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  1. Blog
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  3. Last updated August 25, 2023

A Quick Beginner’s Guide to Investing for the First Time

Join us on this money safari we call life

Cartoon woman with investing goggles
Image courtesy of Mirifada

This article is part of InHerSight's Working During Coronavirus series. As the coronavirus pandemic continues, find helpful advice here on working remotely, job hunting remotely, dealing with anxiety and stress, and staying safe at work if you have to be on-site.

For one reason or another, most women don’t invest. Some find it intimidating, something reserved only for financial pros, but we’re here to tell you it’s actually pretty easy to get the hang of. And the common misconception that investing should be a “man’s world” is just that—a misconception. Investing generates long-term wealth, and we consider it to be an essential money-making tool for working women.

The average woman has 71 percent of her money in cash or savings, but cash doesn’t earn a return, and savings only generate minimal interest. If you invest in stocks, you can easily gain an average annual 8 or 9 percent over time, which makes a huge difference in accruing wealth for your future.

Add that to the fact that women are more likely to outlive men while also having earned less than men—cue the gender wage gap —and it’s crucial women grow wealth to both plan for retirement and bridge the financial gap. So how do you start making money on your money?

Investing for the first time: getting started

According to Maurie Backman of private financial and investing advice company The Motley Fool, it’s important to start investing as early as possible, and you can legally start investing at 18 years old. Before you panic, know that about half of Americans don’t start investing until their 30s and 40s, and there are many steps you can take to catch up.

It starts with your paycheck. If you invest in a traditional IRA or 401(k) through your job, you actually get a tax break for making those contributions, so you can use that extra cash to invest in stocks. If you don’t have much leftover each paycheck, that’s okay—start small and work your way up. As your earnings increase or you make changes to your budget, you can start putting more into stocks or into your retirement plan.

Another way you can free up cash is by cutting back on a few non-essentials. Take a look at your budget and find where you have some wiggle room. For example, maybe you dine out three times a month instead of four or maybe you skip that new pair of hiking boots from REI. Whatever it is, it’s worth cutting back a little bit to invest in your future.

Speaking of budgets, consider adding a line item dedicated to investing. Just as you’d allocate, say, $100 to utilities, and $15 to your streaming subscription each month, allocate some money to investing upfront.

Read more:30+ Side-Hustles for Incredibly Busy Women

Finding the right broker to help you invest for the first time

Once you’ve freed up some money to invest, you’ll want to find what Backman calls a “low-cost brokerage account” to start investing small amounts of money. The Motley Fool has a list of recommendations to get you started.

If you don’t know much about researching individual stocks, it pays to learn more at some point, but you can get the ball rolling with index funds, which Backman says “take the guesswork out of investing.” Index funds track existing marketing indexes, like the Dow Jones or S&P 500, so that when the stock market is doing well, so are you.

Backman cautions against assuming that you’ll buy stocks, hold them a few months, and then sell them at a profit. You’re better off putting the time into researching and finding quality stocks or funds to buy and then holding them for a long time. Also, don’t panic and sell your stocks when the market declines. This happens all the time and is a good way to lose money quickly. Take a deep breath, ride things out, and always have emergency savings on hand so that you don’t have to cash out your investments and lose money.

Read more:A Survivor’s Guide to a Recession: 4 Crucial Areas to Focus on Now

Short-term versus long-term options for investing for the first time

Again, short-term investments aren’t ideal, but if you’re looking for something that will hold for a few years, Backman recommends municipal bonds because they pay interest that is tax-exempt. They’re also a great way to generate a little bit of income over a few years, but if you have the time and money, long-term investments are the way to go. These include the index funds we talked about earlier in addition to dividend stocks that can be reinvested over time, which will only add to your wealth.

If nothing else has convinced you to start investing yet, let Backman’s investment success story win you over. “There’s a certain tech stock I bought many years ago for around $75 a share,” she says. “Through the years, it’s gone up, and I’ve been tempted to sell it and cash out my gains. But I decided to hang onto it instead, and it’s now worth close to $1,900 a share. Clearly, I’m a big fan of the‘find quality stocks and hold them long-term’ strategy.”

4 tips for beginning investors 

In summary, start investing early—even if it’s just $20 to $40 a month. Here are Backman’s top-four tips to send you on your way into the world of investing.

1. Start immediately

You can always make excuses to put off investing, so just bite the bullet and dive in.

2. Diversify

Don’t load up on all energy stocks or all health care costs. Build a diverse portfolio so you’re better protected from losses but also gain exposure to more opportunities for gains. Index funds offer instant diversification, which is another reason why they’re a good bet.

3. Expect market downturns, and don’t react to them

The stock market is extremely volatile, but remember, you only lose money investing when you sell investments at a loss. When you see your portfolio value drop, that’s not an actual loss until you sell something.

4. Never invest money you think you’ll need within seven years

The stock market tends to fluctuate a lot, so don’t lock up money in it that you might need in the near future.

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