Investing for the first time? It can be nerve-wracking, confusing, and intimidating. Investing requires a basic undertaking of essential financial concepts; enough knowledge and confidence to avoid common investing mistakes; and, an understating of your investment goals.
By the time you're ready to start investing, you should have specific goals in mind. Are you investing for retirement, a major purchase, or to fund a child's education? Forming a concrete vision can help you become more rooted in that goal, and dedicated to making it real through consistent action.
It helps to first empower yourself with some basic investing knowledge. The Securities and Exchange Commission (SEC) has an excellent primer for novice investors which readily explains basic concepts, such as risk, returns, compound interest, and key difference between various types of investments.
Choosing your first investment
When choosing an investment for the first time, many experts suggest sticking with what you know. Are you already knowledgeable about certain companies, industries, or investment types? Perhaps via your employer retirement plan, friends and family, or personal interest and experience? If you do have an expertise, chances are you're likelier to be more comfortable and knowledgeable when making a first investment selection.
If you do not have a specific area of expertise that makes you comfortable about investing — and that would make you like many Americans — investing in broadly diversified funds, including index mutual funds and ETFs, is a good option.
Another key choice? Understand the fees you're paying. Index mutual funds and ETFs tend to offer lower fees than actively managed mutual funds — in the past few years some have eliminated management fees entirely. Paying high fees risks eroding a significant percentage of your earnings. Over time, investment fees can consume thousands of dollars in potential earnings.
Finally, a first investment should be held for at least a year, in order to avoid short-term capital gains taxes. Avoid high turnover or excessive trading early in your investment career; the costs associated with placing multiple trades, plus their tax implications, make it an unwise strategy for novice investors.
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Avoid these 4 common investing mistakes
DON'T: Gamble with money you can't afford to lose. If your emergency fund needs work, or you have high interest debt, you probably can't afford to lose a single dollar.
DON'T: Seek out exotic products. Inverse leveraged funds can seem like a great way to triple your money quickly, but they carry a ton of risk, and let's face it, they can be a bit tricky to manage properly. Do you know what "inverse leveraged" means? Exactly. Stick with investments you understand properly for now.
DON'T: Pay a lot of money for advice or education. Do you really need a $5,000 seminar to learn how to invest your first $1,000? Chances are, you can learn the basics of investing, and do just fine, without shelling out tons of money.
DON'T: Allow yourself to give up if your first investment choice doesn't work out as you'd hoped.
We all learn from our mistakes. If you start small, educate yourself, and stick to the things you understand best, those small mistakes can be the catalyst for the investing successes of tomorrow.
And when you're ready to commit, take the pledge to get invested at CNBC.com/Invested.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.