10 Tips for Anyone New to Investing

Trying new things is hard. Whether it's a sport, musical instrument, or job, you often face a few small failures as you move from novice to expert. Investing is the same way, only there's the extra possibility of losing money, too.

Whether you've just landed your first job with a 401(k), or you're ready to try investing outside your 401(k), some simple strategies can protect you from discouraging or expensive mistakes. Here are 10 of them to adopt today.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

In the short term, the market rises and falls. If you're not prepared to stand your ground through some volatility, you'll have trouble generating the returns you want.

A look back at the history of the stock market tells the story. Over periods of 20 years or more, stock prices rise. Shorten the time frame to 10 years, and stock prices usually rise. Five-year time frames are slightly less reliable, and one-year spans are downright unpredictable. The takeaway? The longer you stay invested, the more reliable your results will be.

The great conflict for all investors is that short-term volatility can drive you out of the market too early. You see your portfolio balance drop, and you want to cut your losses. But if you do that, you lose access to the most reliable aspect of the stock market, which is long-term growth.

ALSO READ: New Investor? Here Are 3 Great Starter Stocks

Financial experts recommend not investing cash you'll need in the next five years. The idea is to avoid situations where you have to sell when your share prices are down. You don't want to invest your kid's college fund aggressively, for example, and then see those assets lose half their value just as your first tuition bill arrives.

You can modify the five-year rule to suit your needs. If you're extremely risk-averse, for example, give yourself a 10-year window. Instead of buying stocks, hold that money in cash or Treasury debt.

Maybe you want to retire a millionaire or fund a home down payment in 15 years. Whatever the goal is, write it down. That helps you remain focused on that goal and its timeline.

Focus is important in investing because it's easy to get distracted -- especially if you're reading the financial news. At any given time, analysts will be predicting something extreme about the market, the economy, a sector, or a specific company. If you lose focus, those high-drama headlines can encourage you to chase (or run from) short-term trends. That inevitably pulls you away from the goal you initially set out to achieve.

Asset allocation is the composition of your investments across different asset types, such as stocks, bonds, real estate, and cash. That composition heavily influences your risk and your investment performance. In some cases, your asset-allocation strategy could affect your performance more than the stocks you pick.

This makes sense when you look at how stocks and bonds behave. Stocks deliver growth, but with volatility. Bonds have stability, but with lower yields. When you combine stocks and bonds together, you get elements of growth and stability.

You can refine the growth and stability characteristics of a portfolio by adjusting your mix of stocks and bonds. For example, a 50-50 split between stocks and bonds should provide conservative growth, suitable for someone in or near retirement. An 85-15 ratio of stocks to bonds would be far more aggressive, ideal for a younger, risk-tolerant investor.

ALSO READ: 4 Mistakes New Investors Should Avoid at All Costs

401(k)s make it easy to save for retirement because the process is automated. Once you set things up, the plan pulls the contribution from your paycheck and invests it for you.

Replicating that process outside your 401(k) is a powerful way to build your wealth over time. It keeps you in the mindset that, rain or shine, you're still investing. Plus, automating your investing is an easy way to practice dollar-cost averaging or DCA.

DCA is a fancy name for investing set dollar amounts on a regular schedule, like $200 every month. When you do this, you end up buying more shares when the price is lower and fewer shares when the price is higher. That keeps your costs lower, which is the first half of the "buy low, sell high" formula for making money.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Passively managed index funds are a better starting point for new investors than individual stocks. A broad market index fund, like the Vanguard S&P 500 ETF, delivers a lot of diversification in a single share. That has less risk than a portfolio with only a handful of stocks.

You can also manage a portfolio of index funds effectively with minimal technical expertise. Learn about asset allocation and fund expense ratios, and you're ready to dive in. If you want to start picking stocks, you should know your way around financial statements and earnings reports. You can always develop those skills -- but until then, index funds are an accessible way to get your money working for you right away.

When you're new to investing, stay committed to a buy-and-hold strategy. This involves choosing high-quality stocks (or funds holding high-quality stocks) that you intend to keep for a long time. High-quality stocks are large, established companies that have shown resilience in previous recessions, bear markets, and various competitive climates.

Buy-and-hold investing is easier and lower risk than day trading, swing trading, and seasonal investing. With buy-and-hold, you make money by maximizing your time in the market and riding on the coattails of long-term growth trends.

You won't turn quick profits this way, but you're likely to turn slow profits, along with less risk and volatility along the way.

ALSO READ: 3 Stocks for New Investors

When you start picking individual stocks, give yourself some exposure to longtime dividend payers. Emotionally, a bear market is easier to stand when you have dividend payments rolling in. It'll be the one place your portfolio's producing for you. For the same reason, dividend stocks naturally encourage you to stay invested through down markets.

The emotional benefits of owning dividend stocks create financial advantages, too. Just as you'll think twice about selling your dividend stocks in a bear market, so will other investors. That contributes to the low share price volatility that's common to premium dividend payers.

If share prices give you sticker shock, opt for fractional investing over cheaper stocks. Fractional investing involves buying stock in small units -- fractions, to be exact. For example, say a single share of Apple at $125 is beyond your budget. You could instead invest in one-tenth of a share for $12.50. That's a better investment than 15 shares of an unknown penny stock.

Charles Schwab, Fidelity, and several investing apps support fractional investing. Find one that offers a good selection of investment options. Also, pay close attention to fees and the rules around selling your fractional shares.

Market downturns are inevitable. You will survive, but you'll come out better if you don't panic. And the best way to keep your head cool is to plan your crash strategy ahead of time.

Most investors have two decent options in turbulent markets: Do nothing or buy more. Here's why. First, if you're following the five-year rule, you can afford to ride out the cycle. Second, recovery gains can be as dramatic and unexpected as the losses that came before them. If you're still invested, you can reap the rewards. And padding your share count when prices are down increases your upside even more.

Think through your own crash plan. The decision between doing nothing and buying more usually comes down to your financial strength outside of your portfolio. This is because the timing of a recovery is uncertain. If your finances are shaky, you don't want to tie up funds you might need -- even if stocks do look like they're on sale.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Trying new things is hard, but also rewarding -- if you stick with it long enough to see success. With investing, a few simple strategies can minimize early mistakes and keep you in the game. Learn the basics of asset allocation first. Then, invest in quality stocks and funds that you can buy and hold. Set an investing budget with money you won't need for five years or more and automate your process so you stick to it.

The market will throw you some curveballs along the way. When that happens, your job is to stay invested and focused on your end goal. If you can do that, your success will materialize in time.

Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Catherine Brock owns shares of Vanguard S&P 500 ETF. The Motley Fool owns shares of and recommends Apple and Vanguard S&P 500 ETF. The Motley Fool recommends Charles Schwab and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.