Financial Literacy Series #10: Top 3 Things You Need to Know as a New Investor

The world of investing can seem intimidating for those who have yet to take the plunge, but it’s more accessible than ever.

Today, 61% of Americans report owning stock, a rise from 56% in 2021, signaling that more realize the value of getting into the market to help create incremental long-term wealth. However, this still leaves over a third of the population on the sidelines.

If you’re part of the latter group, now’s the perfect time to change that. Investing isn’t just for financial experts or the ultra-wealthy — it’s for anyone willing to take the first step. It’s never too late to start; the sooner you do, the more opportunity you’ll have to grow your wealth.

First-time investors: What you need to know

Before diving into the market, it’s important to understand the two main types of investments: equities and fixed income. Knowing the difference can help you build a balanced portfolio.

• Equities – Equities, or stocks, represent ownership in a company. When you invest in equities, you buy a share of a company’s profits — and its risks. Equities vary widely, with some paying dividends (regular profit distributions) and others relying on growth (the stock price increasing). High-growth stocks generally offer higher returns but come with greater risk and volatility, while lower-growth stocks are typically more stable but generally offer smaller returns. The mix of equities in your portfolio largely determines your risk level—which will change over time based on your maturity, the size of your portfolio and your goals.
• Fixed Income – Fixed-income investments involve lending money to companies or governments in exchange for regular interest payments and a commitment to repay the loan. There are two main types: bonds issued by businesses and government bonds/treasuries issued by federal, state or local entities (sometimes with tax advantages). Fixed-income investments are generally safer and have lower risk and volatility, but they also generally provide lower potential returns than equities while generating regular interest payments to the lender. Shifting toward fixed-income investments provides stability and predictable income as you approach retirement.

3 tips for new investors

When starting your investment journey, keeping a few key principles in mind can help set you up for long-term success. Consider these three tips:

1. Leverage your company-sponsored 401(k). One of the easiest and most beneficial ways to begin investing is through your company’s 401(k) plan. Contributions to a 401(k) are made with pre-tax dollars, which means you reduce your taxable income while saving for the future. Additionally, many employers offer a matching contribution — for example, if you contribute $200, your employer might add $100. That’s an immediate 50% return on part of your investment, which is a fantastic deal. Maximize this pre-tax investment option to take full advantage of any employer match. Utilize the resources provided by your company or 401k administrator, as they will normally provide you with easy-to-use tools for investing your money and creating your portfolio based on investment goals and risk tolerance.

2. Understand your investment options. As a new investor, you can buy individual company shares or invest in mutual funds. Mutual funds are pre-built portfolios of stocks or bonds, offering diversification without buying individual assets. For first-time investors, mutual funds are often a likely choice because the fund managers have already selected individual assets and balanced risks with projected returns. It’s a great way to gain exposure to a wide range of assets without needing deep market expertise or the time to make such selections.

3. Invest with facts, not emotion. One of the most important tips for new investors is to avoid making decisions based on emotions or hearsay. It can be tempting to chase “hot tips” or follow a friend’s advice, but do your own research. Look into a company’s history, financial stability and industry. Ask yourself:

• How long has the company been around?
• How has their stock performed in the past?
• Are they profitable?
• Is the company in a regulated or emerging industry?
• What’s the CEO’s track record?
• Who are their key competitors, and how have those companies performed relative to the company you are researching?

Understanding the fundamentals of the companies you’re investing in will help you make informed decisions and avoid unnecessary risks. The above items are easy to research; you don’t have to be a financial expert, and there are many free online resources.

Get into the game

As more Americans jump on the investment bandwagon, it’s clear that investing is no longer just for the wealthy or the financially savvy. If you haven’t started, now is the perfect time to get into the game.

By leveraging simple strategies like maximizing your 401(k), understanding your investment options and doing your research, you can confidently take that first step toward building your financial future. Don’t let fear or uncertainty hold you back — start investing today, and make sure you aren’t missing out on the opportunities that await.