Investing can be a great step towards financial independence, as well as being fun and exciting, but sometimes, getting started can be a little intimidating. You may think you need a lot of money to get started, but that’s just not the case.
At Nemo.Money, we have put together a thorough guide for beginners that can guide you through everything you need to know about investing, including what exactly investing is, a checklist of what you need to know, some best practices, and tools available.
Beginner investor’s checklist
What is Investing?
Investing is simply putting your money into something with the expectation that it will hopefully grow in value over time, helping you reach your financial goals. For example, you might buy shares in a company, hoping that as the company grows, the value of your shares will increase.
Why Should You Invest?
Investing offers several key advantages over simply saving your money:
- Grow wealth faster than savings alone: While savings accounts offer security, their growth is often minimal. Investing puts your money into assets that have the potential to significantly increase in value over time. It's riskier than saving, but there is potential for high returns.
- Beat inflation: Inflation means your money buys less over time. Investing in assets like stocks can help your money grow at a rate that outpaces inflation, which might even increase your purchasing power.
- Achieve your financial goals: Whether it's saving for a down payment on a house, funding your child's education, or building a comfortable retirement nest egg, investing provides a powerful way to work towards and achieve these larger, long-term financial aspirations.
Types of Investments For Beginners
Stocks: When you buy a stock, you're buying a tiny piece of a company. If the company does well, your piece can become more valuable!
ETFs (Exchange-Traded Funds): Think of an ETF as a basket holding many different stocks or bonds. It's an easy way to own a variety of investments without buying them individually.
Mutual Funds: Similar to ETFs, mutual funds also pool money from many investors to buy a diverse range of assets, often managed by a professional.
Bonds: When you buy a bond, you're essentially lending money to a government or company. They pay you back with interest over time, making them generally less risky than stocks.
Robo-advisors: These are digital platforms that use algorithms to manage your investments for you, based on your goals and risk tolerance. Super easy for getting started!
Crypto (Cryptocurrency): Digital currencies like Bitcoin or Ethereum are exciting but can be very volatile, meaning their value can change a lot very quickly. They're generally considered higher risk.
Understanding Costs & Fees
Just like with anything else, investing comes with certain costs. Being aware of these fees can make a big difference in how much your investments grow over time.
- Trading Fees (or Commissions): These are charges you pay each time you buy or sell an investment, like a stock or an ETF. Think of it as a small fee for making a transaction.
- Management Fees: If you invest in mutual funds or use a robo-advisor, you'll often pay a management fee. This is a percentage of your investment that goes to the professionals managing the fund or your portfolio.
- Expense Ratios: This is a comprehensive annual fee for funds like ETFs and mutual funds, covering everything from management to administrative costs. It's expressed as a percentage of the fund's assets and is automatically deducted from the fund's returns.
Why Low Fees Help Boost Returns
Even small fees can have a surprisingly big impact on your long-term returns. This is due to the power of compounding. When fees are lower, more of your money stays invested, and that money can then earn more returns itself. Over many years, this difference can add up to a significant amount, helping your wealth grow much faster.
How Nemo.Money's Commission-Free Trading Benefits Beginners
At Nemo.Money, we believe investing should be accessible and affordable for everyone. That's why we offer commission-free trading. All of our stocks and ETFs are commission-free, which is a huge advantage as it allows you to:
- Keep more of your money invested: Every penny saved on fees is a penny that can be working harder for you.
- Experiment and learn without high costs: You can start with smaller amounts and make trades as you learn, without worrying about fees eating into your initial investments.
- Build good habits: It encourages you to focus on your investment strategy rather than trying to avoid high transaction costs.
Why Diversification Matters
Diversification is a fancy word for "not putting all your eggs in one basket." It's a key strategy for managing risk in your investment portfolio.
- Spread money across assets to lower risk: Instead of investing all your money in just one stock or one type of investment, you spread it out across several assets. This way, if one investment performs poorly, it won't derail your entire portfolio.
- If one investment dips, others may rise: Different investments often react differently to market conditions. When one part of your portfolio is down, another might be up, helping to smooth out your overall returns.
- ETFs make diversification easy: As we mentioned, ETFs are like pre-made baskets of various investments. They're an excellent and simple way for beginners to achieve instant diversification.
Beginner Investing Mistakes to Avoid
Even with the best intentions, new investors can sometimes fall into common traps. Being aware of these pitfalls can help you avoid them and stay on track with your financial goals.
- Chasing Hot Tips: It's tempting to jump on the bandwagon when you hear about a stock or crypto that's supposedly "guaranteed to soar." This may not always be the case and it could lead to losses. It’s always best to do your own research.
- Checking Portfolio Obsessively: The market has its ups and downs. Constantly checking your portfolio (daily, or even hourly) can lead to unnecessary stress and impulsive decisions. Focus on your long-term goals and remember that short-term fluctuations are normal.
- Not Diversifying: Putting all your money into one or two investments is risky. This is because if those few investments perform poorly, your entire portfolio takes a big hit. It’s best to spread your investments across different assets to reduce risk.
- Panic Selling: When the market takes a dip, it can be scary, and the urge to sell everything to cut your losses might be strong. However, panic selling often locks in losses and prevents you from benefiting when the market recovers. Historically, those who stay invested through downturns often see their portfolios rebound.
How to invest for Beginners
1. Define Your Why 🧐
Why do you want to start investing - are you saving for a particular goal like retirement or buying property? Or are you more interested in learning about the stock market and earning extra income on the side? Dividends paid by stocks are a great way to generate passive income to achieve financial freedom.
Many people choose to invest to pay for their child's education, or to fund a major purchase in their life, like a new car or a down payment for a property.
Tip: Write down your reason why and revisit it when markets get rocky.
2. Set Your Budget 💸
How much money do you want to invest? It’s totally up to you. It’s a common myth when it comes to investing that you need to put lots of money into your investments. Firstly, different investments will have different prices.
With the handy fractional share feature on the Nemo Money trading app, you can buy as big or small a slice of your favourite companies as you want. You should never invest more than you can afford to lose, as returns are never guaranteed. A rule of thumb is to never invest money you’ll need in the next 3–5 years. It’s best to start small, as consistency matters more than the amount.
You can also use the Nemo Money Investment Calculator feature on our app to work out how much money you might make based on a specific investment amount.
3. Educate Yourself 📚
Learn investing basics: Learn what to look for when assessing a stock’s performance, to help you pick the best stocks. Earnings reports are a great way to see how well a company is doing according to key metrics like quarterly revenue and expenses.
Use trusted sources: Try podcasts like the Wall Street Journal’s Your Money Briefing or Invest Like the Best with Patrick O'Shaughnessy. There are also plenty of YouTube channels like The Plain Bagel where you can learn about investing, as well as beginner-friendly books. Investopedia is a helpful resource for beginner investors, offering a stock market simulator and a dictionary.
There’s also the ‘Learn with Nemo’ section on our app, where we have shared short, easy-to-understand videos that give you a super quick intro to investing and the stock market. Our learning hub helps beginner investors learn the basics of investing, in a simple, easy-to-understand way. Our Nemo AI can also answer any questions about investing or the market you might have, if you prefer to learn in an interactive way.
4. Understand Risk vs. Reward ⚖️
Everyone has different levels of ‘risk tolerance’ - deciding what level of risk you are comfortable with will help you decide what types of investments are right for you. Higher risk investments, like particularly volatile stocks that show a lot of movement, can be exciting and can offer higher rewards. But more stable investments, while potentially offering a lower payout, might help protect you from losses. Bear in mind that investing always carries a level of risk.
Think of it like this:
- Low Risk (like a savings account): It's like walking on a flat, paved path. You're unlikely to fall, but you're also not going to climb any mountains or see breathtaking views. Your money is safe, but it grows very slowly.
- Medium Risk (like a diversified ETF): This is like hiking on a well-maintained trail. There might be some uphill sections, and you could trip, but you're generally safe and get to see more interesting scenery. Your money has potential for better growth with manageable ups and downs.
- High Risk (like individual volatile stocks or crypto): This is like rock climbing without ropes. You could reach an amazing peak and see incredible things, but the chance of a serious fall is much higher. Your money has the potential for very fast growth, but also for significant losses.
It's all about finding the right balance for you. By spreading your investments across different assets, you reduce the impact if one particular investment doesn't perform well. It's like having many different ropes while climbing – if one breaks, you still have others to keep you secure.
5. Start With ETFs If You Prefer 🛒
These might be the easiest ways to get involved in investing. ETFs are baskets that track the performance of multiple different companies at once, meaning that your investments are already diversified straight away, spreading out the level of risk you are exposed to. One of the most popular ETFs for beginner investors is the S&P 500, which tracks the performance of the 500 largest US companies.
Another couple of popular ETFs include:
Dow Jones Industrial Average ETF SPDR (DIA): Often called "Diamonds," this ETF tracks the Dow Jones Industrial Average, which consists of 30 large, well-established "blue-chip" U.S. companies. It offers exposure to a selection of influential American industries and can be a good way to invest in some of the most recognized companies in the world.
iShares Semiconductor ETF (SOXX): This ETF gives you exposure to companies involved in the design, manufacturing, and distribution of semiconductors (computer chips). While it focuses on a specific sector, semiconductors are crucial to modern technology, and this ETF allows you to invest in a basket of leading companies in this innovative space. Note: Sector-specific ETFs like this can carry higher risk than broad market ETFs due to their concentrated nature.
Lower Fees
ETFs typically have lower fees compared to actively managed mutual funds. This is because most ETFs are passively managed, meaning they simply aim to track a specific index. They don't have a team of fund managers constantly making buying and selling decisions, which usually comes at a higher cost. Lower fees mean more of your investment stays invested and can grow for you over time.
Automatic Diversification
One of the biggest benefits of ETFs for beginners is that they automatically spread your risk. When you buy shares in an ETF, you're essentially buying a small piece of many different companies or assets all at once. This can be a generally less risky option for those just starting their investing journey.
However, if you want to jump straight into investing in individual stocks, buying stocks in your favourite companies, there’s no reason you can’t do that, especially when you can use fractional shares to make a smaller investment.
6. Choose the Right Trading Platform 📱
There are a whole host of different ways to invest. Different trading platforms will have their own policies and fees might vary. Here are 3 must-have features to look for when choosing your investment platform.
Low or No Fees: High fees, whether trading commissions or management fees, can significantly eat into your returns over time. Look for platforms that offer commission-free trading for investments like stocks and ETFs. With Nemo.Money, you can invest in commission-free stocks and ETFs on our app!
Easy-to-Use Interface: Especially for beginners, a complicated platform can be intimidating and lead to mistakes. A user-friendly interface makes it simpler to navigate, understand your investments, and execute trades with confidence. We’ve made sure our app is super easy to use.
Strong Security: Your money and personal information need to be protected. Ensure the platform is regulated by reputable financial authorities and employs robust security measures like data encryption and segregated client funds. Nemo.Money is regulated by the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA), one of the region's respected financial regulators.
7. Practice Patience 🐢
While you will sometimes see big movements in stock prices in a matter of weeks - or even days! - the most significant profits might be made from longer term investments. Remember, investing is a marathon, not a sprint, the longer you hold a stock for, the more you’ll benefit from the company’s growth! Ideally you want to hold investments for around 5-10 years.
8. Ignore the Noise 🙉
Don’t get thrown off track by every piece of news and every analyst prediction - stick to your guns and your personal investment goals. For instance, just because a stock in an industry you don’t follow is popping today doesn’t mean you need to sell your shares in your favourite company or industry and grab this instead. Equally, if you were planning to hold a stock long term based on predictions that it might grow in value, it might be a shame to sell as soon as you hear the slightest inkling of the price dropping. Remember that it's normal for prices to fluctuate short term.
Tip: Set calendar reminders to review your portfolio instead of reacting daily.
9. Track Your Progress 📊
Periodically check your investments to see what’s working. You can decide how often feels right for you, but many people prefer to review their portfolio on a monthly basis, others quarterly. Of course you can check in on your stocks’ performance more often if you find tracking it closely fun and interesting, but some people find that checking their stocks too often stresses them out, so bear this in mind.
As well as monthly or quarterly reviews, you should check to see if your portfolio needs to be rebalanced. Rebalancing just means giving your portfolio a "check-up" to make sure your investments are still on track with your original plan and how much risk you're comfortable with. It means occasionally tweaking things, like buying and selling assets to bring your portfolio back to its original target allocation. This can help keep your risk in check and can actually help your money grow better over the long run.
10. Keep Learning and Evolving 🌱
Stay curious and keep on learning about the stock market, the industries you’re most interested in, and the investments you have in your portfolio (or might like to add to it one day). You might find that over time your goals and priorities shift, or find that you want to explore other opportunities like CFD trading or crypto. To learn more about investing, try using forums, reading trusted blogs, or financial news to grow your knowledge.
Nemo.Money has plenty of learning opportunities on our trading app, too! Once you’ve learned the basics, why not move on to more advanced topics on the Nemo.Money app?
Final thoughts
Here is one last tip from us at Nemo Money about how to get the most out of investing as a beginner.
It’s always good to diversify your investments, however you choose to do this - whether that’s by handpicking a variety of stocks across different industries and based in different countries, or by investing in an ETF that tracks a number of different stocks’ performance. This means that if one stock is performing poorly, another might be able to pick up the slack. It can’t be said often enough: don’t put all your eggs in one basket!
Being patient, remaining consistent, and staying informed is the best course of action for new investors. Before you begin our investment journey, it's important to do your research and learn as much as you can.
If you’re looking to start your investment journey, download the Nemo.Money app today. We have learning resources and an easy-to-use interface to make your investment journey as simple and straightforward as possible. Also, new investors can grab our registration bonus up to a maximum of $50 on first deposit. Terms and conditions&terms of use apply.
FAQs About Investing For Beginners
How much do I need to start?
You can often start investing with a surprisingly small amount, sometimes even just a few dollars, especially with platforms that offer fractional shares. The key is to start somewhere and be consistent, even if it's a small amount each month.
Is investing safe?
All investing involves some level of risk, meaning your investments can go down in value as well as up. However, by diversifying your portfolio and investing for the long term, you can significantly reduce overall risk and increase your chances of positive returns.
How do I pick my first stock or ETF?
For beginners, it's often best to start with diversified options like broad-market ETFs rather than individual stocks. Consider ETFs that cover a wide range of companies or even global markets, as they automatically spread your risk
