing up excess cash flow, which (you guessed it) can be used to invest even more. If you haven’t already, this is also a fantastic time to create a budget and set clear, well-defined goals.

Aside from cleaning up your balance sheet, it would be wise to find ways to increase your income. This may be through the natural progression of your career, or through acquiring cash flow producing assets, like real-estate. Whatever you can do to put yourself to free up cash flow, or generate more income, is almost always advisable.

Take a look at your opportunities within and outside of your career or business. There are plenty out there; you just have to be willing to pursue them.

A Final Word on Investing for Dummies

If there are any themes that you should be getting from this article here are a few:

  • Educate yourself
  • Investing takes time
  • Know what tools are available
  • Know what you are trying to accomplish
  • Put yourself in a position to be able to invest even more

Your investing journey should be viewed as just that – a journey. Even if it starts off slow, the most important thing you can do is start. The more that you can do to educate yourself as an investor, the better.

Investing for beginners (and dummies) may seem intimidating at first. Luckily, simplicity goes a long way, especially when you’re just getting started.

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Jose Hernandez
Jose Rafael Hernandez is known as "@thejoserafaelhernandez" on Instagram. He and his family are immigrants to the United States from Venezuela. The unique challenges that he faced at a young age taught him the real value of money and its importance in life. Jose studied finance at Mercer University, where he also competed in Division 1 Baseball. After his athletic career, Jose began his professional career in the finance industry. He started his career as a wealth management advisor for one of the top Investment Advisory firms in the US, where he was responsible for just north of $20mm in AUM. Jose currently holds the Series 7 and 66 licenses. Jose decided to leave the firm so he could have the freedom to create his brand on social media, geared towards educating millennials in the areas of personal finance and investing. His mission is to leave a positive impact on others while building his own legacy and providing for his family.