3 Beginner Investing Tips You Ought To Know

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Use these 3 beginner investing tips to get your money working hard for you instead of you having to work hard for your money.

Exchanging time for money is how most of us generate our income. However, there are better ways of making money. By investing some of your hard earned money, you can get your money to begin making an income for you.

How you use that income is up to you. You may want to let it accumulate until you reach retirement age and then live off of the income that the money you saved is generating for you. Or maybe you want to get some investment income going to supplement your wage. You could use this income to work less hours or to have more disposable money.

Whatever your goals are, these 3 beginner investing tips should get you on the way to reaching them.

BEGINNER INVESTING TIP #1
Know What Your Goals Are

You need to know what your investment goals are in order to figure out what you need to do to get there. Let's say you want to retire at age 60 with the same standard of living you enjoy now. How much should you be investing now in order to reach that goal?

There are lots of tools available to help you figure out what you need to do. For starters you can give our retirement calculator a try.

BEGINNER INVESTING TIP #2
Invest In The Market To Reach Long Term Goals

Guaranteed investments like GIC's and savings bonds are great for short term investment goals, but to reach longer term goals you need better rates of return. Guaranteed investments usually give you returns of about 2% to 5% at best. But if you've got some time before you need to cash in your investments, the best place to put your money is in the markets.

When investing in the markets, remember to think long-term. Sure the DOW or the TSX may have recently had a bad year or two, but if you average out their returns over the last 25 years or so, they've been about 9-10%. Returns like that will have your investments growing much faster than those guaranteed investments.

When shopping for an investment, always ask to see the historical returns for the last 5 years, 10 years, and since the fund or index was started. While historical returns can't guarantee future results, they are a pretty good indicator of what to expect. At the very least, the investment you're selecting should have matched or outperformed the DOW or TSX stock indexes.

To illustrate the difference that better returns can make over time – consider the following example. A one time, $10,000 investment at a 3% rate of return vs. a 9% rate of return. After 25 years:
With a 3% return you would have about $26,000.
With a 9% return, you would have about $86,000.

BEGINNER INVESTING TIP #3
Time Is Very Valuable When It Comes To Investing

The earlier you start investing, the more money you can make. Here are 2 scenarios to help illustrate just how valuable time is to reaching your investment goals. Both scenarios assume a 10% rate of return that is compounded yearly.

Scenario 1 – At age 30 you start investing $100 per month until you reach the age of 65. At that point you will have about $345,000 in investments. In total you put $42,000 into your investments over 35 years. The other $303,000 is from the growth of your money over time.

Scenario 2 - At age 20 you start investing $100 per month until you reach the age of 65. At that point you will have about $916,000 in savings. In total you put $54,000 into investments over 45 years. The other $862,000 is from the growth of your money over time.

An extra 10 years can go a long way to helping you reach your investment goals. In the above examples, it made a $571,000 difference!

CONCLUSION

I hope these beginner investing tips have been enlightening. Get yourself moving toward your goals by implementing them today.

For more information on investing, check out our most popular articles listed in the box below. Otherwise you can check out our complete list of investing articles here.

For a great book about investing and reaching your financial goals, check out The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich. This book lays out a very simple to follow plan for achieving your investing goals.