Investing 101: A Guide for New Investors

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If you’re new to investing, its concepts and terminology can be intimidating at first. However, grasping some fundamental principles helps lay a solid foundation for investment success. Use this Investing 101 guide to understand key factors as you start your investing journey.

Assess Your Goals and Time Horizon

First, determine what you want to achieve and when. This will guide what assets you invest in. Goals could include saving for retirement 30 years away or a house down payment 5 years away. Your time horizon is a key driver of investment choices.

Understand Risk vs. Return

All investments involve a tradeoff between risk and return. The higher the potential return, the higher the risk of losses. New investors should aim for a balanced approach instead of reaching for the highest possible returns. Don’t take on more risk than needed to achieve your goals.

Diversify Your Investments

Don’t put all your investment eggs in one basket. Spreading money across different assets classes (stocks, bonds), sectors, markets and geographic regions helps minimize overall risk. Losses in one area may be offset by gains in another area.

Start Early and Invest Regularly

Don’t delay investing. Time in the market is more important than timing the market. Steady investing early allows compounding to work its magic. Regular, disciplined investing is better than sporadically trying to time purchases.

Keep Investment Costs Low

Fees, commissions and expenses reduce investor returns. Use no-load mutual funds or low-cost ETFs instead of funds with sales charges and high expense ratios. Fee compression over decades really boosts net gains.

Reinvest All Earnings

Successful investors don’t spend their investment income. They prefer to reinvest all dividends, interest payments and capital gains to compound returns. Even small gains can grow substantially over years of reinvesting.

With a handle on these core concepts, you can make informed investment decisions as a beginner. Take time to assess your goals, understand risk, diversify your holdings, start early, keep costs down, and reinvest all earnings.

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