Novices often have no idea where to begin – they understand their money will serve them better in the short and long term somewhere else besides their mattress, savings or checking accounts, but need some guidance beyond just ‘open an account with this company’. Unfortunately, veteran investors (or traders or speculators) can give radically different advice, and whatever the person learns first may guide a great many decisions thereafter.
Trade Actively: Whether it be day-trading stocks or tackling the options market, a new investor is particularly unequipped to handle the complexities of the turmoil that is the everyday exchange of equities. Even for someone versed in ‘fundamental’ or ‘technical’ analysis knows better than to jump right in and start making trades. But more importantly: it teaches a poor lesson about investing, implying that to be successful you can shortcut the power of compounding and make money fast.
Pick Stocks: It could be ‘choose dividend-producing winners to make sure you make money’ or ‘go with what you know – select companies you understand and have researched’, but either way, the days of having to pick individual stocks are (thankfully) over. There may be some wise value investors, or folks who can identify hot-shot start-ups before they boom, but for someone just starting out these decisions can cost time but also come at the expense of confidence.
Open a Brokerage Account: While many ETFs and other things available via brokerages are fine investment vehicles, many more are not. It is generally best to begin with something like Vanguard or Fidelity account where the focus is on mutual funds and low-cost Target Date, Target Retirement, equity indexing, bond-fund options are readily available at the core. No need to put excessive tools in the hands of novice, when a simple interface with one of the above will more than suffice.
Some good advice might be: hurry up and wait – investing is not a rush job, and you should learn at least the basics before diving in. For now, a savings account or CD might be a fine place to park funds. Read a few books – no sense in flying blind and learning from your mistakes when you can educate yourself in a hundred pages or less. The New Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get on with Your Life