Now that you’re ready to take the plunge in your first shares of stock or mutual funds, you may not know exactly where to begin. There are some basics to take into consideration as you plunk your first dollars down in investments.

The Importance of Diversification

Nearly all resources for beginning investors are adamant in expressing the importance of diversification. In a nutshell, diversification involves spreading risk across different types of investments and/or asset classes. Since certain industries and their corresponding stocks, domestic, and foreign markets improve and decline at different times, diversification allows you to take advantage of increases in one area to balance any losses in another area. In this way, your rate of return is stable on average.

There are numerous strategies for diversifying investment funds across asset classes. For examples, please see “Diversification Strategies”.

…And Rebalancing

There are also times when one asset class or investment will make trememdous gains, while others flunctuate in their normal patterns. It is suggested that all invested funds be rebalanced to meet planned diversification levels. Failing to do so will take away any advantages of diversification, as a greater proportion of your total investment funds are allocated to one asset class.

How Much Will You Need?

You will not need nearly as much money as you think to get started in investments. For instance, many mutual fund companies allow consumers to buy into a fund with as little as $50, and some securities brokers charge as little as $4 in fees. With just $50 to $100 dollars per month, you will be able to purchase shares of mutual funds or stocks that can give you a great rate of return.

Fees for investments can be costly. If you are starting with limited funds, it is important that you take this into consideration, as higher fees can eat away at the dividends you may earn through your investments. There are a few non-profit mutual fund firms whose fees are lower than for-profit firms; provided they accept lower starting capital amounts, they may be an option for newer investors.

Where to Start

There are numerous routes you can take to starting investments. Meredith Picray, a young investor, offers some options for people with little experience and just a few hundred dollars to start. Some mutual funds have lower starting investment costs, though they may not be as well-established as some funds that require larger minimum investments

Additionally, if you are employed by a company that offers such, you can obtain stock in your company, or start a 401k plan in which you and your employer make contributions that you can use for investments. If you start a retirement account like an IRA, Picray also suggests making direct deposits of your income in the account. In this way, you’ll be able to fund your investments, and not allow funds to be spent elsewhere. For further information on opening an IRA, 401K, or other long-term savings account to fund investments, see the budgeting-help.com articles on “Savings for (Any)Day”.

Keep in mind that no investments are insured are guaranteed, and there are no strategies that will always ensure returns on investment. Additionally, everyone has a certain level of risk tolerance that will affect their decision making. If you are unsure, you can talk to investment professionals for advice on your investment goals.

References

www.coolinvesting.com. Why invest?

Erin Burnt. A Beginning Investor’s Best Friend

Meredith Picray. How To Start Investing With Just $100