How To Become An Investor In 6 Steps

Article Summary:

The first and most important step to becoming a successful investor is the desire to do so and the willingness to put in the work (plus some cash). Successful investors don’t get rich overnight. However, with solid research, a long-term commitment, and an investment strategy that fits your personal finance goals, you too can work your way toward financial freedom.

One of the most common reasons that many people don’t start investing is fear. Fear of not knowing what they’re doing, fear of looking foolish, and (of course) the fear of losing money. But it doesn’t have to be that way. As Sir Francis Bacon, an English philosopher and statesman, once said: “Knowledge is power.”

The more you know, and the better you educate yourself, the more successful you will be. Read on to learn more about how to become an investor and the tools you need to take full control of your financial future.

1. Do your research

For most people, financial independence doesn’t just happen. You have to work at it. Before you even begin investing, you should try to gain as much financial knowledge as you can.

You can start by searching the internet. There are a ton of blogs and more articles than you can imagine available for your perusal, right at your fingertips. Just be sure to be mindful of the sources. Online brokers are also an excellent source at your disposal. Plus, if you open up an account with a brokerage firm, you can gain access to even more resources that the general public may not be privy to.

The goal of all this research is to begin to familiarize yourself with investing fundamentals and start learning about how to invest in stocks, bonds, index funds, mutual funds, and other securities. The more you know about how the stock market works and other investing principles, the closer you come to being a successful investor yourself.

To find the right brokerage, make sure you know and compare all of your available options. Start with the list below to get a better idea of what you may look for in a brokerage.

Pro Tip

It’s also a great idea to read what some famous investors have to say about investing that can help you with your success. Pick up a book by prosperous investors such as Benjamin Graham or John C. Bogle. Warren Buffett is another valuable resource, and although he’s never actually authored a book, there are dozens of books written about him that outline his investment strategies and philosophies.

2. Choose your investment strategy

Before you start throwing your money into the stock market, try to come up with an investment plan that fits your lifestyle, personal finance goals, time horizon, and risk tolerance.

For example, many investors get into investing markets to build wealth for a comfortable retirement. Other investors might be trying to build wealth so they can leave their families with a comfortable income after they pass away. Those are two valid long-term goals, and investing for the long run is considered the most sensible way to invest.

Short-term gains do happen, but they’re nearly impossible to predict, even for the most highly skilled investors. If your personal investing goal is to get rich overnight, your chances for success are very slim. Buying shares “on-sale” and hoping they go up, for instance, carries an extremely high risk of losing all your money.

Determine your risk tolerance

Your personal tolerance to risk is another important factor to consider. Any investment strategy should aim to maximize returns while still staying in your comfort zone. An investor with a low risk tolerance, for instance, probably isn’t the best candidate for day trading or scalping.

In that case, you might want to think about low-risk mutual funds, government bonds, or certificates of deposit (CDs), instead of higher-risk investments for your portfolio. Those with a high risk tolerance, or a long time horizon, can look to build riskier, more stock-heavy portfolios.

Be aware of bad habits

Part of a sound investment strategy is learning to identify and avoid bad investing habits and replace that behavior with good investing habits. Better yet, learn bad investing habits ahead of time so you can avoid them in the future.

Many investors, for example, want to reap short-term financial benefits, but that’s not a realistic approach for most people. Even experienced day traders can lose money very quickly on the stock market. A more realistic approach is to look at investing as a long-term project.

Other bad investing habits are failing to fully research new investment opportunities or investing at the wrong time. For instance, some investors might tell you to buy low and sell high, which seems like a sound investment strategy. Other serious investors might also say: Don’t try and catch a falling knife. Sometimes, the best investment plan is just to sit tight and wait out the market volatility.

Good investing habits include learning about a business before you start investing in it, keeping up on current events that affect the market, and being aware of the fact that investor learning is never “done.”

3. Open and fund an investor account

To become an investor, you’ll need to open and fund a brokerage account to facilitate trades. If your primary goal is to focus on saving for retirement, you probably need to determine if you want to open a traditional individual retirement account (IRA) or a Roth IRA.

Or, if your investing plan doesn’t involve retirement savings — and/or you want ready access to your cash — you can open a basic investor account through a traditional brokerage firm or an online broker. They’re simple to set up and you can simply link your checking account to the investing account to add money via electronic funds transfer (EFTs).

Pro Tip

As an independent investor in charge of your own asset allocation, be sure to account for transaction fees and management fees for certain types of investing products.

4. Gain some experience through paper trading

If you’ve done your research, gotten an idea of how markets work, outlined your investment goals, and set up a brokerage or retirement account, now is a good time to practice those skills you’ve learned without risking any real money. You can do this by paper trading through a stock market simulator.

Online paper trading is a way to simulate trading on the market using real market data but virtual money. There is zero risk when using a stock simulator, but it’s a great tool to get an idea of what it’s like to buy and sell stocks and other securities on the marketplace. Think of it as a beginner’s guide to trading using real data but fake profit. Even seasoned investors use stock simulators to hone their skills or practice new investment strategies.

It’s worth noting that because simulators aren’t risking actual money, the emotional attachment to the investments is skewed. This means your decision-making skills may not be accurate to real-world investing experiences. Still, it’s a valid piece of your education on the path to becoming a successful investor.

Fun Fact: The term paper trading came about before the advent of online trading platforms and stock simulators when investors used to practice stock trading on actual paper.

5. Build a diverse portfolio

Now that you’ve done your homework, learned about the various securities to invest in, and practiced your skills on a simulator, you’re ready to start building your investment portfolio. You might want to start small by investing in lower-risk investments such as bonds or CDs, or you can try your hand at stocks or a mutual fund.

Either approach you take, aim for a diverse mix of assets. Having a diversified portfolio helps to minimize your investment risks. For example, if you put a lot of money into individual stocks and they tank, you can lose a bundle very quickly. On the other hand, if you invest in an exchange-traded fund or mutual fund instead, which holds a basket of assets, you spread out your overall risk and set yourself up for more successful investing.

And don’t feel the need to load up your portfolio all at once. A gradual approach gives you more time to further educate yourself about investments you might want to try. For example, if you have $10,000 to invest, start by putting half of that into a variety of investments (remembering that portfolio diversification is very important).

Then, for the moment, you can leave the other $5,000 in your account’s core (or cash) position until you determine how to invest it for the best gain. Typically, your core position in a brokerage account is a low-risk investment, much like a savings account, so you can still earn a little money there while you’re deciding on new investments.

If you need some assistance deciding which investment product is best for you, consider speaking with an investment advisor about your options.

6. Manage your portfolio

Once you’ve allocated your investing account to your satisfaction, all you need to do now is manage or monitor your account. This is also a good time to keep up with your investing education, as there is always something new to learn.

As you watch the market fluctuate, keep in mind that you may be tempted to move some of your money around, but that’s not always the best strategy. Sometimes the best way of managing your portfolio is to do nothing at all.

Pro Tip

It can be daunting to build your own investment portfolio, but brokerage firms often have multiple portfolios to fit a variety of investor profiles. These resources can help to guide you with your own investment plan.


Where should a beginner invest?

Picking out individual stocks is tricky even for serious investors, so it’s probably not the best strategy for beginning investors. A better and safer option for a budding investor with a moderate risk tolerance is to get your feet wet with index funds or exchange-traded funds (ETFs) that follow a broad-based market index like the S&P 500. This will give you the most value for your investment dollars while spreading out the risks over a basket of securities.

Can I invest in real estate with my brokerage account?

If you’re looking to invest in real estate by buying a rental property, an investment account isn’t the way to achieve that goal. However, there are plenty of other real estate investment opportunities that you can take advantage of through your brokerage or retirement account.

For instance, you can invest in individual real estate stocks or real estate investment trusts (REITs). REITs are companies that own, operate, or finance real estate properties and can be invested in much like a mutual fund.

How can I invest with no money?

While you can’t exactly invest with zero money, you can get started with very little. Most brokers don’t have minimum deposit requirements for opening a brokerage account, although you may have to reach a certain amount to make investments. Still, you can get started on your investing journey with $100 or less.

Another option is to download a mobile investing app, of which there are dozens to choose from. A round-up app is a great way to get started for very little money. These apps are connected to your checking account and every time you make a purchase, the extra change is deposited into your investment account. It’s like a digital change jar, and what starts as pennies can really add up and grow your wealth over time.

Key Takeaways

  • Learning how to become an investor requires education and planning, but anyone can do it with very little money to start.
  • A successful investor knows that long-term goals are more important than short-term gains, particularly if you’re building wealth for retirement.
  • Practicing paper trading with a stock simulator can give you valuable experience investing with real market data without any financial risks.
  • Building up your investments slowly — looking for long-term value over what looks like a great deal — is better in the long run than putting all your eggs in one basket.
View Article Sources
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  3. Bonds — U.S. Securities and Exchange Commission
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  6. Sell In May And Go Away: Meaning and Strategy Analysis — SuperMoney
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  8. The Pros and Cons of ETFs — SuperMoney
  9. How To Increase Wealth On Your Current Income: Core Strategies to Grow Your Bank Account — SuperMoney
  10. How To Start Investing with $1,000 or Less! — SuperMoney
  11. Five Key Principles Of Smart Investing — SuperMoney
  12. How To Invest In The Stock Market: 8 Basic Concepts — SuperMoney
  13. Best Brokerage Apps — SuperMoney
  14. Best Brokerages — SuperMoney
  15. Best Investment Advisors — SuperMoney
  16. Beginner’s Guide to Investing — SuperMoney