3 Simple Steps for Beginner Investors

Investing does not need to be scary.

Believe me! When I first started, I was damn scared of the stock market. I heard all kind of stories of how people lost all of their money and consequently their lives. Others, call the stock market a gamble and clam it is just like going to the casino.

Well not entirely true but not false either!

Yes, we can lose money and yes we can invest and hope for the best. Well, we are losing money every single day actually. Every liability we have is taking money from us but we don’t really seem to care too much.

The most obvious and most common is a car. Whether we need it or not, that’s not the point. From the moment we buy any car, new or second-hand, we are losing money. And the more we drive it, the worst…

So we are losing 10 to 20% a year and I see no one bragging about it. On the contrary, I am surrounded by people excited about buying new cars. Then you add to the mix, the fuel, the maintenance, and the insurance and you have a pretty nice cake of monthly losses.

So when we think about it, why should we be so scared of losing money?

“ What we are losing by not investing, is the chance to earn some money and possibly missing the chance to be wealthy. “

When I started investing in the stock market, I was not really sure how it worked. Like every retail investor, I was attracted by the possible massive returns compared to my savings account interest rate of 0.1%. Yes, 0.1% is where we are these days.

Such lack of knowledge and a few thousands $ sitting around let to mistakes and as consequence to losses. I already mentioned some of my mistakes here:

As a beginner, we are entitled to mistakes and they will happen sooner or later. What is important is that we take something out of our mistakes and learn a few lessons.

Having that experience in mind, I think I am able to share the 3 steps I would start with as a beginner investor in the stock market.

Step #1: Open an investment account

It might sound easy but not at all. Maybe in some countries, there are easy ways to open an account and most offers are inline. Well not everywhere.

First, you have to read the conditions and make sure you understand it all. Yes as a non-financial person, I had no clue of thousands of terms. So I had to research and ask ‘dumb’ questions to the customer service. It is not interesting to read dozens of pages of the sign-up process but believe me it makes a difference when you start paying those little fees you did not see on the main homepage.

The simple process of choosing a broker, understanding how the money is handled, types of accounts, advantages, and disadvantages, fees, hidden fees and this and that takes hours.

Generally, the banks on which you already have the money are the worst choice. Financial managers are waiting for just another noob with some money to get in through the door to sell us their safe and profitable funds. Usually, they do not mention with such a smile, the maintenance fees, cost of transactions, etc.

So do your homework and try to find the best broker for your case and situation.

Step #2: Automatic Savings Transfer

This one is easy and takes a few minutes. Everyone should have an idea of their monthly budget, have some room for unexpected expenses and be able to quantify how much can they save.

I will not repeat my self again about the importance of budgeting and setting up goals, but if you want to know what I do save a good percentage of my income check here:

A small tip would be to start with a realistic amount that you are sure to save every month. If it is $50 so be it.

Start small to finish big!

Another key aspect is to plan the transfer just after your pay-day. This will avoid that you finish the month without any money left to save.

Step #3: Buy a Market ETF

This right away is a form of risk management. A market ETF gives you the diversification that is given by an Index. Several companies in diverse sectors.

Look for a low-cost ETF that will not take a significant portion of your potential returns. Usually, Vanguard or Blackrock provide nice and cheap options to start with and that do not require minimum deposits or transactions.

Depending on the broker you are using, you might have an add-on service of a robot advisor. In some cases, the software will automatically diversify over a set of ETFs. Remember step 1 and check all the costs associated with this service.

The fact that you are buying a market ETF is to avoid stock picking at the start. As much as you like Apple or Amazon, I do not advise to start buying individual stocks. You are not ready to deal with the volatility and the initial factor that you have a form of an emotional relationship with these companies make it in most of the cases a bad investment. In case of a drop in the share price, you will be more tempted to sell.

There is a lot to learn and as much as we would like to, we are not able to run a marathon from one day to the other. We need preparation, knowledge, and experience. As a beginner, we have none of that.

To be a successful investor, we need time. I do like a quote from Warren Buffet that states:

“ Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant. “

If you like my content, please check my other stories:

Disclaimer: I am not a financial advisor. Always do your own research when investing.