Ending Soon! Save 33% on All Access

Don't Waste Your Money — Here Are 5 Proven Tips for First-Time Investors to Build Wealth Yes, you want your money to work for you, but there's no sense in wasting it away, either.

By Lucas Miller Edited by Maria Bailey

Key Takeaways

  • 1. Establish an investing plan
  • 2. Invest for the long-term
  • 3. Carefully vet your financial advisor
  • 4. Diversify in stocks you understand
  • 5. Be consistent

Opinions expressed by Entrepreneur contributors are their own.

It's estimated that 42% of Americans don't own stocks. There are plenty of potential reasons why so many people choose not to invest, from fear of losses and not feeling like they have enough money to start investing to simply being unsure of how to start.

However, first-time investors can get started even with a small amount of money, and with sound investments, they can earn much more than they would from the interest generated by a savings account.

Still, there's always risk with any investment — there's never a guarantee that you'll get big returns. However, by following some key practices, you can reduce your risk of losses and avoid wasting your money.

Related: Why Entrepreneurs Shouldn't Invest in Stocks

1. Establish an investing plan

Every first-time investor should start by developing a basic investing plan. This doesn't have to be so detailed as to list each stock you'll invest in. Instead, it should set your parameters and goals that will help guide your investing strategy.

For example, your investing plan should consider how much money you can afford to invest each month — most financial experts recommend a goal of 15% of your pretax income. You should also lay out your overall risk tolerance — including how much money you can afford to lose through your investments.

Above all else, your investing plan should have a goal. A clear goal will help you determine how much and how long you'll need to invest.

2. Invest for the long-term

One of the most frequently repeated pieces of advice every first-time investor should adhere to is to focus on the long-term rather than trying to achieve short-term gains. Stocks tend to be very volatile in the short term, with prices rising and falling rapidly. Far too many newbie investors fall into the trap of trying to constantly buy low and sell high, but this can easily lead to making impulsive decisions that waste money.

Instead, it is better to view investments as a form of long-term financial growth. Buying and holding stock enables investors to benefit from long-term growth, which is usually far more consequential than short-term ups and downs. Rather than trying to time the market based on speculation or emotions, a focus on the long-term keeps you on track with your goals.

Related: How to Live With Purpose and Stay Focused On Long-Term Goals

3. Carefully vet your financial advisor

Many first-time (and experienced) investors choose to work with a financial advisor to help them manage their money. A quality advisor can provide advice tailored to your goals and risk tolerance to put you on track for successful investing. But as with any other field, not all advisors are created equal.

As a report from AdvisorCheck reveals, 12.74% of actively practicing financial advisors have a disclosure on their record for incidents such as bankruptcies, client complaints or a criminal record. Information on what disclosures are on an advisor's record can be found online, but this isn't something they are likely to broadcast on their own public-facing profiles.

By researching whether an advisor has a disclosure (and what that disclosure means), as well as comparing advisors' services, fees, assets under management and client ratios, investors can ensure they're working with someone they can trust rather than just selecting the first advisor they meet with.

4. Diversify in stocks you understand

Diversifying your investment portfolio is key to mitigating risk. Investing in an individual stock — even if it is currently performing well — is extremely risky. No one can predict the market's future with 100% certainty, and if the company you invested in goes bankrupt or suffers another major setback, you would stand to lose a lot. Investing in multiple companies across a variety of industries helps reduce the overall risk associated with your investment.

As part of this, you should also make sure that you understand what you're investing in. Cryptocurrency saw a flurry of investments in 2021, even though a lot of investors didn't understand what it was for or how it worked. Then, in 2022, FTX and several other major cryptocurrency companies collapsed. Cryptocurrencies experienced a significant loss in market cap, causing many people to lose money.

By investing in things you understand, you can better assess if they will provide a stable source of returns or if they are a risky investment.

Related: 3 Major Advantages of Investing In Startups

5. Be consistent

Contribute to your investment accounts often. Even if you can only put aside a small amount at a time, regular investments will give you more opportunity for growth through compounding returns. The earlier you can put your money to work, the more time it has to grow.

You can streamline this process by setting up automatic deposits from your checking or savings accounts into your investment account. You can even choose which stocks or mutual funds you want the automatic deposit to go to. This way, you won't have to worry about forgetting to make consistent contributions, timing the market or other short-term worries that could keep you from achieving long-term gains.

Invest with confidence

The S&P 500 has delivered an average rate of return of 10% per year — well above what you can get from a savings account. First-time investors who avoid common mistakes and are wise with how they allocate their funds can start growing their wealth, even if they have relatively little to invest. The sooner you start, the more you stand to gain.

Lucas Miller

Founder of Echelon Copy LLC

Lucas Miller is the founder and CEO of Echelon Copy LLC, a media relations agency based in Provo, Utah that helps brands improve visibility, enhance reputation and generate leads through authentic storytelling.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Business News

TikTok Reportedly Laid Off a 'Large Percentage' of Employees as the App's Fate in the U.S. Remains Unclear

Laid-off TikTok employees were notified Wednesday night through Thursday morning.

Personal Finance

This Investment Bundle Includes a Trading Course and Stock Screener Tool for $150

Approach the stock market with an increased understanding.

Business News

Four Seasons Orlando Responds to Viral TikTok: 'There's Something Here For All Ages'

The video has amassed over 45.4 million views on TikTok.

Growing a Business

5 Strategies to Know As You Scale Your Business

Scaling a service-based company requires a comprehensive approach that goes beyond simply increasing revenue. It requires careful planning, strategic decision-making and a deep understanding of market dynamics.

Growing a Business

The Right Way to Ask Someone for a Million Dollars, According to a Fundraiser Who Does It For a Living

No matter what you're raising money for, Wanda Urbanskia says, the same basic rules apply.