Learning to invest can be like learning your way around a new city. Familiarize yourself with things close to home, then branch out.
Branch out by learning advanced concepts and strategies such as fundamental and technical analysis, asset allocation and diversification
Are you learning the basics of investing? If so, it might help to think of it as if you were moving to a large and unfamiliar city. Your first inclination is to find your way around, to really “learn” your surroundings. The city’s sheer size and complexity, however, can make such a task seem quite daunting. How might you start?
You begin with the one location that may seem most familiar, that is, home. Next, you slowly branch out, finding a few easily accessible places that may provide you with the things you need. Over time, you expand your sights toward other distant locations, each with their own unique characteristics. Finally, you spend time at various points across the city, slowly transforming the once-unknown into a familiar place called home.
So what does this have to do with the complex world of financial investments? Everything. The same principles apply, whether your aim is to learn to navigate a big city or learn how to invest money. You start at one place, take a few steps, and slowly expand outward.
As an investor, your general aim is to grow your money. But this aim can take on many different forms, many smaller goals.
For instance, it might help you to decide the means—instruments and strategies—by which you seek to grow your money.
Are you looking to invest for the short term or long term? Achieving returns across different time horizons may require the use of different instruments and strategies, all of which come with varying levels of risk.
Learning to invest means learning to weigh potential returns against risk. There’s really no way around it: no investment is absolutely safe, and there’s also no guarantee that an investment will work out in your favor. So, let’s just say that investing is about taking “calculated risks.”
Nevertheless, the risk of losing money—no matter how seemingly intelligent or calculated your approach—can be daunting. This is why it’s important for you to really get to know your risk tolerance level. When it comes to your choice of assets, it’s important to bear in mind that some securities are riskier than others. This may hold true for both equity and debt securities (i.e., “stocks and bonds”).
Investment time horizon can also significantly affect your views on risk. Changes in your outlook may require a shift in your investment style and risk expectations. For instance, saving toward a short-term goal might require a lower risk tolerance, whereas a longer investing horizon can give your portfolio time to smooth out the occasional bumps in the market. But again, it depends on your risk tolerance, financial goals, and overall knowledge and experience.
Which financial instruments might best help you achieve your goals? And how willing might you be to accept added risk in pursuit of potentially higher returns?
If you’re interested in stocks, you might want to learn more about the different categories by which stocks are often grouped, such as small caps, midcaps, and large caps. You might also want to learn about stocks in different market sectors such as technology, energy, or health care. These are just a few common stock categories. And each category emphasizes different aspects of a stock’s composition, as well as its potential response to market events.
Do you like the idea of individual stocks and stock sectors with targeted exposure, or would you rather diversify across the broader market? Many who are learning investing basics choose to begin with exchange-traded funds (ETFs) and mutual funds, many of which target the performance of broad-based indices such as the S&P 500.
Open and fund a new account
If you’re interested in debt securities (i.e., bonds), then you might want to read up on the different kinds, such as corporate, Treasury securities, and municipal bonds.
Once you decide which assets might best suit your investment goals, it may be time to start.
Still not sure? We can help with additional education resources, from webcasts, articles, and videos to fully immersive courses. And if you have questions as you learn to invest, feel free to reach out to a specialist via phone, email, or a visit to a local branch.
When investing, as with navigating a new city, after getting comfortable with the immediate surroundings, it may be time to expand your horizons beyond the neighborhood. And, as with the city, the more you participate in the markets as an investor, the more you’ll experience the expansive depth and breadth that the financial world has to offer. Markets are dynamic and constantly changing. Not only might you find yourself monitoring the financial markets regularly; you might also find yourself constantly needing to upgrade your market knowledge.
There are plenty of basic to advanced concepts that can help, depending on your goals and experience. Perhaps you’re more comfortable taking an analytic approach to analyzing and would like to better understand how active traders use technical analysis and charting. Maybe you’re interested in learning how to approach the different phases of a market cycle, or how to take advantage of a market decline. And, it couldn’t hurt to brush up on asset allocation and portfolio diversification basics. Once again, TD Ameritrade can help.
It’s a big world out there, ready for you to explore and embrace one neighborhood—and one investment—at a time.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Carefully consider the investment objectives, risks, charges, and expenses before investing. A prospectus, obtained by calling 800-669-3900, contains this and other important information about an investment company. Read carefully before investing.
Mutual funds are subject to market, exchange rate, political, credit, interest rate, and prepayment risks, which vary depending on the type of mutual fund.
Diversification does not eliminate the risk of experiencing investment losses.
ETFs can entail risks similar to direct stock ownership, including market, sector, or industry risks. Some ETFs may involve international risk, currency risk, commodity risk, and interest rate risk. Trading prices may not reflect the net asset value of the underlying securities. Commission fees typically apply.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2020 TD Ameritrade.