Investing for Beginners: Back to School Edition

Hi Dreamers,

I hope everyone enjoyed the summer as much as I did. The D.R.E.A.M. staff and I took a little break from blogging while everyone was on vacation, traveling, and enjoying the summer fun. But now that September is here, we're back in action! While I was away, I received a lot of emails and questions from people who have never invested before. The number one question I ALWAYS received was, "how do I get started"? Well look no further, this post will answer all of your questions and many more.

I want to wish all students, both young and old, good luck this school year!

It's "back to school" season and that means new books, new pens, seeing old friends, and most importantly learning! (Of course I have to mention those great back-to-school sales. You know how much we love shopping on sale here at D.R.E.A.M., but that's a totally separate topic) As everyone begins to make their way back to the classroom, now is a great time to begin educating yourself on your personal finances as well. Today's lesson is on investing. Like most people, the thought of investing is scary and frankly can seem a little-too-similar to a casino in Vegas. But you are smart enough to know that investing is a great way to save, build wealth, and create that nest egg for retirement. When I first started investing as a teenager, I read all the books on the topic that I could find. But I couldn't find a simple, easy-to-follow guide on how to actually get started.  If you are a novice or young investor, here is a "cheat sheet" to help to get you started:

1. Figure out why you want to invest - What is your goal? A time frame, dollar amount, new home, retirement etc.? Write this goal down and keep it in a visible place. Use images if needed. This is now your "vision board". Having a well-articulated goal will be crucial to the success of your investing. (Simply saying, “I want to be rich” isn’t good enough)

2. Determine how much money you are willing to lose - You must understand that investing comes with risk, the risk of losing all your money! It’s imperative that you assess your risk tolerance and preferences prior to making your first investment because this will ultimately determine what kind assets you invest in. (Example: a low risk preference means you should target investments with low volatility) Without understanding your risk tolerance you run the risk of creating a portfolio that doesn't fit your needs and could possibly keep you up at night worrying. No fun.

3. Educate yourself – Become a student of the market. As I said in the intro, before I started investing I read ALL the books I could get my hands on and I encourage you to do the same. Also, keep abreast of market news, economic numbers, corporate earnings etc. Downloading apps on your smartphone can make this process very easy. (I personally recommend the CNBC and the Yahoo Finance app for smart phones) You want to become knowledgeable about the financial markets BEFORE you start investing. Look up terms you are unfamiliar with utilizing web resources such as investopedia.com. It's your money, so understanding where your money is going should be important to you. P.S.  - Reading this blog post is a good start. (wink)

4. Practice - Before you make your first investment with real money, I advise that you practice just to get a sense of how it feels, emotionally and practically, to invest. Of course practicing doesn't involve real money, but going through the motions can help ease the transition into real investing. However, there is no greater thrill, or fear, than putting your own money on the line. Luckily, there are tons of resources to help you get over your market jitters. I recommend Zolio.com.* This premium website (there is a small cost) allows you to trade stocks using real-time pricing. The system tracks your P&L (profit and loss), allows you to maintain an investing journal to record and later review your thought processes behind each trade, and the site even provides a psychological assessment of your investing performance after a ten month span. Pretty cool, huh? 

5. Find a Brokerage Firm - Research and identify a brokerage firm that fits your needs. Fidelity, Etrade, Charles Schwabb, and ING Sharebuilder are very popular online options.  Make sure to take note of transaction fees, account minimums, investments offered (or not offered), customer service, and available research. 

Whether you want to be a passive investor or an aggressive day trader living out your Wall St. dreams (we don't advise this, day trading isn't very profitable in the long run due to transaction costs and taxes) following these basic steps will you usher you smoothly into the new world of investing. For more tips on investing continue to check out our blog! 

*Zolio.com is a recognized partner of D.R.E.A.M. (Developing Responsible Economically Advanced Model-Citizens) The organization derives no financial gain based on users of the site.

About the Author:  Femi Faoye is the Co-Founder and Chief Executive Officer of D.R.E.A.M. He’s a staunch and passionate financial literacy education advocate.  

Disclaimer:

Notwithstanding any language to the contrary, the views expressed in this post reflect those of the author and are solely theirs and do not reflect the views of Developing Responsible Economically Advanced Model-Citizens, Incorporated or any affiliates. Opinions are based upon information the author deems reliable but Developing Responsible Economically Advanced Model-Citizens, Incorporated does not warrant its completeness or accuracy and should not be relied upon as such. Neither the author nor Developing Responsible Economically Advanced Model-Citizens, Incorporated guarantees any specific outcome or profit from recommendations presented and you should be aware that losses may occur following any strategy or investment discussed. This material does not take into account your particular investment objectives, financial situation or needs. Before acting on information in this post you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser. 

The contents of this post cannot be redistributed without the explicit written consent of the author and Developing Responsible Economically Advanced Model-Citizens, Inc. All images in this post owned by Developing Responsible Economically Advanced Model-Citizens, Inc. may not be used in any advertising, publicity, or otherwise to indicate members' sponsorship or affiliation with any product or service without the prior express written consent of Developing Responsible Economically Advanced Model-Citizens, Inc. All other images presented not owned by Developing Responsible Economically Advanced Model-Citizens, Inc. are the property of the author, respective company, or photographer. The rights to the images and likeness represented are under explicit ownership of the person(s) aforementioned.