Investing for Beginners: 3 Must-Know Tips to Avoid Silly Mistakes

Investing is one of the most important things you'll ever do with your money, but for beginners it can be an intimidating process. Still, the basics of investing for beginners aren't as complicated as you might think. By following a few simple tips designed to make investing beginners feel more comfortable with their entry into the world of investments, you can get a leg up on your peers and create a strong foundation for the rest of your investing career.

Source: 401(k) 2013.

1. Find the right partner
One of the biggest decisions that you'll make as an investor is which brokerage company you'll use. Your choice has huge implications for how much you'll pay in fees, what types of investments you'll have access to, and what your eventual returns will be. Yet few brokers make investing for beginners easier to understand. Instead, many full-service brokers want to take advantage of beginning investors, making the investing process more opaque and costing you a lot more money in the long run.

The better long-term answer is to pick a discount broker that won't charge you a huge amount in fees. Even brokers that charge relatively low commissions have a variety of resources designed to make investing for beginners easier. In particular, look for brokers that have arrangements to offer mutual funds or exchange-traded funds at no commission, as these investments can be the best way to get started investing. For more information on various discount brokers, be sure to check out our broker comparison tool.

2. In choosing investments, start with the basics
Most beginning investors believe that to make real money in the market, you have to pick individual stocks. But that's not actually true. Millions of investors have made their fortunes using mutual funds and exchange-traded funds, and those vehicles are a great way to make investing for beginners easier to grasp at first.

Source: Tax Credits, Flickr.

In particular, mutual funds and ETFs give you automatic diversification even when you have very little money to invest. Every dollar you invest gets split across dozens or even hundreds of stocks, immunizing your portfolio against catastrophic events that hit a given individual stock. Index mutual funds and ETFs like the SPDR S&P 500 (NYSEMKT: SPY  ) tell you exactly which stocks you own in exactly which proportions, giving you predictable exposure to the stocks of your choice. Target-date mutual funds go even further down the simplicity path, automatically adjusting your risk level as you get closer to an end goal like retirement. By acquainting you with how the markets work and how long-term returns get generated, ETFs and mutual funds make a great entry point for beginning investors.

3. Stick with safer stocks
Even though avoiding individual stocks can be a smart move for novices, there's an alternative way of investing for beginners. If you focus on stocks that tend to be less volatile than the overall market, you can get specialized exposure to stocks that have promising long-term prospects, rather than simply accepting the return of a broader index.

For example, consumer staples stocks are generally perceived as being safer than the overall market, because even in tough economic times, people still need products like food, clothing, and medical supplies. The flip side is that you generally won't see gains that are as big during a bull market as you would get from investing in more aggressive stocks. Nevertheless, at least while you're getting your feet wet, following the lower-risk strategy can be a smart method of investing for beginners to follow, and it can avoid the common mistake of losing everything on an ill-advised bet.

Start investing!
When you're a beginner, thinking about investing can be intimidating. But investing for beginners doesn't have to be a daunting experience. With these simple guidelines, you can avoid the mistakes that many beginning investors make and put yourself in the best position for a lifetime of great investment results.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2014, at 9:53 AM, TMM69 wrote:

    Investing seems a lot like going swimming. Just dive in and get going! I enjoyed this article as Dan gave three solid steps to remove the intimidation from investing. I especially agreed with him on the concept of using mutual funds. I began with mutual funds, and it wasn't until I signed up with MF a couple years ago that I began investing in stocks.

    I agree with his final statement, Start Investing! It will be both a profitable and learning experience once you begin. But the key is to begin. It was for me.

  • Report this Comment On June 04, 2014, at 2:02 PM, HectorLemans wrote:

    Tips 0: Repeat after me: "I am not going to get rich quick. Everything I buy I am prepared to hold for at least a year."

  • Report this Comment On June 04, 2014, at 6:10 PM, foolishlymeek wrote:

    HectorLemans, I would actually recommend that investors be prepared to hold stocks forever. Remember, you are buying into a business, not just purchasing stock certificates. Many swings in stock prices are more emotional than based on financial information.

    In addition, my biggest mistake was buying small amounts of too many companies. Find 15-20 great companies and use dollar-cost averaging to level out the highs and lows!

  • Report this Comment On June 04, 2014, at 7:07 PM, lisalisarose wrote:

    I started virtually until I had some clue, lost money for a solid 5 months when I started with the real stuff, then suddenly caught on. This is my 3rd year since December. I agree with above. If you need it to live don't invest it, you can't be forced to sell at a loss and still make money. You need to hold and be goal directed.

  • Report this Comment On June 05, 2014, at 2:58 AM, AnsgarJohn wrote:

    Start with understanding the basics and choose a system that fits your personality. Does the Fool have a summary of different styles of value investing like the.Guru Investor / Validea? Read "Superinvestors " to get an introduction to the concept of "Margin of Safety "

  • Report this Comment On June 06, 2014, at 9:23 PM, ripsnort wrote:

    As a beginner, I started with Scottrade 4 years and 6 months ago (have accounts with two other brokerages now). I can remember how utterly easy it was to set up an account and start trading . I also remember how intimidated I was to make that first "trade"! Before that, I didn't even know what the difference was between going "short" and going "long" . I enjoy learning the trade and have NO regrets. I'm now trading options, have margin accounts, an IRA account, Individual accounts, trade ETF's, do technical analyses, fundamental analyses, commodities, Forex, etc., BUT still consider myself a newbie to the game. To be honest I'm about $600 down during this time and write it off as the cost of learning (started with $10,000). It's a miracle that I'm not a $ millionaire yet (yea right!). I think the trick IS, to have the courage to NOT sale every time your stocks start to drop a few pennies (in fact I know it is). Hold IS the name of the serious game, I think. It's great to have total control over your account and I recommend it to anyone who has an interest. Hardest step is the first one, I would have taken it decades ago if there where the platforms in place (back then) to have done it. If interest, just do it!

  • Report this Comment On June 29, 2014, at 2:30 AM, thenemo1 wrote:

    You can enjoy doing do diligence it is satisfying when you know you picked something well thought out and of value.

  • Report this Comment On September 24, 2014, at 10:09 AM, superwoman131774 wrote:

    Super helpful! I'm a super newbie and want to get into it but don't know where to start! I have a Scottrade account - so any other advice would be greatly appreciated! Thanks!

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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