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Investing can be a powerful way for individuals to build significant wealth, but unfortunately many people learn about investing from Hollywood. Investing successfully is anything but what you see in films and TV shows, and it requires a long-term focus and discipline, rather than the short-term, get-rich-quick trading mentality that characterizes most media depictions.
The good news is that by focusing on good long-term investments, it’s actually relatively easy to succeed and build wealth. In fact, beginning investors can get started with a few strategies that could help them earn double-digit annual returns and beat most investors, even the pros.
Here are some key facts about beginning investors and who they are.
Beginning investors statistics
- The average age when a person starts investing is 33.3, according to a 2021 study by robo-advisor Personal Capital.
- According to a 2021 study by Charles Schwab, 15 percent of all investors got their start in 2020.
- Many new investors don’t understand how investment fees work (51 percent) and 41 percent have not considered the tax-efficiency of their portfolio, according to Schwab.
- About 56 percent of experienced investors say that looking for short-term gains is the biggest problem among new investors, according to Personal Capital. The second-most cited problem is investing without enough research.
- About 82 percent of new investors said they are interested in speaking with a financial advisor to offer assistance, according to a 2021 Schwab survey.
- Among Gen Z investors, stocks were the most common investment, with 60 percent of the group owning them, while 54 percent owned cryptocurrency, according to research by Saxo, an online investment platform.
- About 44 percent of Gen Z said they didn’t invest due to limited funds, according to research by Saxo.
- Only 29 percent of Gen Z respondents have a retirement account, according to research by Saxo.
- Financial stocks (39 percent) were the most popular among Gen Z investors, followed by real estate (37 percent) and technology (37 percent), according to Saxo research.
- Growth investing (43 percent) was the most popular investing style among new investors, according to Personal Capital. Value investing garnered less than 14 percent.
Investing habits of new investors
- According to research by Saxo, the most popular stock investments for Gen Z investors fell into the following categories, by the percentage owning each:
- Financial (39 percent)
- Real estate (37 percent)
- Technology (37 percent)
- Energy (36 percent)
- Healthcare (33 percent)
- About 43 percent of new investors use growth investing as their core investment strategy, according to robo-advisor Personal Capital.
- “First-time investors associate the stock market with the most short-term, most profitable, and favorite form of investment, while they associate bonds with the most long-term and cryptocurrency with the most volatile,” according to Personal Capital.
- In 2021, new investors planned to invest more for the long term than the short term:
- New investors had an incomplete idea of the investment choices available to them, however.
- According to research by Personal Capital, financial news websites are the most popular sources for new investors to obtain investing knowledge, with almost 57 percent using them. YouTube was in second place with 44 percent.
- Only 1.6 percent of new investors were using a financial advisor, according to Personal Capital.
Why did new investors get started investing? According to the 2021 Invest in You Next Gen Survey from CNBC and Acorns, the top reasons were:
- 27 percent said that “it’s exciting.”
- 24 percent said that it’s easy to do on their own.
- 12 percent said that “it feels like a game.”
Beginner investor demographics
The average new investor tends to be young, highly educated and is split closely between men and women. According to a 2021 study by Personal Capital, the average age of beginning investors was 33.3. Here’s the breakdown of new investors by age group:
|Age||Percentage of first-time investors|
Source: Personal Capital survey, 2021
The average beginning investor was also highly educated, though those without a college degree made up a sizable portion of new investors:
The breakdown of new investors by gender is as follows:
|Gender||Percentage of first-time investors|
Source: Personal Capital survey, 2021
Despite similar levels of men and women as new investors, Gen Z women (22 percent) say they’re less well equipped than Gen Z men (35 percent) to invest or save for retirement (37 percent to 49 percent), according to a 2022 survey by Bank of America.
Beginner investor financials
First-time investors tend to be relatively high earners, though not exclusively, and they tend to invest a significant portion of their income. Here is the percentage of their income invested by each income group:
|Annual salary||Percentage of income invested|
Source: Personal Capital survey, 2021
Overall, first-time investors said they invested 23.4 percent of their monthly salary.
How to invest if you haven’t started yet
It’s actually never been easier or lower-cost to invest than it is now. That’s perfect for newer investors who are looking to build wealth for themselves and their families. You can go as slowly or as fast as you’d like, and you don’t even need to know that much to succeed.
Here are the key steps to getting started:
- Start today. Time is your biggest ally when it comes to investing, so you want to be invested for as long as possible. More time means that you’ll be able to compound your money for longer. Do not delay.
- Open an investing account. It’s easy to open an investment account, and many brokerages let you do so with no money and no account maintenance fees. If you’re just starting out, you might want to go with one of the best brokers for fractional shares, allowing you to buy partial shares of stocks or funds with almost any amount of money.
- Figure out how much you can invest. Determine how much you can invest in the account. Importantly, you’ll want to be able to leave the money invested for at least three to five years to help ride out the volatility of the market. Then figure out how much you can add to the account regularly, since you’ll need to keep adding to build wealth.
- Pick your investments. New investors are well-advised to invest in a broadly diversified index fund, such as one based on the Standard & Poor’s 500 Index. That’s a simple strategy that requires little work and over time can outperform most investors, even the pros. However, investors do have other investing strategies than can work well.
- Track your investments. You’ll want to follow your investments over time, but it’s better if you don’t check them too frequently or you might be scared out of your investing resolve. Remember, stick to your long-term investing plan.
Investing well is a long-term process, not a get-rich-quick lottery ticket. New investors need to understand that they need to take a long-term approach to investing in order to be successful.
Investing can be as simple or as difficult as you want to make it, depending on how much time you want to spend and your level of interest. The good news is you can achieve good returns with minimal effort. First, you’ll need to read about how to invest and what your options are.
Bankrate’s article on how to start investing offers a broad overview of some key things to know.
There’s a lot to know when it comes to investing, and so it’s good to start slowly. Starting slowly can still yield attractive long-term returns. One of the best investments is an index fund based on the Standard & Poor’s 500 Index, which includes hundreds of America’s top companies. An S&P 500 index fund offers immediate diversification and the index has returned about 10 percent annually over long periods. In fact, legendary investor Warren Buffett has long said that most investors would be better off investing in that than in individual stocks.
How much you invest for the first time matters less than how much you invest over time. Investing is not a “one- and- done” effort. You build wealth over years by contributing to your account regularly over time, as you would with a 401(k) retirement account. That said, you need to be able to live without the money in your investment account for at least three to five years, to let it ride out the short-term volatility of the stock market on the way to attractive long-term gains.
It’s absolutely vital to take a long-term perspective on your investments. Short-term traders lose money quickly, but long-term investors can make money, and can do so with limited time and effort. You’re not investing for the market to rise tomorrow. Instead, you’re investing to build wealth for decades to come. So take that mentality and invest for the long haul.