Investing for the first time? While dishing out a large sum of money with your first investment may feel risky (and certainly involves some level of risk), rest assured that, contrary to popular belief, investing is not like gambling. In fact, the earlier you get started investing, the more money you’ll save for your financial future.
Research suggests that investing generally sees annual returns of about eight to 10 percent, which means that, if you invest $1,000, you’re likely to see that number climb due to market upswings and compounded interest over time. This is especially true if you diversify your portfolio to mitigate risk, minimize potential losses and maximize gains through inevitable market volatility.
Don’t believe us? Just look at the numbers. Over the last 70 years, stock market prices have risen by 1,100%. So, if you had invested $1,000 in the stock market 70 years ago, you’d be worth over $1 million today. Let that sink in.
Sure, you might see your heart rate go up before you see your $1,000 go up. But perhaps you can find some solace in knowing that, the longer your investment period, the better shot you have at achieving your financial goals.
So, what are you waiting for? Here are some quick tips on investing your first $1,000 right away.
1. Understand your investment goals, and invest accordingly.
First things first ,understanding your investment goals is key to deciding how you should invest your first $1,000. That’s because knowing why and when you’ll need the money you’re investing will help you to understand your tolerance for risk.
If, for example, you’re in your 20s and want to invest for your retirement some day, you’ll have a lot more time and wiggle room to navigate market swings. If you’re investing to buy a house in the short-term, however, you probably don’t want to risk all that much. You want to make sure that your $1,000 only gains so you’ll have enough to purchase your new home in the next few years.
Once you start thinking about your investment goals, you can go ahead and check out some of the best investing strategies for beginners.
2. Diversify your portfolio.
Whatever investment strategy you choose, diversification is key. It refers to spreading your investments around in various types of assets to cover various bases. Doing so also limits your exposure to any one type of asset, which can help to reduce the volatility of your portfolio over time. So, if some of your holdings lose money (which is probable because the market swings), other investments can help to offset the decline.
Basically: Portfolio diversification boils down to not putting all your eggs in one basket. And several studies support that, on average, well-diversified portfolios generate more reliable returns than non-diversified portfolios over 25+ years.
3. Reach out for professional help.
Don’t be afraid to ask for help. Investing can be confusing. In fact, research shows that about 61 percent of adults admit to finding investing “scary or intimidating.” Most people don’t feel knowledgeable enough to do it on their own, according to other studies. As a result, many people struggle with anxiety about their financial futures, research reports.
Financial advisors and robo-advisors exist to help you make smarter investment decisions with your first $1,000 (and then some!).
For example, Q.ai makes investing simple by doing the legwork for you. Our pocket-sized hedge fund will assess your risk tolerance, recommend a portfolio (which we call an investment kit) and use AI and machine learning to auto-rebalance it with changing market conditions. So you never have to lift a finger and, yet, you can still invest like a Wall Street professional.