How to invest money as a beginner is as simple as mimicking the wealthy.
What we mean by this is that you look at their strategy and adapt it to your financial means and level of investment knowledge. Yes, there are some investment strategies that you should not try to mimic because of risk levels. For instance, when first beginning with an investment you probably will be more comfortable with an index fund.
The key to investing is to constantly educate yourself by watching and following the wealthy’s strategy. One comforting fact, however, is that very few wealthy investors are able to consistently outperform the market average.
Here are five investments the wealthy routinely implement. We outline them and then show you how you might take advantage of these strategies to learn how to invest money yourself.
Wealthy Investors Top 5 Investment Strategies
- Individual Stocks & Startups. The wealthy often invest directly in a business by buying a significant stake in their stock. On occasion, they may also take a majority position in startup companies which has a very high level of risk, but the payoffs can be very lucrative. This type of investment risk has made people millions because they have the ability to absorb a huge loss. You need a high level of risk tolerance and wealth to invest in this manner. • Beginners Tip: Crowdfunding has now made it possible for beginning investors to invest in startup companies. The mitigation of risk lets you get in on the ground floor without putting your neck out. Instead of investing $25 million, you can still get in on the action with a smaller investment amount.
- Hedge funds. Wealthy investors love hedge funds. They look for the reputation and track record of the hedge fund manager. A hedge fund is a mixture of stocks, bonds, derivatives, futures, real estate, and more. Getting into a hedge fund does require you to meet several qualifications. The largest obstacle for beginner investors is having a net worth of at least one million dollars. Hedge funds also charge very high fees, are very risky, but the returns on investment (ROI) can be very high. • Beginners Tip: Don’t fret too much here as the risk is too high for your level of investing expertise. And, individual hedge funds usually fail to outperform the market. Instead, you can follow the investment strategy of the hedge fund manager and invest in similar things, just on a smaller scale. This type of investing requires a lot of expertise.
- Risk Vs. Return On Investment (ROI). Beginner investors have a habit of only looking at the ROI of the investment without considering the level of risk. Wealthy investors (successful investors) are trained to compare the ROI relative to the risk to determine if the risk is worth the potential ROI. • Beginners Tip: Take the time to learn how to assess the risk in a potential investment. This will allow you to determine if the potential return is likely. Some high ROI projections are based on some factors going the investment property’s way. You need to assess for yourself if the possible ROI is worth the risk.
- Land Speculation. These are long-term investments that are difficult to liquidate, whose value can fluctuate wildly, and provide no immediate cash or income stream. If you have the resources, however, an investment in thousands of acres of timberland or property ripe for development can result in a lucrative payday. • Beginners Tip: Land speculation is not for the faint of heart. You have on-going expenses after your initial cash lay. These expenses include taxes, insurance, etc. A better property investment would be to purchase a home or a small multi-unit building. Your return is collecting rent.
- Wealth Manager. The most successful wealthy investors have a professional wealth management advisor. They leave the investment research and recommendations to others. Sometimes, they will give total control to their advisor with guidelines on risk. Why? Many of these high net worth investors are too busy making money to deal with investing it. • Beginners Tip: Financial Planners are available for beginner investors. Edward Jones is an example of licensed financial planners who specialize in where beginners can invest their money. You should still actively educate yourself especially with understanding risk and setting your risk tolerance. There are endless books on investing for beginners and first time investing for beginner books.
Keep saving and investing your money in investment products that you have researched or have been recommended by your licensed Financial Planner. Remember, a wealthy investor does not have a huge advantage over the beginner investor.
You too can follow their investment strategy, albeit on a smaller scale. Some day you too can be wealthy if you learn, measure, and modify your investments as the markets change and evolve.
Get expert advice when you are feeling lost. You will find that how to invest money as a beginner is not much different, other than dollar amounts, then when you are wealthy.