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5 Things First-Time Investors Should Know About Investing

5 Things First-Time Investors Should Know About Investing

You've finally decided to take the plunge and invest in the market.

Whether you’ve just started in your first full-time job at which you receive a 401K option or you’re looking to invest for the first time since paying off your student loans, there are a lot of questions you’ll inevitably have about investing for the first time. Or perhaps your child has graduated college, just got his first full-time job, and isn’t sure what to do in terms of investing. We sure had questions when we started investing! Whatever your circumstances, investing, 401Ks, and the stock market are confusing for those of us who aren’t professional financial advisors.

Here are five important things you should consider when investing in the market for the very first time:

Take the long view.

Despite booms and busts, remember that over the last 100 years the stock market has historically performed better than bonds and real estate and certainly better than cash sitting in a bank account. In 1900, $1,000 invested would have been worth close to $20 million in 1999! A 10-year time horizon can help you keep perspective and weather the ups and downs of the market.

Invest at your comfort level.

If you're considering an investment in the stock market, make sure you're only putting in an amount that you can afford to lose. Remember: During one week in September 2008, the market plunged 18 percent and on Black Monday of 1987 when the market fell more than 22 percent in a single day.

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Diversify your investments.

It's tempting to put all your money in one investment, but diversification is an important principle in any portfolio you decide to build. Not sure which set of companies are right for you? Consider an investment in an index fund, such as the S&P 500. This allows an investor to have exposure to a wide variety of the largest stocks.

Actively follow your investments.

Have you invested in individual companies? If you have, you should follow the news as well as the quarterly and annual reports of these companies. These are all available online. You can also listen in on the earnings calls of these companies and hear how management teams respond to some of the hard-hitting questions asked by professional investors. You'll learn a lot in the process and it will help you hone your investment skills and help you in your future investment decisions. 

Invest as consistently as you can.

Nobody really knows what will happen in the future. It's very hard to be successful by timing the markets. If you can set aside 10 percent regularly from your paycheck for investment, you'll be way ahead of most people, and that cushion will add up over time.