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The short version

  • Investing is like exercise; it’s all about consistency and routine.
  • To become an effective investor, all you really need is a brokerage account, a safe portfolio of index funds, and a regular investing schedule (e.g. $500 monthly).
  • Healthy habits include consistency, dollar-cost averaging, knowing your risk tolerance, and resisting the urge to sell when markets are down.
  • Bad habits include: trading too frequently, trying to get rich quick, and relying too much on individual stocks (and assets in general).

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Is it a bad time to start investing in 2022?


Like hitting the gym, there’s never a bad time to start. Some would even say that a down market is a great time to start since excellent first-time investments like index funds and ETFs are 25% down in value from their regular prices.

Some call it a “sale” on the stock market.

But whether you subscribe to that philosophy or not, the best time to start investing is “today” — even if you can only spare $5.

How to become an investor

For most people, successful investing doesn't look like the Wolf of Wall Street with frantic phone calls, jumping on desks, and doing lines of… conga.

It’s more like watering something and watching it grow over months, years, and decades.

Take a look at what happens if you invest $500 a month into a simple portfolio of index funds — something you can build today in under ten minutes. At a conservative 10% APY, your $500 will grow to make you a millionaire in just about 30 years.

What happens if you invest $500 a month into a simple portfolio of index funds

If you can get your contribution up to $2,000 a month, you’ll have your first million by year 17 and nearly $4 million by year 30:

What happens if you invest $2,000 a month into a simple portfolio of index funds

Again, this is based on a simple portfolio you can build in under 10 minutes. You don’t have to day trade, bookmark Yahoo Finance, or pick a winning crypto to achieve these results.

You just have to invest conservatively and consistently.

Let’s circle back to what happens if you don’t invest that $500 a month. Instead of nearly a million, you’ll end up with less than $181,000.

Granted, no investment is guaranteed. Even index funds lose money in the short term. But historically, the stock market has always, always appreciated, meaning your money will be vastly better off there than sitting in your bank account where it loses value due to inflation.

So here’s your “simple exercise routine” for investing. Even if you do this and nothing else, you’ll be in great shape:

  • Open a brokerage account
  • Build a simple portfolio of index funds
  • Keep investing regularly (e.g. $500 a month)

Now, once you’re comfortable with that “routine,” let’s talk about a few more exercises that’ll get you in great shape faster — and a few bad habits to avoid that could give you an investing hernia.

More: 7 best online stock brokers for 2023

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Practice these good investing habits

Create an investing plan (and stick to it)

Why are you investing money? No, seriously.

The deeper you dig into your motivations, the more clear and focused your investing moves will be.

One of the first questions to ask yourself is, “When will I need the money?” If you’re saving up to buy a house within five years, you have a relatively short horizon (read: timeline) and may need to invest in places that provide decent returns with little risk.

By contrast, if you don’t need the money until retirement and you’re currently 34, you have tons of time to let your money grow. You can afford to take short-term losses and, therefore, are relatively safe investing your money in higher-risk places like speculative real estate.

An effective investing plan doesn’t have to be complicated. It mostly boils down to how much money you'll need and when.

More: How to use your goals to create a successful investment strategy

Know your risk tolerance

Would you rather have $1,000 right now? Or flip a coin for $2,500?

Your answer to this question says something about your risk tolerance or your emotional and financial ability to handle risk in your portfolio.

Your risk tolerance helps you stay on track for your investing goals without feeling stressed out.

For example, if you have a horizon of 10+ years, you can — in theory — take on the risk of investing in individual stocks. But if the thought of having your life savings tied up in risky investments stresses you out too much, it’s beyond your risk tolerance and thus isn’t worth the mental strain.

To assess your risk tolerance, check out this quiz from a study by Grable, J. E., & Lytton, R. H., compiled by the University of Missouri.

Invest a little Ffom every paycheck

Investing isn’t about timing. It’s about consistency.

Your gains will go much, much further if you constantly trickle money into the markets versus just investing a lump sum once. To illustrate, if you invest $10,000 in an index fund with historical average returns of 10% APY in 10 years, you’ll have $25,937.42. Not bad.

But, if, in addition to the $10,000, you continue investing $500 out of each monthly paycheck, at the end of the same period, you’ll have $121,561.97.

It’s the equivalent of working out really hard once versus three times a week. Growth comes from consistency.

Plus, investing a few hundred bucks a month helps you seize the advantages of dollar cost averaging which we discuss next.

Use dollar-cost averaging (DCA)

We all know stock prices (and most especially crypto prices tend to fluctuate throughout the week, day, and even the hour. That’s why the shrewd investor always uses dollar-cost averaging (DCA).

DCA involves investing your money on a fixed timetable. So instead of risking investing $12,000 at the wrong time — when the stock is at a temporary peak — you invest $1,000 a month or $192 a week. This helps you buy the asset closer to its “average” price over the span of a certain time, greatly hedging your risk.

More: What is dollar-cost averaging?

Allocate your assets properly

A healthy, balanced breakfast will have some protein, carbs, sugars, and, if you’re a true capitalist, some caffeine.

Similarly, a healthy, balanced portfolio may have a mix of stocksbondsETFsproperty, cash, and even crypto.

Determining the right mix on your “plate” is called asset allocation. It used to be a bit of a careful science, but thankfully, the emergence of robo-advisors has made the process much easier.

More: What is a robo advisor?

Ride out volatility and focus on the long term

If the market turns sour, it’s easy to look at your portfolio and think, “aw man, I lost $14,000.”

But remember, it’s not a loss until you sell.

Resisting the urge to panic sell during a down market is an extremely valuable investor skill that can save you thousands, even millions, in the long run. Throughout history, the markets have always recovered. But if you sell before they do, they won’t bring you along.

Drop these bad investing habits

Trading too frequently

Trading too frequently — or full-time “day trading” — carries more costs than you might think.

For one, it can cost you an arm and a leg in taxes since short-term gains are taxed as income (up to 37%) instead of capital gains (up to 20%).

But the bigger cost is time. To day trade with even the remotest sense of accuracy, you must dedicate your whole day to it. Why do that when you can convert time into guaranteed income via multiple income streams?

And sure, it just takes one well-timed trade to earn six figures — but the reality is that 85% of day traders lose money. Statistically, that’s half your odds of winning in Vegas.

Now, there’s nothing wrong with rebalancing your portfolio every six months (here’s how. But trading around too frequently robs your money of its chance to sit and grow.

More: How to offset capital gains tax on your investments

Relying too much on individual stocks

2022 was a cold reminder that not even a big bet on Blue Chips would be totally safe — in the short or long term. After all, as recently as 2020, pundits labelled Meta and even Carvana as Blue Chip stocks, and the pair is down 74% and 98%, respectively, from their 2021 peaks.

That’s why diversity is key. And there’s no easier way to diversify a stock portfolio than to scoop up shares of ETFs and index funds, which to the uninitiated, are big “baskets” of stocks.

Heck, Warren Buffet- the Michael Phelps of stock-picking — famously said, “both large and small cap investors should stick with low-cost index funds.”

Selling when the market is down

As mentioned above, it’s only a loss if you sell. Unless you absolutely need the cash to cover housing, high-interest debt, or some other critical expense, it’s always best to ride out market volatility and wait for the worst to pass.

That’s assuming, of course, that you have a diverse, well-balanced portfolio!

Thinking short term

Investors who think, “How can I get rich by tomorrow?” almost always lose money. If you’re looking to turn a quick buck, your odds are twice as good in Vegas than in the stock market.

Ten percent annual returns (e.g. $1,000 on a $10,000 investment) is a reasonable expectation from the stock market. If you need money faster, you’re better off seeking an additional income stream than risking the money you already have saved.

Tips for how to become an investor

We all gotta start somewhere. And even if you can only afford to invest $5 this month, investing any amount is a quantum leap over investing nothing.

Because think of all the groundwork you’ve knocked out in the process of investing your first $5:

Or alternatively:

  • You’ve set up your first tailored portfolio with a robo-advisor.

Steps one through three don’t have to take longer than 30 minutes. And even if all you do is continue investing money each month and let your robo-advisor pick your assets, you’ll still be thousands — even millions better off than if you’d never taken the 30 minutes to set all that up.

Increase your investments over time

One of the biggest mistakes new investors make is they forget to keep investing. It’s like stretching, eating healthy, or going to the gym; you gotta keep doing it for it to be effective.

As your income rises, so should the amount you put into the markets. And the relationship doesn’t have to be linear. Let’s say you currently invest 20% of your income. If your salary increases by $10,000 next year, tradition dictates you’ll invest an additional $2,000.

But if you can already afford your current lifestyle and have no high-interest debt to pay off, why not invest more? Make it $4,000 or even $6,000. Just be sure you have enough liquidity to cover three months of living expenses if you’re salaried and six if you’re self-employed (since you won’t get severance).

Start with index funds

If you visit a brewery and you’re not sure which beer to try, the smart thing to do is to get a flight. That way, you’ll sample everything and your chances of being disappointed drop to nearly zero.

Index funds are the beer flights of investing, enabling you to “sample everything” in a single order. They track the performance of an entire index (S&P 500, DJI, etc.) and, historically, provide steady 10 to 15% returns in the long run.

That’s why some folks start and end their portfolio with a few index funds and never even bother with individual assets. Ten percent APY and time are all you need to retire wealthy.

Warren Buffet even told the trustee of his wife’s inheritance to put 90% of her holdings in index funds and the rest in government bonds, also known as a 90/10 portfolio.

Index funds are my favorite low-risk, high-output investment to recommend to first-timers. They’re inherently diverse and generate steady overall returns; for most people, they’re all you need to succeed as an investor.

The bottom line

Staying in shape doesn’t have to involve much more than a few simple exercises done regularly. To be healthy, you don’t need to spend four hours a day in a CrossFit gym.

Similarly, to be an effective investor, you don’t have to turn a third monitor into a Bloomberg Terminal or scour Zillow for undervalued properties. Power to those who do (and CrossFit enthusiasts), as they may see better short-term returns.

But for the vast majority of people, a simple portfolio of index funds and consistent contributions are really all you need. Don’t let r/wallstreetbets intimidate you or induce FOMO; just water your portfolio and watch it grow.

Further reading:


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About the Author

Chris Butsch

Chris Butsch

Freelance Contributor

Chris helps young people prosper - both mentally and financially. In addition to publishing personal finance advice for Investor Junkie (now Moneywise) and Money Under 30, Chris speaks on the topics of positive psychology and leadership through CAMPUSPEAK and sits on the advisory board of the Blockchain Chamber of Commerce.

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The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.