5 Beginner Investing Tips for a Healthy Headspace
Lousy with numbers? Bad with money? That's OK. By adopting the right mentality, you can learn not only how to invest, but how to do so effectively.
When you're just starting out on your investing journey, sure, it helps to be pointed toward great stocks or funds to build a portfolio. But the most valuable investing tips – those that you'll use for decades – are those that focus on the most important aspect of investing:
Your mind.
Hokey as that might sound, it's true. But it doesn't mean that investing is only for people who "have a head for numbers," while those who aren't as mathematically inclined are destined to be poor money managers. In fact, buying into those labels can be disastrous, leading some people to overconfidence and dissuading others from ever investing in the first place.
Forget the labels, says Sallie Krawcheck, CEO of Ellevest, a digital financial advisor for women. Just be you. If you do that, and adapt a healthy mindset, you too can be an effective investor.
But how, exactly, do you get into a healthy mental space for investing? That's what we'll explore today. Read on as several financial experts provide some of the best investing tips to get any beginner – and any seasoned pro, for that matter – in a better state of mind to build their wealth.
1. Use Visualization to Make Long-Term Investing Goals Feel Immediate
One of investing's biggest mental challenges is that it's a long-term endeavor. (Or at least, for most, it should be.) You won't become a millionaire overnight, but if you keep at it for the next few decades, you just might be.
The problem? The human brain really doesn't like to wait for a treat.
"Our brains are wired to make decisions that move us towards pleasure or away from pain in the present," says Michael Savino, chief of staff at personal finance app M1 Finance. "We're more inclined to buy concert tickets or replace an uncomfortable desk chair than think about our investments or retirement accounts."
So one of the best investing tips for beginners is to rewire your brain to focus on long-term goals – which Savino suggests doing through visualization.
"Imagining the first bite of food on your trip to Spain, or how the sand will feel on your feet outside of your dream beach house can help make the goals feel real," he says. "This allows us to prioritize our long-term goals and make decisions that we'll thank ourselves for down the road."
For some, this might be as simple as creating a mental image of your big vacation or your children going to college. Others might want to create a vision board for a more tangible reminder.
2. Make Financial Well-Being Part of Your Overall Well-Being
Savino also suggests prioritizing your financial well-being by thinking of it as an integral part of your overall well-being. Savino thinks of financial well-being using a model similar to Maslow's Hierarchy of Needs.
"This pyramid of financial well-being ranges from your financial survival to financial freedom," he says. "It spans from barely providing yourself with basic needs to having all the resources to do what you want in life."
Investing is the best way to climb this pyramid.
Before you start investing, think about what financial freedom means to you. "This could range from the ability to absorb an unexpected cost, like a home or car repair, to taking a spontaneous vacation with your family," Savino says. "Think of your investments not just as a safety net, but as a way to provide comfort and happiness."
3. Create a Financial Roadmap
Some compare investing to a road trip. It's a journey from where you are today to where you want to be in the future, be that five, 10 or 50 years from now.
But before you set out on any journey, you typically get directions. One of the best investing tips for beginners, then, is that investing should be no different.
A financial roadmap can help you determine how you should invest to reach your destination, says Aditi Gokhale, president of Investment Products and Services at Northwestern Mutual.
Start by plotting out each of your financial goals. Do you want to buy a car in a year? Do you want to take a European vacation in five years? When do you plan on retiring? For every goal, you should have a timeline of when you want to reach the goal, and a rough estimate of how much the goal will cost.
Next, consider your risk tolerance. This is how much volatility (the market's upswings and downswings) you can stomach. Think of your risk tolerance as your speed limits on the road trip. How fast are you willing to drive, and at what risk of getting a flat tire or pulled over? The more aggressively you invest, the higher your chance of long-term gain … but also the higher your chance of a near-term bump in the road.
This is why those who near their financial goals often invest more conservatively; you have plenty of time to adjust if you blow a tire early on in the trip, but hurdles near the end are more likely to throw your plans into disarray.
In general, invest conservatively for goals that are five or fewer years away. However, feel empowered to invest more aggressively for objectives that are much farther down the road.
4. Prepare Yourself to Do Less
Once you're on the road, enjoy the scenery a little bit.
Some investors pick up a misconception that they need to check their investments every day and routinely get involved. But believe it or not, a high level of activity can work against many investors.
Krawcheck compares investing to a soufflé: "If you keep opening the oven, it's going to fall."
If you keep an overly watchful eye over your portfolio, you'll be more likely to trade when you're better off leaving things alone. The 2020 COVID pandemic, for instance, scared some investors into panic-selling – only to see the market recover all of its losses in just a few months and keep climbing from there. But unless those same sellers also aggressively bought back in, they missed out on the recovery.
Krawcheck says the worst time to make an investing decision is when you're feeling strong emotions.
"Prepare yourself to be emotionless about your investments," she says. "If you're feeling excited, you might be making a mistake. If you're feeling unbelievably nervous, you might be making a mistake."
This also holds true when the broader market seems captured by emotions. Remember: This is your trip. People might be whizzing by you in the passing lane – but those same people might be forced to slam on the brakes when an obstacle catches them by surprise, while you can calmly navigate your way through.
5. Remember That Nothing Is Certain
Lastly, let go of any sense of certainty you might have about the future.
When you invest, you have no idea exactly what the future holds.
This might be one of the most difficult investing tips to digest. That's because we have a tendency to view past events as obvious, Krawcheck says. Market participants who were around during the dot-com bubble or the subprime-mortgage crisis remember those times and all of the glaring warning signs. But those signs weren't nearly as clear at the time – which is why so many investors were blindsided by the respective market drops.
Because no one knows what tomorrow might bring, diversify your investments. Diversification means owning a variety of assets that respond to different economic, political and financial stimuli.
For instance, stocks typically do well during periods of economic expansion. But bonds perform better during times of uncertainty, when people are looking for a guaranteed buck. U.S. stocks have long outperformed international equities, but it might pay to have a little position in developed or emerging-market shares in the event the U.S. goes through bouts of underperformance.
