Q. How do I begin to invest $10,000?

I have $10,000 to invest in stocks. I am a beginner; how do I pick what stocks to invest in? 

A.  Congratulations on being ready to invest!  As a beginner, it’s important to recognize the things you can – and can’t – control regarding investing for the future.  You can’t control how the market performs.  You certainly can’t control the political or regulatory environment.  The talking heads, click-bait stories and investing bubbles (see: bitcoin) will come and go.

However, you can control (or at least heavily influence):

1.  Taxes – use a Roth IRA if eligible, or contribute to your work 401k plan.  If you’re investing in a taxable, brokerage account, too, make sure you locate your most tax-efficient investments to that account and leave the inefficient ones in your IRA/401k.

2.  Risk – make sure you allocate your investments between stocks and bonds to maximize the expected return WITHIN YOUR RISK TOLERANCE.  Being overly aggressive – and bailing out of the market during the eventual bad times – is a common mistake among investors.  Understand your risk profile before investing.

3. Costs – this is a big one that most investors overlook or discount.  Over time, high costs will severely eat into your investment portfolio.  Avoid them where possible (ex. loaded funds) and keep them low where you have to incur them (ex. low-cost index funds).

Trying to pick individual stocks successfully is something that even the “professionals” can’t do with any reliability.  I’d recommend going with a low-cost index provider like Vanguard.  Take a risk profile questionnaire to understand your tolerance.  Then allocate your funds to a Total Stock Market, Total International Stock Market and Total Bond Market mutual fund or ETF.  Your diversification will be broad and your costs will be low!  Reallocate once or twice a year, not based on what you think the markets will do in the future, but on what they have already done.

Focus your efforts on adding to your investment portfolio regularly and not on trying to pick the next “hot” stock!  You won’t be able to pick the winners every time so don’t try to play that game!

Finally, keep your focus on the long-term results, not the short-term fluctuations in the market.  Only invest funds you won’t need for at least five – and preferably ten or more – years.  What happens this year really won’t matter in the long run.  What happens over the next 10, 20 and 30 years will.  History has shown us that over those long periods of time, low-cost index funds have performed very well!

Best of luck as you begin to invest!

John is a CPA and personal finance coach.  Email your questions to john@60minutefinance.com.

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If you need confidential financial coaching for your particular situation, please contact John for a no-cost, no-obligation discussion of your needs.

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