How to Invest Money: A Guide for First-Time Investors

How-to-nvest-Money-A-Guide-for-First-Time-Investors

Curious about how to invest money, but don’t know where to get started? This guide offers clear-cut ideas for how to invest for the first time.

Just about everyone knows that you should be investing. I mean, investments are a good and responsible thing, right? But few actually understand what investments are or how to get started as an investor.

This is a shame, because I think people would enjoy better financial health if they took the time to understand different styles of investing and their benefits.

What Is an Investment?

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You definitely know the word investment, but do you know what it actually means?

Ironically, the word investment has become kind of misunderstood because the word is so overused. People might refer to “investing” in a sofa, for instance.

The easiest way to define it is that an investment is a situation where you give a person or an entity some of your money in exchange for potential profits. Potential is the key here: profits are not guaranteed.

Investments come in different shapes and sizes. Here are some key types of investments:

  • Entrepreneurial/business investments: If you start or put money into a business, this is an investment. Being an entrepreneur is no joke, as I can tell you from past experience. It takes a ton of effort, and sometimes it can take a long time to reap the returns, if any.

However, when you do see opportunities that others don’t and add a service or product to the market that has an impact, it can pay off big time. Just ask the founders of little businesses like Amazon or Netflix.  

  • Real estate investments: In general, real estate as an investment isn’t the house you live in. It’s a home or apartment that you purchase and rent out for income, or flipping houses by repairing and then reselling them.
  • Object, art, or collectible investments: The rare baseball card from the World Series. An original Andy Warhol. Gold or jewelry from Tiffany. These are examples of items that you might buy and hope to resell at a later date for a profit.
  • Stocks: This is my bread and butter and the primary type of investment we’ll talk about in this post. A stock is a certificate denoting your ownership in a company. When you buy shares of a stock, you have certain rights to that company’s value.

Stocks have a value that is dictated by supply and demand in the market. This is tied to news, company developments, and other factors that cause demand in the stock. If there’s high demand, the price per share goes up, and your profit potential increases.

  • Bonds: When you invest in shares of a company via stocks, it is equity. Bonds, on the other hand, focus on debt. Basically, a company will issue the bond in hopes of raising money. In return for that, they agree to pay a specified amount of interest back to anyone who becomes an investor.  Bonds typically aren’t a high or quick return investment. However, they are fairly reliable and tend to be low in risk, though high-risk bonds do exist.
  • Cash and cash-equivalent investments: This category of investment includes checks received that have not been deposited, checking accounts, and money market accounts.

Where Should I Invest Money to Get Good Returns?

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That’s the universal question, isn’t it? Figuring out how to identify the best investment to reach your goals can be intimidating, and there isn’t a clear-cut answer.

The good news is that none of the aforementioned investment types are generally considered bad ideas. But in terms of delivering “good” returns, that depends on your individual constitution, goals, and risk tolerance.  

Plenty of people will start with lower-risk investments. While the returns are lower, they’re also a lot less scary.

However, if you’re like me, you don’t like waiting, and you don’t like small returns. When I started as a trader, I didn’t have a huge account — and most of my students don’t, either. So for me, the best method of investing has proven to be investing in the stock market, particularly in penny stocks.

The risk level is higher, but so are the potential returns. This is why low-priced stocks are what I focus on in my career and in my teachings.

How to Invest Money to Make Money for the Very First Time

If you’re interested in learning how to invest money in the stock market but are a total newbie, it can be a scary prospect. But take a deep breath and keep calm, because getting started as a trader is actually pretty easy.

Day Trading: How To Invest Money and Make Money?

Before I delve into the deets, let’s get clear on what day trading actually is and how to invest money in it, since there’s some confusion on the subject.

In day trading, you hold your positions for only a very short period of time. It could be minutes or hours, but it won’t be more than a day. Hence the name day trading.

Another related style of trading is swing trading. In swing trading, you hold on to your position longer, it might be a few days or even several months.

My students and I usually do both, depending on what the market dictates based on fundamental research and examining the stock’s chart patterns.

Getting started as a day trader is very simple. All you need is a computer, an internet connection, and a brokerage account. Even if you have a small account, brokers like TD Ameritrade and E-Trade allow you to get started with amounts of even $500 or less.

So, getting started is the easy part. But making money? That part is a little harder and slower to come by. Two things will help you in particular: education and time to gain experience.

Scale Up After Fine-Tuning Your Strategy

A lot of people want to hear that if you follow X,Y, and Z steps you’ll become a rich and successful day trader. But I can’t tell you that, and I won’t.

It’s a simple fact: You need to learn the rules first. As an aspiring trader, this means obtaining a strong core education in the stock market and the mechanics of trading.

For many traders, the next progression in their education and the stepping stone between learning and practicing is paper trading. This is a virtual mode of trading that can help you test out your knowledge and get the feel for the logistics of trading.

Of course, I don’t advocate sticking with paper trading for too long, lest it become a crutch. At a certain point, you need to fly on your own.

My best advice for building up your skills as a trader? Take small positions, and keep track of your progress in a trading journal. As you begin to get a feel for it and see what’s working, then scale up by taking larger positions.

Penny Stocks

How to Invest Money Penny Stocks
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As you probably already know, I’m a big believer in the money-making potential of trading penny stocks.

Penny stocks, in particular, are a great and accessible sector for new traders, since they are stocks trading under $5 dollars a share.

I believe that penny stocks offer the best risk-reward ratio of any type of investment. Of course, that risk part is key. There’s plenty of risk involved with penny stocks, which makes it even more important to be diligent about research.

Trading penny stocks is different from buying stocks in large- or mega-cap companies. You won’t hold a position for long.

Rather, it’s about riding the waves of the price fluctuations. You’re not buying into the company, you’re surfing the waves and benefiting from being able to identify patterns and trends.

I have personally seen $5,000 turn into $10,000 or even $20,000** within weeks. Without leverage, I don’t know any other investment option that offers so much potential with so little time.  

Best of all, trading stocks is not complicated. They’re accessible to you as a new investor, provided you take the time to learn the rules of the market.

Cryptocurrencies

You’ve probably at least heard of Bitcoin, but are you clear on what cryptocurrencies actually are?

A cryptocurrency is a digital currency using encryption techniques as a regulatory method. This permits the creation of units and verified transfers that can run without a central bank.

Cryptocurrencies offer a few opportunities for investment. Some people will simply buy and sell them, hoping to gain profits by following the simple stock market mantra of buy low, sell high.

Another way to invest is by seeking out an ICO (Initial Coin Offering). An ICO is kind of like a cryptocurrency crowdfunding campaign.

In an ICO, the venture is trying to raise money, so they set up a campaign for investors to get involved. As an investor, you’re hoping to buy into the cryptocurrency before it hits big. This way, you can profit.

Commodities

The commodities market could be used to describe either a physical or virtual spot for selling, buying, or trading raw products. There are two types of commodities: soft and hard commodities.

  • Soft commodities: This means perishable or living commodities such as agricultural products (corn, soy, etc) or livestock.
  • Hard commodities: This means natural elements or materials, such as gold, silver, or oil.

How can you invest in commodities? You can purchase stocks in companies specializing in the commodities. You can also purchase ETFs, index funds, or mutual funds with a focus on commodities producers.

The key reason why commodities are considered risky is that commodities are traded in futures contracts (see below) and they are highly leveraged.

Futures

Stock futures investing are different from traditional stocks in that they are investments that will take place in the future (whoa). Basically, you agree to pay a certain price for a stock, be it to buy or sell, and you put an expiration date on it.

You have to execute the trade at some point before the expiration date; there’s no getting out of it. Yep, that can be scary, but it can also work out beneficially for you if you read the charts and make an educated guess about what the stock’s price will do in the future.

Options

Options are a type of derivative (a type of financial security that is valued based on either a single or a group of underlying assets). Some examples of these underlying assets include bonds, commodities, currencies, stocks, and market indexes.

This is because their price is contingent on the price of an underlying asset. However, it’s the type of asset that defines it as an option.

Options are basically contracts that give buyers an “in” to purchase or sell an underlying asset at an agreed-upon price, either on or before a specified date. But while they have permission to do so, they don’t necessarily have an obligation to do so.

This is why they’re called “options”; because once the time has come, the buyer has the ability to make a choice. The benefits of options include flexibility, limited risk, speculation, and hedging.

You can read more about trading options trading in this post.

Long-Term Investments

In it for the long haul? That’s not my approach, but I understand that everyone is different.

Long-term investments are desirable if you have patience and time to wait. They are expected to pay off over years, not months or days.

An example of a long-term investment in the stock market would be investing in a large-cap company stock that you hope will deliver slow-yet-reliable returns.

To determine if long-term investing is for you, it’s important to consider what your investing goals are. If you’re looking to save for retirement or for the future, they can be a great way to set and forget. It’s not the type of investment you want if you’re trying to earn cash for a blowout vacation in three months or to buy a house in a year.

Mutual Funds

A mutual fund is a long-term investment option that deserves its own explanation.

According to Investopedia, a mutual fund is “an investment vehicle made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets.”

Mutual funds are operated by a manager who allocates the funds; you’re counting on their expertise to create a balanced portfolio that maximizes gains. They usually have objectives that are detailed in a prospectus.  

A nice thing about a mutual fund is that it has some built-in diversity. However, one of the bad things is that it’s slow to return and can require a bigger buy-in.

Key Tips on The Best Way to Invest Money Short Term for Newbies

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Now that you’ve gotten the scoop on long and short investment styles, what’s it gonna be? If you want to go short term like me, here is my thought process:

My Preferred Investment Strategy

Penny stocks are where I’ve focused most of my career. I take advantage of the volatility of the penny stocks by making short-term investments. I have made profits through trading, swing trading, and plenty of short selling.

But I’m not necessary married to one type of position. I’m married to finding profits, and am willing to follow what my market research tells me will yield the best results.

My preferred investment strategy? Identifying market patterns and using them to make educated guesses about the best times to invest. I’m not necessarily looking for companies that I believe in. Rather, I am trying to identify trends and take advantage of the fluctuations.

Control Your Mind

How can you get in the right mindset to invest? Here are some tips:

  • Don’t expect things to happen overnight. This is particularly true with long-term investments, for obvious reasons. But even relatively short-term investment strategies like day trading take time because you need to overcome a learning curve and learn what you’re doing.
  • Think in the long term. Yep, even if you’re day trading. Investments can ebb and flow. For instance, a mutual fund might go up and down on a daily basis. You don’t need to get lost in the minutiae of it, but rather, look at your progress in the long term. If it goes up and down from month to month but is gaining profits overall for the year, that’s a good thing.
  • Consider your goals. It’s important to consider your goals before you start investing. This can help you choose the investment types that are best aligned with your desires.
  • Understand your options. Knowledge is power, and this is especially true in investing. Knowing what options are best suited to your needs and understanding how they work will make you a more informed investor.

It’s Not Easy to Make Money

You didn’t like reading that headline, did you? Few people do, but this is an important topic to address because it will help you respect the hard work and risk that is part and parcel with investing.

Investing Involves Risk

I truly believe that a big part of why I have been able to gain success as a trader is that I have a healthy respect for the risk involved in the process.

I’m very motivated to keep losses small. Many of my Trading Challenge Students might even accuse me of cutting losses too quickly or taking too few profits, but I’d rather be safe than sorry.

After all, a stock that you think is a sure thing can take a nosedive in minutes. A surefire short sell could bottom out in moments.

The bottom line is that in spite of your best efforts, there’s no amount of studying that will prepare you for everything. However, you can take certain safety measures.

For instance, it’s good to never risk too much of your portfolio in a single play (the percentage will be different for every trader; stick with what makes you comfortable and don’t exceed it).

The position you take should also never be too big to affect the price action of the stock.

Also, always look for good liquidity. A stock should have at least a few hundred thousand shares traded daily. A good amount of volume is an important indicator that can help you determine that you can get in and out of your position easily.

Invest in Your Education

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It’s understandable. People don’t want to spend money to become day traders. They want to earn money, right? So it may seem backward to invest in day trading classes. However, it’s important to look at the big picture here, as the cost of a lack of education is often infinitely greater than that of a proper education.

Still on the fence? Consider this: Many of my students started out believing they didn’t need day trading classes, either. But then they got into the market and started losing money. For many, this was the realization that made them see the value in the classes.

In a delayed fashion, they realized it was a worthwhile investment. What about you? Are you willing to invest in your knowledge now, and prevent potential losses in the future?

Join My Trading Challenge

As a budding day trader, day trading classes can offer many benefits, often including a much quicker learning curve. My Trading Challenge offers ease and flexibility with online lessons that can be tailored to your schedule.

The Bottom Line

As a brand-new investor, it can be difficult to know how to invest money and where to get started. There are many directions you can go, and none of them are right or wrong — it’s about finding what works for you.

By educating yourself about how to invest money and the many investment options available to you and choosing the ones most aligned with your personal goals, you’ll be taking a powerful first step on your investment journey.

What types of investments interest you the most?

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